<PAGE>
As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
MORE.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5912 94-3300529
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code No.) Identification No.)
</TABLE>
520 Third Street
Second Floor
San Francisco, California 94107
(415) 979-9597
(Address and telephone number of principal executive offices and principal
place of business)
--------------
Donald M. Kendall, Jr.
Chief Executive Officer
more.com, Inc.
520 Third Street
Second Floor
San Francisco, California 94107
(415) 979-9597
(Name, address, and telephone number of agent for service)
--------------
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Gavin B. Grover, Esq. Steven L. Berson, Esq.
Matthew Burns, Esq. Michael S. Russell, Esq.
Jaclyn Liu, Esq. Michael A. DeAngelis, Esq.
Donald C. Hunt, Esq. Wilson Sonsini Goodrich & Rosati
Morrison & Foerster LLP Professional Corporation
425 Market Street 650 Page Mill Road
San Francisco, California 94105 Palo Alto, CA 94304-1050
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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 Proposed Maximum Amount of
of Securities to be Registered Aggregate Offering Price (1)(2) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par
value per share........... $86,250,000 $22,770
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes the value of shares that the underwriters have the option to
purchase to cover over-allotments, if any.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated February 11, 2000
PROSPECTUS
Shares
more.com, Inc.
Common Stock
-----------
This is more.com, Inc.'s initial public offering. more.com is selling all
of the shares.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will trade on the Nasdaq National Market
under the symbol "MORE."
Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 5 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price................................. $ $
Underwriting discount................................. $ $
Proceeds, before expenses, to more.com, Inc........... $ $
</TABLE>
The underwriters may also purchase up to an additional shares at the
public offering price, less the underwriting discount, within 30 days from the
date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares will be ready for delivery on or about , 2000.
-----------
Merrill Lynch & Co.
Lehman Brothers
U.S. Bancorp Piper Jaffray
-----------
The date of this prospectus is , 2000.
<PAGE>
Inside Front Cover
------------------
[Art depicting more.com's virtual operating model]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Forward-Looking Statements............................................... 21
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 25
Selected Consolidated Financial Data..................................... 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 34
Management............................................................... 51
Related Party Transactions............................................... 62
Principal Stockholders................................................... 65
Description of Capital Stock............................................. 68
Shares Eligible for Future Sale.......................................... 72
Underwriting............................................................. 74
Legal Matters............................................................ 77
Experts.................................................................. 77
Change in Principal Accountants.......................................... 77
Where You Can Find More Information...................................... 77
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
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.
---------------
more.com(TM), Acumin(TM), Acumin Corporation Custom Formulated
Nutritional Supplements(TM), Acumin Custom Formula(TM), Acumin Personal
Nutrition Program(TM), Acumins(TM), QuickShop(TM) and SmartSelect(TM) are
trademarks of more.com. GreenTree SM, greentree.com SM and GreenTree
Nutrition SM are service marks of more.com. This prospectus also includes
trademarks and service marks of entities other than more.com.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our financial statements,
before making an investment decision.
more.com, Inc.
more.com is a leading online health superstore that currently offers its
customers more than 45,000 stock keeping units, or SKUs, in a variety of health
product categories at everyday low prices. Our online health superstore
contains over-the-counter medicine products, health and beauty aids, vision
care products, nutritional supplements, baby products, prescription medications
and other health products. Through our relationship with our third-party
distribution and fulfillment providers, we have the opportunity to access over
300,000 health product SKUs that we could make available to our customers. In
an effort to further enhance our customers' shopping experience, we have also
created five customized specialty stores that are built around specific product
categories and are closely integrated with our broader more.com superstore.
These specialty stores include Acumins for personalized vitamins, GreenTree for
natural health and beauty products, Clearly Contacts for vision products,
Comfort Living for baby, back and healthy home products and Pharmacy for
prescription drugs. In addition, we plan on increasing the number of specialty
stores on our Web site over the next few years.
To ensure that our customers can quickly find and purchase the health
products they need, we have designed our Web site, www.more.com, with
navigation tools that provide our customers with an intuitive, easy-to-use
shopping interface. For example, we have developed proprietary solutions, such
as our QuickShop(TM) technology, that dramatically reduce the amount of time
necessary for customers to find and purchase products in our online health
superstore.
We use a business model that involves outsourcing the majority of our
operating infrastructure including distribution and fulfillment, credit card
processing and the hosting of our system infrastructure and database servers.
We believe that these outsourcing arrangements provide us with a variety of
benefits, including capital and cost efficiencies, operating flexibility and
enhanced scalability. By taking advantage of these benefits, we believe we are
able to offer a broader selection of products at lower prices and operate with
significantly lower operating expenses than many of our competitors.
Additionally, this operating model allows us to easily add new product
categories and specialty stores, minimizes the cost of carrying inventory and
enables us to focus on maintaining a superior customer experience, which is
critical to building customer loyalty.
As of December 31, 1999, we have sold our products to more than 57,000
customers, of which more than 46,000 were added during the fourth quarter of
1999. During January 2000, approximately 45.8% of our total revenue came from
repeat customers. Media Metrix estimates that approximately 584,000 unique
visitors came to our site in December 1999, representing a 10.6% increase over
the estimated 528,000 unique visitors to our site in November 1999. "Unique
visitor" is an industry term used to describe an individual that has visited a
particular Internet site once or more during a specific period of time. We
believe that the increase in visitor traffic to our Web site and relatively
high levels of repeat purchases demonstrate our customers' growing satisfaction
with our shopping experience and value proposition.
Our objective is to become the world's leading online health superstore,
offering a broad selection of products and services at everyday low prices,
backed by superior customer service. We plan to expand our product offerings
and specialty stores through both internal growth and acquisitions.
Additionally, we intend to continue to work with our distribution and
fulfillment providers to obtain more timely and accurate product information,
shipping and fulfillment.
1
<PAGE>
Our business strategy focuses on offering our customers low prices, and
we intend to offer the lowest prices online for the most frequently purchased
health products. Initially, however, we offered a broad range of products at
very low prices and pursued aggressive marketing campaigns, such as free
shipping for life, $1.00-for-life and fixed prices-for-life product promotions
as part of our charter customer promotion, to drive traffic to our Web site. As
customer loyalty and recognition of our brand name have increased, we have
recently begun to modify our pricing and merchandising strategy to improve our
overall gross margins without experiencing a decline in the growth of overall
sales volumes or customer levels. Additionally, the creation of our specialty
stores on our Web site has promoted cross-selling opportunities that enable us
to migrate our customers to higher margin products. We intend to further refine
this pricing strategy over time.
In early February 2000, we acquired Comfort Living, Inc., an Internet
retailer specializing in personal care and comfort products, back care and pain
reduction products, baby care and maternity products and allergy control
products. Under the terms of the agreement, the stockholders of Comfort Living
received $2.5 million in cash and 1,500,000 shares of our common stock. Comfort
Living's net revenues were $4.6 million for the year ended December 31, 1999.
In early February 2000 we also completed the private placement of our Series E
convertible preferred stock to a group of investors led by Bain Capital and its
affiliates for $25.5 million.
more.com was formed as a California limited liability company in January
1998 under the name Nutrition Direct, LLC and was incorporated in Delaware as
GreenTree Nutrition, Inc. in May 1998. In July 1999, we changed our name to
more.com. Our executive offices are located at 520 Third Street, Suite 245, San
Francisco, California 94107, and our telephone number is (415) 979-9597. Our
primary Web site is located at www.more.com. Information on our Web site does
not constitute 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..................................... We estimate that our net
proceeds from this
offering without exercise
of the over-allotment
option will be
approximately $
million. We intend to use
the net proceeds to build
out our Web site and our
specialty stores within
our Web site, acquire and
develop complementary
businesses, technologies
and strategic
relationships and for
general corporate
purposes, including
working capital and
capital expenditures.
Pending these uses, the
net proceeds of this
offering will be invested
in short-term, investment
grade, interest-bearing
instruments.
Risk factors........................................ See "Risk Factors" and
other information
included in this
prospectus for a
discussion of factors you
should carefully consider
before deciding to invest
in shares of our common
stock.
Proposed Nasdaq National Market symbol.............. MORE
</TABLE>
---------------
Unless otherwise noted, all information in this prospectus assumes that:
. the underwriters will not exercise their option to purchase additional
shares of common stock to cover over-allotments, if any; and
. all outstanding shares of our preferred stock will convert into shares
of common stock upon the completion of this offering.
3
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Period from
January 9, 1998
(inception) to Year Ended
December 31, 1998 December 31, 1999
------------------ -------------------
(in thousands, except per share data)
<S> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues............ $ 99 $ 2,923
Gross profit (loss)..... (44) (830)
Operating loss.......... (5,236) (34,812)
Net loss................ (5,169) (34,685)
Accretion of discount on
mandatorily redeemable
convertible
preferred stock........ (101) (1,597)
Net loss available to
common stockholders.... (5,270) (36,282)
Basic and diluted net
loss per share......... $ (5.90) $ (15.74)
Shares used in computing
basic and diluted net
loss per share......... 893 2,305
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (2.68)
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)...... 13,556
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
--------------------------
Actual As Adjusted
------------- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........................ $ 24,655 $
Working capital.................................. 17,576
Total assets..................................... 40,161
Borrowings under lines of credit, less current
portion......................................... 1,376 1,376
Mandatorily redeemable convertible preferred
stock........................................... 58,064 --
Total stockholders' equity (deficit)............. (27,765)
<CAPTION>
Three Months Ended
-----------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C>
Quarterly Consolidated
Statement of Operations Data:
Net revenues.................. $ 162 $ 260 $ 666 $ 1,835
Gross profit (loss)........... (44) (63) (90) (633)
Operating loss................ (2,533) (4,285) (9,759) (18,235)
Net loss...................... (2,458) (4,240) (9,907) (18,080)
</TABLE>
4
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information in this
prospectus, including our consolidated financial statements and the related
notes, before you purchase any shares of our common stock. Additional risks and
uncertainties, including those generally affecting the market in which we
operate or that we currently deem immaterial, may also impair our business.
Risks Relating to more.com
We have a limited operating history upon which to evaluate our business
prospects and may face difficulties encountered by early stage companies.
From our inception in January 1998 through May 1998, we had no sales and
our operating activities related primarily to the planning and development of
our original Web site. Beginning in May 1998, we had some sales as GreenTree
Nutrition but the majority of our sales did not occur until the launch of the
more.com Web site in August 1999. Accordingly, we have a limited operating
history upon which to base an evaluation of our business and prospects. In
assessing our prospects, you should consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, particularly companies in the e-commerce market. These risks include
our ability to:
. establish and increase awareness of the more.com brand and strengthen
customer loyalty;
. attract and retain customers at a reasonable cost;
. process transactions quickly, accurately and securely;
. ensure the dependability of a limited number of inventory and order
processing suppliers;
. continue to offer products that appeal to our customers;
. manage rapidly changing and expanding operations;
. maintain our current, and develop new, strategic relationships;
. implement and successfully execute our business and marketing
strategy;
. provide superior customer service; and
. continue to develop and enhance our technology and systems.
Because of our limited operating history and the early stage of
development of our market, we have limited insight into trends that may emerge
and affect our business. We cannot assure you that our business strategy will
be successful or that we will successfully address the above challenges.
We have incurred substantial losses and expect to continue to incur losses for
the foreseeable future.
We have not achieved profitability and expect to continue to incur
operating losses for the foreseeable future. We incurred net losses of
approximately $5.2 million for the period from January 9, 1998 (our inception)
through December 31, 1998 and net losses of $34.7 million for the year ended
December 31, 1999. We expect the rate at which we incur these losses will
increase significantly from current levels. In the future, we will need to
generate significant revenues to achieve profitability.
Although our revenues have grown substantially in recent quarters, we
cannot assure you that we will achieve sufficient revenues for profitability.
To attract customers to our Web site, we sell a substantial portion of our
products at very competitive prices, resulting in low and sometimes negative
gross margins on our product sales. Our ability to become profitable depends
on, among other things:
. our ability to generate and sustain substantially higher net sales
with improved gross margins while maintaining reasonable operating
expense levels;
5
<PAGE>
. our ability to generate significant advertising revenue; and
. our ability to sell other higher margin products and services.
In addition, we will incur expenses related to product shipping that we
may decide not to fully pass on to customers. We expect that it will take
several years to build a critical mass of customers. We cannot assure you that
we will obtain enough customer traffic or a high enough volume of purchases to
achieve profitability. If revenues grow more slowly than we anticipate, or if
operating expenses exceed our expectations or cannot be adjusted accordingly,
our business will be materially and adversely affected.
We depend almost exclusively on Bergen Brunswig to supply and distribute our
health products, and its failure to adequately supply and distribute our health
products could reduce our revenues and harm our business.
We depend on Bergen Brunswig Drug Company to provide the majority of our
health products and to fulfill our customers' orders. Since August 1999, a
substantial majority of our product sales revenues were derived from products
supplied by Bergen Brunswig. We cannot guarantee that Bergen Brunswig will
continue to supply a sufficient quantity of inventory on a timely basis to
satisfy our customers' order requirements. If Bergen Brunswig were to terminate
or refuse to renew our distribution arrangement with them, we would have to
purchase our health products from other distributors. Bergen Brunswig's
termination or failure to renew our contract could cause significant delays in
our ability to fulfill our customers' orders, and we may not be able to locate
another distributor that can provide comparable fulfillment, processing and
shipping services in a timely manner or on acceptable commercial terms. Our
distribution agreement with Bergen Brunswig expires in July 2009. However,
either party may terminate the agreement after each year under specific
occurrences, including failure to perform material obligations under the
agreement, entering into a bankruptcy, receivership or similar proceedings and
adverse regulatory changes.
We are also subject to risks associated with Bergen Brunswig's ability to
replenish its inventory in a timely manner. Our contract with Bergen Brunswig
does not guarantee the availability of merchandise, establish guaranteed prices
or provide for the continuation of particular pricing practices. Although
alternative sources of supply for certain of the products we offer exist, we
have not established alternative sources for our products. Our contract with
Bergen Brunswig does not restrict it from selling products to other retailers,
including online drugstores, which could limit our ability to supply the
quantity of products requested by our customers. Our distribution agreement
with Bergen Brunswig does not require them to set aside any amount of inventory
to fulfill our orders or to give our orders priority over other resellers to
whom they sell. If we are unable to supply products to our customers due to
Bergen Brunswig's delay or inability to fulfill our orders, our business would
be substantially harmed.
Our future success also depends on our ability to provide timely and
accurate order fulfillment. We rely on Bergen Brunswig to fulfill our orders,
maintain and track inventory and provide us with financial data and related
fulfillment and distribution information. In addition, our order fulfillment
and distribution process requires us to cooperate extensively with Bergen
Brunswig with respect to the coordination of separate information technology
systems. However, we have limited control over their shipping and processing
procedures. If our customers become dissatisfied with Bergen Brunswig's
fulfillment practices, our reputation and the more.com brand could suffer.
We rely exclusively on Medi-Mail for the fulfillment of pharmaceutical products
that we sell, and our prescription drug business would be significantly
disrupted if this relationship is terminated.
We currently rely exclusively on Medi-Mail, a wholly owned subsidiary of
Bergen Brunswig, for fulfillment and delivery of pharmaceutical products for
our online pharmacy. If Medi-Mail were unable or unwilling for any reason to
provide these products, our ability to continue delivery of pharmaceutical
products would be negatively impacted. We cannot assure you that we will
succeed in finding additional providers of pharmaceutical products on
reasonable terms, if at all.
6
<PAGE>
We are dependent on several third-party providers to whom we outsource a
majority of our operating infrastructure. If these parties are unwilling or
unable to continue providing services, our business could be seriously harmed.
We outsource the majority of our operating infrastructure to third-party
providers. For example, we use Airborne Express, United Parcel Service and the
U.S. Post Office to deliver the majority of our customer orders. In addition,
we rely on Lens Express to fulfill our customers' orders for vision products.
We depend on CyberSource Corporation for most of our credit card processing.
Due to our dependence on these third parties, we are subject to various risks
associated with their operations, which are largely outside our control. If the
services of any of these third parties become unsatisfactory, our customers may
experience lengthy delays in receiving their orders. We may not be able to find
a suitable replacement on a timely basis or on commercially reasonable terms.
Failure to deliver products to our customers in a timely and accurate manner
would harm our reputation, the more.com brand and our business.
In addition, if we establish new relationships with third-party
providers, we cannot assure you that we will be able to integrate our
respective information systems on a timely basis. If our logistics providers'
systems fail or are unable to scale or adapt to our changing needs, we may not
have adequate, accurate or timely inventory or financial information. Our
failure to have adequate, accurate or timely inventory and financial
information would harm our ability to manage our business effectively.
Our ability to provide our customers with a broad and deep selection of
products depends in large part on the vendors who supply inventory to Bergen
Brunswig and our other fulfillment providers. These vendors may decide, for
reasons outside our control, not to allow their products to be offered for sale
on the Internet. These vendors may also cause our fulfillment providers not to
sell products to us. If our fulfillment providers are prevented from securing
sufficient inventory to meet the demands of our customers, our business would
be severely harmed.
We currently rely exclusively on Bergen Brunswig to provide promotional
advertisements on our Web site for all health products for which it acts as our
fulfillment provider, and our revenues and future profitability would be
negatively impacted by its failure to adequately perform these services.
We currently rely on Bergen Brunswig as our exclusive sales
representative for the marketing and sale of advertisements on our Web site for
all health products for which it acts as our fulfillment provider. Bergen
Brunswig may terminate this contractual relationship anytime prior to August 1,
2000, and we may terminate the exclusivity of our arrangement with Bergen
Brunswig after August 1, 2000 if it fails to generate a specified amount of
advertising revenue. Further, on February 1, 2001, our management and Bergen
Brunswig will evaluate the feasibility of an ongoing exclusive arrangement. If
Bergen Brunswig terminates its relationship with us earlier or if it is unable
or unwilling for any reason to provide its services for the duration of the
contractual term, our ability to generate advertising revenues would be
negatively impacted. We cannot assure you that we will succeed in internally
generating advertising revenue with similar returns or finding additional sales
representatives on favorable terms, if at all.
If there is not a widespread acceptance of purchasing health products online,
our revenue growth and future profitability will be negatively impacted.
If we do not attract and retain a high volume of customers to our online
health superstore at a reasonable cost, our business and operating results will
be negatively affected. We may not be able to convert a large number of
customers from traditional shopping methods to online shopping for health
products. Specific factors that could prevent widespread customer acceptance of
our online health superstore include:
. shipping charges, which do not apply when shopping at traditional
brick and mortar stores;
. delivery time associated with Internet orders, as compared to the
immediate receipt of products at traditional brick and mortar stores;
7
<PAGE>
. pricing that does not meet customer expectations;
. product damage from shipping or shipments of wrong or expired
products;
. customer concerns about the security of online transactions and the
privacy of their personal health information;
. delays in responses to customer inquiries; and
. difficulties experienced by our customers in returning or exchanging
orders.
If we fail to establish and strengthen the more.com brand, our revenue from
operations may not grow or may grow at a lower rate than expected.
We believe that achieving widespread acceptance of the more.com brand is
critical to our business, particularly because of the early stage and
competitive nature of the online market for health products. In particular, if
we do not establish the more.com brand quickly, we may lose the opportunity to
build a critical mass of customers. Moreover, if we are unsuccessful in our
branding efforts, advertisers may not view our Web site as an effective
marketing and sales channel for their merchandise, resulting in decreased
advertising revenues. Promoting and positioning the more.com brand will depend
largely on:
. the success of our and Bergen Brunswig's advertising and promotional
efforts;
. our ability to provide our customers with a broad selection of health
products at competitive prices; and
. attracting and training customer service personnel to provide our
customers with high-quality customer service.
We intend to pursue an aggressive promotional strategy to build the
more.com brand. These initiatives will involve significant expenditures. We
cannot assure you that these marketing and brand promotion activities will
yield increased revenues or that revenues will be sufficient to offset the
expenses incurred in building our brand.
We may not successfully expand the breadth and depth of our product offerings.
We intend to expand the breadth and depth of our product offerings by
selling a broader assortment of health products on our Web site. Expansion of
our offerings in this manner will require significant additional expenditures
and could strain our management, financial and operational resources. For
example, we may need to incur significant expenses, develop relationships with
new fulfillment providers or manufacturers, or comply with new regulations,
specifically those in the prescription drug and pharmaceutical areas. We cannot
assure you that we will be able to expand our product and service offerings in
a cost-effective or timely manner. Furthermore, any new product offerings or
sales formats that are not favorably received by consumers could damage our
reputation and the more.com brand. The lack of market acceptance of these
efforts or the inability to generate satisfactory revenues to offset the cost
of expanded product offerings could harm our business.
While our continued reliance on aggressive price-based promotions may prevent
us from achieving profitability, the elimination of these promotions may have a
negative impact on our product sales and customer base.
We established a charter customer promotion beginning with the launch of
the more.com Web site on August 17, 1999 that ran until January 26, 2000. The
purpose of the promotion was to attract and retain customers. At the end of the
promotion, approximately 85,000 customers were charter customers. The program
allowed charter customers to lock-in the prices for all product SKUs that they
purchased during the promotion period, for the life of the product SKU. The
program also allowed charter customers to receive free shipping with future
purchases, as long as the purchase includes at least one product SKU purchased
during the charter customer promotion period.
8
<PAGE>
We recorded a liability of $1.7 million for estimated future losses
attributable to the charter customer promotion through December 31, 1999. We
also deferred revenue of $120,000 in 1999, which represents the estimated value
of this promotion to charter customers. We will continue to assess our exposure
to loss for these products and adjust our reserves as necessary. A significant
change in actual consumer purchasing patterns, inflation or product life cycles
could have a material effect on the amount of the required reserve and our
results of operations.
On November 8, 1999, we also instituted a $1.00 days promotional campaign
in an effort to drive consumers to our online health superstore and build the
more.com brand. Currently, this $1.00 days promotion allows customers to
purchase various product SKUs for $1.00 on our Web site and receive free
shipping if the customer's total order exceeds $20.00. Our continued reliance
on these types of aggressive price-based promotional activities would make it
very difficult for us to ever achieve profitability. As a result, we have
recently terminated the charter customer program and intend to eventually end
our $1.00 days promotion. The elimination of these and similar promotions may
result in a decline in product revenues and a reduced customer base if current
or prospective purchasers shop elsewhere for lower-priced products.
Furthermore, we may be unable to attract new online customers, many of whom use
the Web to shop for bargains. The occurrence of any of these events would have
a negative impact on our financial condition.
Our quarterly revenues and operating results may fluctuate and therefore they
are not indicative of future performance.
Our revenues and operating results have varied in the past and will
continue to fluctuate significantly from quarter to quarter due to a number of
factors, many of which are outside of our control. Some important factors
affecting our revenues and operating results include:
. demand for our products;
. our ability to attract visitors to our Web site and convert those
visitors into customers;
. frequency of repeat purchases by customers;
. the announcement or introduction of new or enhanced sites, services
and products by us or our competitors;
. changes in the growth rate of Internet usage;
. average order size and the mix of products sold;
. our ability to scale technology and upgrade order processing
capabilities;
. the amount and timing of the incurrence of operating costs relating
to the expansion of our business, operations and infrastructure and
the integration costs of potential acquisitions;
. our ability and the ability of our fulfillment providers to ensure
sufficient product supply;
. changes in pricing policies by us or our competitors; and
. changes in government regulation.
We currently expect that substantially all of our revenues for the
foreseeable future will come from orders of health products on our Web site.
The volume and timing of these orders are difficult to predict because the
online market for health products is in its infancy. Our operating expenses are
largely based on anticipated revenue trends and a high percentage of our
expenses are fixed in the short term. As a result, a delay in generating or
recognizing revenue for any reason could cause significant variations in our
operating results from quarter to quarter and could result in substantial
additional operating losses.
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Historical trends and quarter-to-quarter comparisons of our operating
results are not good indicators of our future performance. In some future
quarter or quarters, our operating results may be below the expectations of
public market analysts or investors. In that event, the market price of our
common stock may decline significantly.
Because we depend on third parties to provide content, reliable software,
systems and related services, our business would be disrupted if any one of
them terminates its relationship with us.
We intend to continue to strategically license content for our Web site
from third parties, including content that is integrated with internally
developed content and used on our Web site to provide key services. These
third-party content licenses may not be available to us on commercially
reasonable terms in the future, and we may be unable to integrate third-party
content with our own content. The inability to obtain any third-party content
licenses could result in delays in site development or services until
equivalent content can be identified, licensed and integrated. Any delays in
site development or services could negatively impact our business and operating
results.
We currently license technologies and information incorporated into our
Web site from third parties. As we continue to introduce new services, we may
be required to license additional technology and information from others. We
cannot assure you that these third-party technology and information licenses
will continue to be available to us on commercially reasonable terms, if at
all. Any failure to obtain any of these technology and information licenses
could result in delays or reductions in the introduction of new features,
functions or services and could negatively affect the performance of our
existing services.
We have also contracted with Oracle Corporation to assist in the
integration and customization of our enterprise resource planning applications
and provide other consulting services and have contracted with Level 3
Communications to host our system hardware. The failure of these third parties
to provide these services could negatively affect the performance of our
existing services until another third party that can provide similar services
can be identified.
Several of the third parties upon whom we depend for software, systems
and related services have a limited operating history, have relatively immature
technology and are themselves dependent on reliable delivery of services from
others. As a result, our ability to deliver various services to our customers
may be adversely affected by the failure of these third parties to provide
reliable software, systems and related services to us.
We may not be able to compete successfully against current and future
competitors.
We compete in a market that is highly competitive and expect competition
to intensify in the future. We currently or potentially compete with a variety
of companies in several broad categories, including:
. chain drugstores such as CVS, Eckerd's, Rite Aid and Walgreen's;
. mass market retailers such as K Mart, Target and Wal-Mart;
. supermarkets such as Albertson's, Kroger, Safeway and Whole Foods
Market;
. warehouse clubs such as Costco Wholesale;
. online retailers of health products such as drugstore.com,
MotherNature.com and PlanetRX.com;
. mail-order pharmacies such as Rx America;
. prescription benefits managers such as Express Scripts and Merck;
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. Internet portals and online service providers that feature shopping
services such as America Online, Excite, Lycos and Yahoo!; and
. cosmetics departments at major department stores such as
Bloomingdale's, Macy's and Nordstrom.
Many of our competitors have existed for a longer period, have greater
financial and technical resources, have more established marketing
relationships with leading manufacturers and advertisers or have secured a
greater presence in distribution channels than we have. Some of these companies
may also commence or expand their presence on the Internet. If we fail to
attract and retain a large customer base and our competitors establish a more
prominent market position relative to ours, our ability to grow will be
inhibited. We also believe we may face a significant competitive challenge from
alliances formed among our competitors. Some of these companies already have
entered into strategic relationships with one another. The combined resources
of these partnerships could pose a significant competitive challenge to us.
We believe the principal factors that will draw customers to an online
store include brand availability, selection, personalized services,
confidentiality, convenience, price, accessibility, customer service, quality
of search tools, quality of content and reliability and speed of fulfillment
for products ordered. We will have no control over how successful our
competitors are in addressing these factors. In addition, our online
competitors can duplicate many of the products, services and content offered on
our Web site. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share.
Limited insurance reimbursement coverage may reduce our ability to sell
pharmacy products online, which would reduce our revenues.
To obtain reimbursement on behalf of our customers for the prescription
products that they purchased on our Web site, we need to enter into contracts
with numerous insurance companies and pharmacy benefit managers, or PBMs. We
currently only offer reimbursements through our alliance with PlusCare. Our
ability to enter into contracts with insurance companies and PBMs is uncertain.
Many of these companies are in the early stages of evaluating the impact
of the Internet and online pharmacies on their businesses. These companies may
delay their decisions to contract with online pharmacies or may decide to
develop their own Internet capabilities that may compete with us. Additionally,
many insurance companies have existing contracts with chain drugstores and PBMs
that have announced their intentions to establish online pharmacies. Some
insurance companies and PBMs will likely contract with only one or a limited
number of online pharmacies. If our online competitors obtain these contracts
and we do not, we would be at a competitive disadvantage.
In addition, we must process each insurance application individually,
which may raise the costs of processing prescription orders and delay our order
processing time. If customers do not accept our online insurance coverage
procedure, our business could be adversely affected.
Any errors in the filling or packaging of the prescription drugs we dispense
may expose us to liability and negative publicity.
Pharmacy errors relating to prescriptions, dosage and other aspects of
the medication dispensing process can produce liability for us that our
insurance may not cover. Because our prescription drug fulfillment provider,
Medi-Mail, distributes pharmaceutical products directly to the consumer, this
service is a very visible part of the medication distribution chain and may
create risks of liability claims for us.
Pharmacists are required by law to offer counseling, without additional
charge, to our customers about medication, dosage, delivery systems, common
side effects and other information deemed significant by the
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pharmacists. Medi-Mail's pharmacists have a duty to warn customers regarding
any potential adverse effects of a prescription drug if the warning could
reduce or negate these effects. This counseling is in part accomplished through
Medi-Mail's e-mail system and inserts that are included with the prescription,
which may increase the risk of miscommunication because the customer is not
personally present or may not have provided all relevant information. We also
post product information on our Web site. Providing information on
pharmaceutical and other products creates the potential for claims to be made
against us for negligence, personal injury, wrongful death, product liability,
malpractice, invasion of privacy or other legal theories based on our product
or service offerings. Our general liability insurance, which includes coverage
for product liability and professional liability, may not cover potential
claims of this type or may not be adequate to protect us from all liability
that may be imposed.
We may be unable to protect our Internet domain names, which are essential to
our business.
We currently hold the Internet domain name more.com, as well as various
other related names. If we are unable to protect these domain names, our
competitors could capitalize on our brand recognition. The acquisition and
maintenance of domain names generally are regulated by governmental agencies
and their designees. The regulation of domain names has changed and is subject
to further change in the near future. As a result, we may be unable to acquire
or maintain relevant domain names. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we could be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our trademarks and other proprietary rights. Also, third parties may
be able to prevent us from continuing to use one or more of our domain names.
If we do not protect our intellectual property rights, unauthorized use and
misappropriation of our technology could occur.
We rely or may in the future rely on a combination of patent, trademark,
trade secret and copyright law and contractual restrictions to protect the
proprietary aspects of our technology. The legal protections upon which we rely
afford only limited protection for our intellectual property and trade secrets.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our sales formats or obtain and use information that
we regard as proprietary. Moreover, our means of protecting our proprietary
rights may be inadequate, and our competitors could independently develop
similar technology.
We also cannot be certain that our technology does not or will not
infringe upon valid patents, copyrights or other intellectual property rights
held by third parties. We may be subject to legal proceedings and claims from
time to time relating to the intellectual property of others in the ordinary
course of our business. We may incur substantial expenses in defending against
these third-party infringement claims, regardless of their merit. Successful
infringement claims against us may result in substantial monetary liability or
may materially disrupt the conduct of our business.
In July 1999, we filed an application for a U.S. trademark registration
of more.com. We may be unable to secure this registration. It is also possible
that our competitors or others will adopt service names similar to ours,
thereby impeding our ability to build brand identity and possibly leading to
customer confusion. In addition, there could be potential trade name or
trademark infringement claims brought by owners of other registered trademarks
or trademarks that incorporate variations of the term more.com. Any claim or
customer confusion related to our trademark, or our failure to obtain trademark
registration, would negatively affect our business.
We are a defendant in a lawsuit commenced by More Online alleging, among
other things, that our name more.com is confusingly similar to More Online's
name. With this lawsuit, More Online is seeking to prevent us from using the
name more and the URL www.more.com. Although we are vigorously defending this
litigation, we cannot be certain that our defense will be successful. If we do
not prevail in this litigation, we could be prevented from using the more.com
name and be liable for monetary damages.
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Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and domain names and determine
the validity and scope of our and others' proprietary rights. If third parties
prepare and file applications in the United States that claim trademarks used
or registered by us, we may oppose those applications and be required to
participate in proceedings before the United States Patent and Trademark Office
to determine priority of rights to the trademark. Any litigation or adverse
priority proceeding could result in substantial costs and diversion of
resources and could seriously harm our business and operating results. Finally,
we may in the future sell our products internationally, and the laws of many
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. Many countries have a first-to-file trademark
registration system. As a result, we may be prevented from registering or using
our trademarks in some countries if third parties have previously filed
applications to register or have registered the same or similar trademarks.
We are exposed to risks associated with credit card fraud, which may reduce
collections and discourage online transactions.
Under current industry practices, we are liable for fraudulent credit
card transactions because we do not obtain a cardholder's signature. To date,
we have suffered minor losses as a result of orders placed with fraudulent
credit card data. As we expand our online store to introduce higher priced,
high margin products on our Web site, fraudulent credit card transactions
involving these products could have a greater impact on our financial results,
and we may incur more significant losses resulting from fraudulent activities.
We do not carry insurance against this risk. If we fail to adequately control
fraudulent credit card transactions, we may be subject to liability claims and
our revenues and results of operations would be harmed.
We may be held liable if third parties misappropriate our users' personal
information.
If third parties were able to penetrate our network security or otherwise
misappropriate our customers' personal information or credit card information,
we could be subject to liability for:
. unauthorized purchases with credit card information;
. impersonation or other similar fraud claims; and
. misuse of personal information such as for unauthorized marketing
purposes.
These types of claims could result in litigation. In addition, the
Federal Trade Commission and state agencies have been investigating various
Internet companies regarding their use of personal information. We could incur
additional expenses if new regulations regarding the use of personal
information are introduced or if our privacy practices are investigated.
Information and products displayed on, retrieved from or linked by our Web site
may subject us to potential liability.
Because we post product information and other content on our Web site, we
face potential liability for negligence, copyright, patent, trademark,
defamation, indecency and other claims based on the nature and content of the
materials that we post. Similar claims have been brought, sometimes
successfully, against Internet content distributors. In addition, we could be
exposed to liability with respect to the unauthorized duplication of content or
unauthorized use of other parties' proprietary technology. Also, we could face
potential liability for product liability claims for products sold through our
Web site. Although we maintain general liability insurance, our insurance may
not cover claims of this type or may be insufficient to indemnify us for all
liability that may be imposed. Any liability that is not covered by insurance
or is in excess of insurance coverage could harm our business. We could also be
subject to claims based upon the content accessible through links from our Web
site to other Web sites.
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We are exposed to potential liability associated with pricing errors of our
products.
We use a computerized process to determine the prices posted on our Web
site of our health products as well as to implement any pricing changes. This
computerized method may result in pricing errors that may subject us to
significant litigation and costs in the future. We cannot assure you that a
pricing error will not occur in the future. If a pricing error occurs in the
future or if we fail to fulfill any orders resulting from the pricing error, we
may be exposed to liability associated with the error. These types of claims
have been brought against Internet retailers in the past. Any imposition of
liability that is not covered by our insurance or is in excess of our insurance
coverage could negatively impact our results of operations during the period in
which the liability is incurred.
We are experiencing a period of significant growth, which places a substantial
strain on our resources.
We have experienced and may continue to experience rapid growth. From
inception through December 31, 1999, we grew from 2 to 122 full-time employees.
This growth has placed, and could continue to place, a significant strain on
our managerial, financial and operational resources. To manage this growth, we
will have to implement new operational and financial systems, procedures and
controls. We will also need to train new employees and maintain close
coordination among our product development, marketing and sales, and general
and administrative organizations. These processes are time consuming and
expensive, will increase management responsibility and will divert our
management's attention. If we are unable to manage our growth effectively, our
business could be adversely affected.
Our business operations could be disrupted if we are unable to hire, integrate
or retain qualified personnel.
We depend to a significant extent on the continued services of our senior
management and other key individuals, particularly Donald M. Kendall, Jr., our
Chief Executive Officer, Bradford S. Oberwager, our Chief Operating Officer,
Laureen De Buono, our Chief Financial Officer and Clarence A. Felong, our Vice
President of Technology. We have no employment or consulting agreements with
these individuals, nor do we maintain key person life insurance for these
individuals, other than with Mr. Oberwager. The loss of the services of any of
these individuals or other key employees would likely have a significant
detrimental effect on our business.
In addition, our business depends in part on our ability to maintain
superior customer service. If we are unable to attract and train adequate
numbers of customer service personnel, our efforts to establish our brand may
be harmed and our business results may be impaired. We will need to commit
significant additional financial resources to attract and train customer
service personnel in order to provide our customers with high quality customer
service.
Our future success depends on our continued ability to attract, retain
and motivate highly skilled employees. We have from time to time in the past
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications. In addition, there is significant competition for qualified
employees in the Internet industry. As a result, we expect to incur increased
salaries, benefits and recruiting expenses during 2000. If we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business will be adversely affected.
If we are unable to successfully integrate acquisitions, our revenue growth and
future profitability may be negatively impacted.
If appropriate opportunities present themselves, we may attempt to
acquire businesses, technologies, services or products that we believe are a
strategic fit with our business. For example, we recently acquired Comfort
Living, Inc. and are working to integrate its Web site, financial systems and
distribution network with ours. This process of integrating an acquired
business, technology, service or product may result in unforeseen
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operating difficulties and expenditures and may absorb significant management
attention that would otherwise be available for ongoing development of our
business. Moreover, we cannot assure you that the anticipated benefits of any
acquisition will be realized. Future acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt, contingent
liabilities or amortization expenses related to goodwill.
Our business may be harmed if we are unable to obtain additional funding to
expand our business.
Various elements of our business and growth strategies, including our
plans to broaden existing product lines, introduce new products and invest in
infrastructure, will require additional capital. Our future liquidity and
capital requirements will depend on numerous factors, including timing and
amount of funds required for, or generated by, operations and success and
duration of our expansion program.
We cannot assure you that funds will be available on terms satisfactory
to us when needed, if at all. If adequate funds are unavailable, we may be
unable to develop or enhance our business or respond to competitive pressures
or unanticipated events, any of which could have a material adverse effect on
our business.
Systems failure or delay may cause interruption and disruption of our services.
The performance of our server and networking hardware and software
infrastructure is critical to our business, reputation and ability to attract
users, advertisers and commerce providers to our Web site. Fire, floods,
earthquakes, power loss, telecommunications failures, break-ins and similar
events could damage these systems. Computer viruses, electronic break-ins and
attacks or other similar disruptive problems could also adversely affect our
Web site. Our business could be adversely affected if our systems were affected
by any of these occurrences. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures or
interruptions in our systems.
Our Web site and transaction processing systems must accommodate a high
volume of traffic and deliver frequently updated information. Our Web site has
in the past experienced slower response times, decreased traffic and service
interruptions. While these occurrences have not had a material impact on our
business, if system failures or slowdowns were sustained or repeated, our
revenues and our reputation could be impaired. In addition, because we depend
on Internet service providers and other online service providers to provide
consumers with access to our Web site, we are limited in our ability to prevent
system failures in the future. Many of these service providers have sustained
significant outages unrelated to our systems in the past and may experience
similar failures in the future, resulting in less traffic to our Web site,
which could in turn impair our revenues.
If we do not successfully introduce and achieve market acceptance of new
products and services, our revenue growth and future profitability would be
negatively impacted.
Our market is characterized by rapidly changing technologies, frequent
new product and service introductions and evolving industry standards. The
recent growth of the Internet and intense competition in our industry
exacerbate these market characteristics. To achieve our goals, we need to
effectively integrate software programs and tools required to enhance and
improve our product and service offerings and manage our business. Our future
success will depend on our ability to adapt to rapidly changing technologies by
continually improving the performance features and reliability of our services.
We may experience difficulties that could delay or prevent the successful
development, introduction or marketing of new products and services. In
addition, these new products and services must meet the requirements of our
current and prospective users and must achieve significant market acceptance.
We could also incur substantial costs if we need to modify our services or
infrastructures to adapt to these changes.
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Unanticipated year 2000 problems with our computer systems or the computer
systems of our third-party providers could adversely affect our business.
We have tested our current computer systems, and we believe, based on
those tests, that our systems are year 2000 compliant. Our significant third-
party providers have reported that their computer systems are also year 2000
compliant. However, we believe that it is not possible to determine with
complete certainty that all year 2000 problems affecting us or our third-party
providers have been identified or corrected. We cannot assure you that we or
our third-party providers will not experience latent problems relating to
computer systems processing dates after January 1, 2000. We have not developed
nor have we surveyed our third-party providers to assess whether they have
developed any specific contingency plan to deal with latent year 2000 problems
after January 1, 2000. We cannot assure you that we or our third-party
providers will be able to resolve any latent year 2000 problem before
significant losses are incurred.
Risks Relating to Our Industry
Governmental regulation of our business could require significant expenses, and
failure to comply with certain regulations could result in civil and criminal
penalties.
Our business is subject to extensive federal, state and local
regulations, many of which are specific to pharmacies and the sale of over-the-
counter drugs. Violations of these regulations could result in various civil
and criminal penalties, including suspension or revocation of our licenses or
registrations, seizure of our inventory or monetary fines, any of which could
adversely affect our operations.
Our prescription drug fulfillment provider, Medi-Mail, is responsible for
complying with federal and state laws relating to the licensing and regulation
of the sale of prescription drugs, including controlled substances. Although we
believe Medi-Mail has fulfilled those requirements for the jurisdictions in
which we do business, these laws are complex and at times ambiguous, and there
remains a risk that one or more jurisdictions could impose additional
requirements on our operations.
The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing. We believe that any regulations resulting from the investigations
will likely result in increased reporting and monitoring requirements, which
could increase our expenses. Other legislation and regulations currently being
considered at the federal and state level could affect our business, including
legislation or regulations relating to confidentiality of patient records,
electronic access and storage, as well as the inclusion of prescription drugs
as a Medicare benefit. Compliance with new laws or regulations could increase
our expenses.
The Health Insurance Portability and Accountability Act of 1996 mandated
the use of standard transactions, standard identifiers, security and other
provisions by the year 2000. Regulations have been proposed to implement these
requirements, and we are currently designing our applications to comply with
the proposed regulations. Until these regulations become final, however,
possible changes in these regulations could cause us to use additional
resources and lead to delays as we revise our Web site and operations.
The federal anti-kickback law prohibits the knowing and willful
solicitation, offer, payment or receipt of any remuneration in return for
referring an individual for healthcare services or supplies for which payment
may be made under any federally funded health care program. Similar rules exist
at the state level. The reach of these laws is very broad, and we could
inadvertently violate these statutes. To the extent we or Medi-Mail engage in
this type of activity, we or Medi-Mail may be subject to penalties for
violation of these laws.
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If a regulatory body alleges that we have engaged in the practice of medicine
or pharmacy, we may be subject to significant liabilities.
The practice of medicine requires licensing under applicable state law.
We do not intend to practice medicine, and we have attempted to structure our
Web site and our business to avoid violation of state medical licensing
requirements. However, a state regulatory authority could at some time allege
that some portion of our business violates these statutes. An allegation that
we practice medicine could result in significant liabilities. Further, any
liability based on a determination that we engaged in the unlawful practice of
medicine may be excluded from coverage under the terms of our general liability
insurance policy.
The practice of pharmacy also involves professional licensing and
compliance with related requirements. Our prescription drug fulfillment
provider, Medi-Mail, is licensed in the jurisdictions in which we do business,
and is responsible under our fulfillment agreement for conducting all pharmacy
services, including processing incoming prescriptions, providing patient
counseling and shipping prescription drug orders to our consumers.
Nevertheless, a regulatory authority could at some future time allege that some
portion of our activity violates licensing or other pharmacy requirements, and
a determination that we violated these requirements could result in substantial
liabilities or a need to restrict our pharmacy operations.
Government regulation and legal uncertainties could add costs to doing business
on the Internet.
Currently, few laws or regulations specifically regulate communications
or commerce on the Internet. However, laws and regulations may be adopted in
the future that address issues such as user privacy, product pricing and the
characteristics and quality of products and services. Any new laws or
regulations relating to the Internet could adversely affect our business. For
example, the Telecommunications Act sought to prohibit transmitting various
types of information and content over the Internet. Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on those companies.
This could increase the cost of transmitting data over the Internet. It may
take years to determine the extent to which existing laws relating to issues
such as property ownership, libel and personal privacy are applicable to the
Internet.
The Federal Trade Commission is considering the adoption of regulations
regarding the collection and use of personal identifying information obtained
from individuals, including children, when accessing Web sites. These
developments could have an adverse affect on our ability to target product
offerings and attract advertisers and would have a material adverse effect on
our business and results of operations. We may become subject to a Federal
Trade Commission investigation, and the Federal Trade Commission's regulatory
and enforcement efforts may adversely affect our ability to collect demographic
and personal information from users.
Our revenue from operations could suffer if we are required to collect
additional sales and other taxes in the future.
We do not currently collect sales or other similar taxes for shipments of
goods into states other than California and Pennsylvania. However, one or more
additional states into which our products are sold may seek to impose sales tax
collection obligations. In addition, any ongoing presence in states outside
California or Pennsylvania could subject shipments into these states to state
sales taxes under current or future laws. If one or more states successfully
assert that we should collect sales or other taxes on the sale of merchandise,
our business operating results could be negatively impacted.
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We are dependent on the continued growth in the use of the Internet as a medium
for commerce.
Our business would be adversely affected if Internet usage does not
continue to grow as a medium for commerce, particularly for purchases of health
products. A number of factors may inhibit the development of Internet and
commercial online services into a viable commercial marketplace, including:
. inadequate network infrastructure;
. security and privacy concerns;
. inconsistent quality of services and products;
. lack of availability of cost-effective, high-speed service;
. difficulties in delivery, exchange or return of products; and
. government regulation.
If Internet usage continues to grow, the existing Internet infrastructure
may not be able to support the demands placed on it by this growth, which may
result in declining performance and reliability. In addition, Web sites have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, Internet usage, as well as
the usage of our Web site, could grow more slowly or decline.
Increased e-commerce activities may be hindered by Internet security concerns,
which could inhibit the growth of our business.
The need to securely transmit confidential information over the Internet
has been a significant barrier to e-commerce and communications over the
Internet. Anyone who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our
operations. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by these breaches. To the
extent that our activities or the activities of third-party contractors involve
the storage and transmission of proprietary information, security breaches
could damage our reputation and expose us to a risk of loss or litigation and
possible liability. Our security measures may not prevent security breaches and
any failure to prevent security breaches may seriously harm our business and
results of operations. We rely on encryption and authentication technology to
provide the security and authentication necessary for secure transmission of
confidential information. 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 algorithms we use to protect customer transaction
data. Any compromise of our security could seriously harm our reputation, as
well as our business and results of operations.
Concerns over the security of the Internet and other online transactions
and the privacy of users may also inhibit the growth of the Internet and other
online services generally, and the Web in particular, especially as a means of
conducting commercial transactions. Any compromise of our security could deter
people from using the Internet or using it to conduct transactions that involve
transmitting confidential information.
Risks Relating to This Offering
An active trading market for our common stock may not develop and the trading
price of our common stock may decline below the initial offering price.
There is currently no public market for our common stock. The initial
public offering price of our stock will be determined through negotiations
between us and representatives of the underwriters, and may not reflect the
price that will prevail in the open market. We cannot assure you that an active
trading market for our common shares will develop or be sustained following the
completion of this offering. Further, you may not be able to resell your shares
at or above the initial public offering price.
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The price of our common stock may be volatile, which may lead to losses by
investors and subject us to securities litigation claims.
The market price for our common stock could be highly volatile and could
be subject to wide fluctuations in response to a number of factors, including:
. quarterly variations in operating results;
. investor perception about us and the e-commerce market in general;
. announcements of technological innovations;
. announcements of new products or services by us or our competitors;
. changes in financial estimates by securities analysts; and
. general economic and e-commerce market conditions.
The common stock of many e-commerce companies has experienced significant
fluctuations in trading price and volume. Often these fluctuations have been
unrelated to operating performance. In the past, following periods of market
volatility, security holders of these companies have instituted class action
litigation. Class action litigation by security holders could be costly and
divert management's attention, which could harm our business and results of
operations. Declines in the trading price of our common stock could also harm
employee morale and retention, our access to capital and other aspects of our
business.
We have broad discretion in how we use the proceeds of this offering, and we
may not use the proceeds effectively.
Our management has broad discretion over the use of proceeds of this
offering. In addition, our management has not designated a specific use for a
substantial portion of the proceeds of this offering. Accordingly, it is
possible that our management may allocate the proceeds differently than
investors in this offering would have preferred, or that we fail to maximize
our return on the proceeds.
The substantial number of shares that will be eligible for sale in the near
future may adversely affect the market price of our common stock, even if our
business is doing well.
Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. Our common stock sold in this offering will be eligible for
immediate resale in the public market without restrictions. Shares of our
common stock held by our existing stockholders may also be sold in the public
market in the future pursuant to, and subject to the restrictions contained in
Rule 144 under the Securities Act. After the offering, shares of our common
stock will become available for resale in the public market as shown on the
chart below.
<TABLE>
<CAPTION>
Approximate Number
Days after the Date of of Shares Eligible for
this Prospectus Future Sale Comment
---------------------- ---------------------- -------------------------------
<C> <C> <S>
Freely tradable shares sold in
Upon effectiveness.. this offering
Lock-up released; shares
saleable under Rule 144, 144(k)
180 days............ or 701
</TABLE>
19
<PAGE>
Provisions of our certificate of incorporation, bylaws and Delaware law could
deter potential acquisition bids that a stockholder may believe are desirable,
and the market price of our common stock may be lower as a result.
Provisions of our certificate of incorporation, bylaws and other existing
agreements may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include:
. authorizing our board of directors to issue additional preferred
stock;
. limiting the persons who can call special meetings of stockholders;
. prohibiting stockholder actions by written consent;
. prohibiting cumulative voting by stockholders;
. creating a classified board of directors pursuant to which our
directors areelected for staggered three-year terms;
. establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
on by stockholders at stockholder meetings; and
. limiting the ability of stockholders to remove directors without
cause.
Provisions of Delaware law may also discourage, delay or prevent someone
from acquiring or merging with us. Further, some of our existing contracts may
require a notice of assignment or give other parties the right to terminate the
contract or take other action that could harm our business as a result of a
change of ownership of our company.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to a
number of risks and uncertainties, many of which are beyond our control. These
forward-looking statements include statements about our:
. business strategy;
. expectations for future expansion of our Web site;
. anticipated growth in revenues from our various product offerings;
. uncertainty regarding our future operating results;
. anticipated sources of funds, including the proceeds from this
offering, to fund our operations for the 12 months following the date
of this prospectus; and
. plans, objectives, expectations and intentions contained in this
prospectus that are not historical facts.
All statements, other than statements of historical facts included in
this prospectus, regarding our strategy, future operations, financial position,
estimated revenues or losses, projected costs, prospects, plans and objectives
of management are forward-looking statements. When used in this prospectus, the
words "will," "believe," "anticipate," "intend," "estimate," "expect,"
"project" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. All forward-looking statements speak only as of the date of
this prospectus. You should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in or suggested by the forward-looking statements we make in this
prospectus are reasonable, we cannot assure you that these plans, intentions or
expectations will be achieved. We disclose important factors that could cause
our actual results to differ materially from our expectations under "Risk
Factors" and elsewhere in this prospectus. These cautionary statements qualify
all forward-looking statements attributable to us or persons acting on our
behalf. We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information or future events.
21
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $ from the sale of
the shares of common stock in this offering, assuming an initial public
offering price of $ per share and after deducting the underwriting discounts
and estimated offering expenses. If the underwriters' over-allotment option is
exercised in full, our net proceeds will be approximately $ .
At this time, the principal purposes of this offering are to obtain
additional capital and increase our financial flexibility. We presently intend
to use the net proceeds of this offering as follows:
. An estimated $35.0 million to $45.0 million may be used for marketing
and sales activities, particularly advertising campaigns and
promotions, to increase our brand recognition.
. The remainder of the net proceeds will be used to fund operating
losses, for additional working capital and for general corporate
purposes including the introduction of new product categories, the
expansion of existing product categories and the launch of new
specialty stores within the more.com superstore.
As of the date of this prospectus, we have not allocated any specific
amount of the proceeds for the purposes listed above. The amounts actually
expended for the purposes listed above will depend on a number of factors
including the growth of our sales and customer base, the type of efforts we
make to build our brand and competitive developments in e-commerce. As a
result, we cannot specify with certainty the amounts that may be allocated to
the particular uses of the net proceeds of this offering, and the amounts we
actually spend could be outside of the ranges set forth above. Our management
will have significant flexibility and discretion in applying the net proceeds
of this offering. Pending any use, the net proceeds of this offering will be
invested generally in short-term, investment grade, interest bearing
securities.
We may also use a portion of the net proceeds of this offering to invest
in or acquire complementary businesses, services or technologies, or to enter
into strategic marketing relationships with third parties. From time to time,
in the ordinary course of business, we expect to evaluate potential
acquisitions of these businesses, services or technologies and strategic
relationships. At this time, however, we do not have any present
understandings, commitments or agreements with respect to any material
acquisition.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common
stock. We currently intend to retain any future earnings for future growth and
do not anticipate paying any cash dividends in the foreseeable future.
22
<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 actual column reflects our capitalization as of December 31, 1999,
without any adjustment to reflect subsequent events or anticipated events.
The pro forma column gives effect to:
. the conversion of all outstanding shares of preferred stock as of
December 31, 1999 into 18,734,474 shares of common stock;
. the issuance in January 2000 of 1,037,345 shares of Series D
mandatorily redeemable convertible preferred stock for $5.0 million
to Phar-Mor.com, Inc. and the conversion of those shares into the
same number of shares of common stock;
. the issuance of 3,399,991 shares of Series E mandatorily redeemable
convertible preferred stock for $25.5 million issued in February 2000
and the conversion of those shares into the same number of shares of
common stock; and
. the issuance in February 2000 of 1,500,000 shares of common stock as
part of the consideration for the acquisition of Comfort Living.
The pro forma as adjusted column gives effect to the application of the
estimated net proceeds from the sale of shares of common stock in this
offering, after deducting the underwriting discount and estimated offering
expenses.
This table should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -----------
(unaudited) (unaudited)
(amounts in thousands,
except share and per share data)
<S> <C> <C> <C>
Long-term obligations, less current portion.. $ 1,376 $ 1,376 $ 1,376
-------- -------- -------
Mandatorily redeemable convertible preferred
stock, issuable in series, $0.001 par value;
19,287,638 shares authorized, 17,373,310
shares issued and outstanding, actual;
23,287,638 shares authorized, no shares
issued and outstanding, pro forma and pro
forma as adjusted........................... 58,064 -- --
-------- -------- -------
Stockholders' equity (deficit): Series A
convertible preferred stock: $0.001 par
value; 418,840 shares authorized, 398,109
shares issued and outstanding, actual; no
shares issued and outstanding, pro forma
and pro forma as adjusted ................ 10 -- --
Common stock: $0.001 par value; 30,000,000
shares authorized; 5,065,698 shares issued
and outstanding, actual; 42,000,000 shares
authorized; 29,737,508 shares issued and
outstanding, pro forma; 42,000,000 shares
authorized; shares issued and
outstanding, pro forma as adjusted (1).... 5 30
Additional paid-in capital................. 16,698 120,147
Deferred stock-based compensation.......... (4,624) (4,624) (4,624)
Accumulated deficit........................ (39,854) (39,854) (39,854)
-------- -------- -------
Total stockholders' equity (deficit)..... (27,765) 75,699
-------- -------- -------
Total capitalization................... $ 31,675 $ 77,075 $
======== ======== =======
</TABLE>
See next page for footnote.
23
<PAGE>
- --------
(1) Excludes:
. 3,261,345 shares issuable upon the exercise of options outstanding under
our amended and restated 1998 stock option plan as of December 31, 1999
at a weighted average exercise price of $1.40 per share;
. 4,000,000 shares of common stock reserved for issuance under our 2000
stock incentive plan and the 2000 non-employee director option program,
which will become effective upon the effectiveness of this offering;
. 2,000,000 shares of common stock available for issuance under our
employee stock purchase plan, which will become effective upon the
effectiveness of this offering;
. warrants to purchase 20,731 shares of Series A convertible preferred
stock at an exercise price of $1.64 per share. Adjusted for the 3-for-2
common stock split effected August 11, 1998, these warrants are
convertible into 31,097 shares of our common stock at an exercise price
of $1.09 per share; and
. warrants to purchase 48,192 shares of Series C mandatorily redeemable
convertible preferred stock at $1.66 per share that are convertible into
48,192 shares of our common stock.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $22.7 million, or approximately $0.96 per share of common stock.
Pro forma net tangible book value per share represents the amount of tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock into common stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock
in this offering and the pro forma net tangible book value per share of our
common stock immediately after the offering. After giving effect to our sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share and after deduction of the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of December 31, 1999 would have
been approximately $ million, or per share. This represents an
immediate increase in pro forma net tangible book value of per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of per share to purchasers of common stock in this offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share before offering...... $0.96
Increase per share attributable to new investors.................
-----
Pro forma net tangible book value per share after the offering.....
-----
Net tangible book value dilution per share to new investors........ $
=====
</TABLE>
The following table sets forth on a pro forma basis as of December 31,
1999 the total consideration paid and the average price per share paid by our
existing stockholders and by new investors, before deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us at an assumed initial public offering price of per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 23,800,172 % $65,390,683 % $2.75
Series D preferred
stockholders............ 1,037,345 5,000,000 4.82
Series E preferred
stockholders............ 3,399,991 25,499,933 7.50
Common stock issued in
acquisition............. 1,500,000 14,850,000 9.90
New investors............
---------- ----- ----------- ----- -----
Total.................. 100.0% $ 100.0%
========== ===== =========== ===== =====
</TABLE>
Simultaneous with the close of this offering, we will convert an
additional 1,037,345 shares of Series D preferred stock that were issued
subsequent to December 31, 1999. We will also convert 3,399,991 shares of
Series E preferred stock that were also issued subsequent to December 31, 1999.
These preferred shares will convert to common shares on a one for one basis.
The above table reflects the issuance in February 2000 of 1,500,000
shares of common stock as part of the consideration for the acquisition of
Comfort Living, Inc.
This table assumes that no options or warrants were exercised after
December 31, 1999. As of December 31, 1999, there were outstanding options to
purchase a total of 3,261,345 shares of common stock at a weighted average
exercise price of approximately $1.40 per share, 119,740 shares of common stock
reserved for issuance under our amended and restated 1998 stock option plan and
79,289 shares of common stock on an as converted basis issuable upon exercise
of outstanding warrants at a weighted average exercise price of $1.44 per
share.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to the
consolidated financial statements appearing elsewhere in this prospectus. The
balance sheet data as of December 31, 1998 and 1999 and the statements of
operations for the period from January 9, 1998 (inception) through December 31,
1998 and for the year ended December 31, 1999 are derived from our audited
consolidated financial statements included elsewhere in this prospectus.
Historical results are not necessarily indicative of the results to be expected
in the future.
<TABLE>
<CAPTION>
Period from
January 9, 1998
(inception) to Year ended
December 31, December 31,
1998 1999
--------------- --------------
(in thousands, except per
share data)
<S> <C> <C>
Net revenues.................................... $ 99 $ 2,923
Cost of net revenues(1)......................... 143 3,753
-------- --------
Gross profit (loss)........................... (44) (830)
-------- --------
Operating expenses:
Marketing and sales(2)........................ 2,613 20,480
Product development(3)........................ 1,387 3,254
General and administrative(4)................. 788 5,187
Amortization of deferred stock-based
compensation................................. 404 5,061
-------- --------
Total operating expenses........................ 5,192 33,982
-------- --------
Operating loss.................................. (5,236) (34,812)
Other income (expense):
Interest income............................... 107 482
Interest expense.............................. (40) (355)
-------- --------
Net loss........................................ $ (5,169) $(34,685)
======== ========
Accretion of discount on mandatorily redeemable
convertible preferred stock.................... (101) (1,597)
-------- --------
Net loss available to common stockholders....... $ (5,270) $(36,282)
======== ========
Basic and diluted net loss per share............ $ (5.90) $ (15.74)
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (2.68)
Weighted average shares outstanding used to
compute basic and diluted net loss per share... 893 2,305
Weighted average shares outstanding used to
compute pro forma basic and diluted net loss
per share (unaudited).......................... 13,556
<CAPTION>
December 31, 1999
------------------------------
Actual As Adjusted
--------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 24,655 $
Working capital................................. 17,576
Total assets.................................... 40,161
Borrowings under lines of credit, less current
portion........................................ 1,376 1,376
Mandatorily redeemable convertible preferred
stock.......................................... 58,064 --
Total stockholders' equity (deficit)............ (27,765)
</TABLE>
- --------
(1) Excludes stock-based compensation charges of $11 in 1998 and $31 in 1999.
(2) Excludes stock-based compensation charges of $93 in 1998 and $1,619 in
1999.
(3) Excludes stock-based compensation charges of $39 in 1998 and $1,986 in
1999.
(4) Excludes stock-based compensation charges of $261 in 1998 and $1,425 in
1999.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with our selected consolidated financial
data and the consolidated financial statements and related notes included
elsewhere in this prospectus.
Overview
more.com is a leading online health superstore that currently offers its
customers more than 45,000 SKUs in a variety of health product categories at
everyday low prices. Our online health superstore contains over-the-counter
medicine products, health and beauty aids, vision care products, nutritional
supplements, baby products, prescription medications and other health products.
We were formed as a California limited liability company in January 1998 under
the name Nutrition Direct, LLC. We changed our name to GreenTree Nutrition, LLC
in March 1998, and we incorporated in Delaware as GreenTree Nutrition, Inc. in
May 1998. In June 1999, we changed our name to more.com, Inc. From our
inception in January 1998 through May 1998, we had no sales and our operating
activities related primarily to the planning and development of our original
Web site, www.greentree.com, which offered vitamins and nutritional
supplements. Since the opening of our more.com store in August 1999, we have
expanded our infrastructure and focused on expanding distributor and vendor
relationships, attracting customers to our Web site, building our brand and
establishing customer service operations.
In November 1998, we acquired the assets of Acumin Corporation, a
manufacturer and online retailer of personalized vitamins. In addition, in
December 1999, we acquired Clearly Contacts Lenses, Inc., an online store
selling contact lenses. In February 2000, we acquired Comfort Living, Inc., an
online store specializing in products for personal care and comfort, back care
and pain reduction, baby care and maternity and allergy control.
We derive revenues principally from the sale of products and, to a lesser
extent, from paid advertisements on our Web site. We recognize product revenue
upon shipment of products. Product revenues are net of discounts, coupon
redemptions, estimated sales returns and bad debts. Shipping charges are
included in product revenues. We recognize revenue from advertising sales
ratably over the term of the advertising campaigns.
We have employed a business model that includes outsourcing the majority
of our infrastructure to third-party distribution and fulfillment providers.
Through this model, we capitalize on the cost efficiencies achieved by these
third-party providers and minimize our infrastructure and operating expenses,
enabling us to pass significant savings on to our customers. Additionally, by
aligning with third-party providers for distribution and fulfillment, we can
use their significant inventories and distribution capabilities to offer a
broader selection of products at lower costs than traditional brick and mortar
retailers. For all product sales transactions with our customers, we act as a
principal, take title to all products sold upon shipment, bear credit risk and
bear inventory risk of loss for returned products that are not eligible to be
returned to suppliers. These risks are mitigated somewhat through arrangements
with credit card processors and shippers.
For the year ended December 31, 1999, our product sales, including
shipping, accounted for 86.2% of our net revenues. The remainder of our net
revenues for the year ended December 31, 1999, were derived primarily from
advertising. For the period ended December 31, 1998, all of our net revenues
came from product sales.
From the launch of the more.com Web site on August 17, 1999 to January
26, 2000, we engaged in a charter customer promotion in which we offered seven
different product SKUs for $1.00 each along with guaranteed prices and free
shipping during future purchases. The promotion allows charter customers to
27
<PAGE>
purchase those product SKUs that they purchased during the promotion period
forever, at the prices that prevailed during the promotion period, as long as
they purchase each product SKU at least once per year and subject to various
other terms and conditions. The promotion also allows charter customers to
receive free shipping with future purchases, as long as each purchase includes
at least one product SKU that was purchased during the promotion period. The
purpose of the promotion was to drive traffic to our Web site, encourage
frequent repeat purchases and retain customers. As of December 31, 1999, there
were more than 57,000 charter customers as a result of this promotion. Net
revenues from the purchase of the $1.00 promotional items during the year ended
December 31, 1999 were $48,000, with an aggregate negative gross profit of
($226,000). The negative gross profit includes both the cost of goods sold as
well as the associated shipping costs.
Although we experienced increases in product revenues, total number of
orders and customer accounts as a result of the charter member promotion and
the $1.00 days promotion, our average order size, including $1.00 promotion
items, declined from $30.88 in October 1999 to $10.91 in December 1999, and the
average number of products purchased per order decreased from 6.0 to 3.9 during
the same period. However, excluding $1.00 promotion items, in December 1999 our
average order size was $31.42 and the average number of products purchased per
order increased to 6.8.
We have recorded a liability of $1.7 million for estimated future losses
attributable to the charter customer promotion through December 31, 1999. We
also deferred revenue of $120,000 during the year ended December 31, 1999,
which represents the estimated value of this promotion to charter customers.
The deferred revenue will be amortized into revenue over an estimated life of
the benefit to the customer of five years. These amounts were determined based
on our historical records of charter customer transactions, third party
industry data on comparable product life cycles, third party industry data on
consumer purchasing patterns for products sold by us, estimated inflation rates
and the terms and conditions of the charter customer promotion. We will
continue to assess our exposure to loss from this program and adjust our
reserves as necessary.
We have incurred significant losses since our inception and our cost of
sales and operating expenses have increased dramatically. This trend reflects
the costs associated with our formation as a company, as well as our increased
efforts to promote the more.com brand, build market awareness, attract new
customers, recruit personnel, build operating infrastructure and develop and
expand our Web site and related transaction-processing systems. We intend to
continue to invest heavily in building out our Web site and our specialty
stores within our Web site and acquiring and developing complementary
businesses, technologies and strategic alliances. We believe that we will
continue to incur substantial operating losses for the foreseeable future.
Although we have experienced significant revenue growth in recent periods, this
growth may not be sustainable, and we may never achieve profitability.
Results of Operations
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our
operating results, including our negative gross margin and operating expenses
as a percentage of our net revenues, should not be relied upon as an indication
of our future performance.
Period from January 9, 1998 (inception) through December 31, 1998 and the Year
Ended December 31, 1999
Net Revenues
Net revenues consist of product sales, which are net of discounts, coupon
redemptions, estimated sales returns and bad debts, advertising revenue and
customer shipping charges. During 1999, the majority of our net revenues were
derived from product sales. Net revenues increased from $99,000 for the period
ended December 31, 1998 to $2.9 million for the year ended December 31, 1999.
This increase was predominantly
28
<PAGE>
driven by increased product sales that resulted from a broader product
selection, significant growth in our customer base, repeat purchases from our
existing customers and $400,000 in advertising revenue. This increase in
product sales also resulted from the expansion of our Web site and the addition
of our Acumins specialty store in November 1998. The acquisition of our Clearly
Contacts specialty store in December 1999 did not have a significant impact on
1999 results. Sales returns and bad debts for the period ended December 31,
1998 and the year ended December 31, 1999 were insignificant.
Cost of Net Revenues
Cost of net revenues consists primarily of the cost of products sold and
related shipping cost. Cost of net revenues increased from $143,000 for the
period ended December 31, 1998 to $3.8 million for the year ended December 31,
1999 as a result of the significant increase in our net revenues. Gross profit
margin improved from (44.4)% for the period ended December 31, 1998 to (28.4)%
for the year ended December 31, 1999. The improvement in gross profit margin
resulted from changes in our cost structure for shipping functions and
increased sales volume. This improvement was also the result of gross profit
derived from higher margin advertising revenue. While we plan to increase gross
margin in the future by employing more selective pricing and merchandising
strategies, increasing advertising revenues and emphasizing the sale of higher
margin products, we may not be able to improve our profit margins.
Marketing and Sales Expenses
Marketing and sales expenses consist primarily of advertising and
promotional expenses, as well as fulfillment fees, credit card processing fees,
outsourced customer service fees, affiliate commissions and payroll associated
with our advertising, marketing and customer service personnel. Marketing and
sales expenses increased from $2.6 million for the period ended December 31,
1998 to $20.5 million for the year ended December 31, 1999. This increase was
primarily attributable to increased fulfillment expenses due to increased sales
volume, credit card processing fees associated with increased product sales,
the provision for estimated losses associated with the charter customer
promotion and the expansion of our online and offline advertising campaigns. In
addition, beginning with the launch of our Web site in August 1999, we
experienced higher customer service costs as a result of an increase in the
overall number of customers. The increase in our marketing and sales expense
was also due, to a lesser extent, to increased personnel and related expenses
required to implement our marketing strategy as well as the amortization of
deferred fulfillment costs associated with the issuance of common stock to
Bergen Brunswig Drug Company, one of our fulfillment providers. We intend to
continue to pursue an aggressive branding and marketing campaign and,
therefore, expect marketing and sales expenses to continue to increase
significantly in future periods.
Product Development Expenses
Product development expenses consist primarily of personnel and other
expenses associated with maintaining our Web site. They also consist of related
facilities costs and depreciation and amortization of capitalized Web site
development and enhancement costs, purchased software and computer equipment.
Product development expenses increased from $1.4 million for the period ended
December 31, 1998 to $3.3 million for the year ended December 31, 1999. This
increase was primarily attributable to increased staffing in our information
systems, product management, Web site maintenance and content groups. The
increase was also attributable to the increased depreciation of capitalized
costs related to developing and enhancing the features and functionality of our
online health superstore and transaction-processing systems and
telecommunications infrastructure. Maintenance of information technology and
telecommunications infrastructure is expensed as incurred.
29
<PAGE>
General and Administrative Expenses
General and administrative expenses consist primarily of payroll and
related expenses for executive and administrative personnel, facilities
expenses, professional fees, amortization of intangible assets and other
general corporate expenses. General and administrative expenses increased from
$788,000 for the period ended December 31, 1998 to $5.2 million for the year
ended December 31, 1999. This increase was primarily attributable to additional
administrative personnel, increased professional fees, increased amortization
of intangible assets associated with the acquisitions of Acumin Corporation and
Clearly Contacts, expanded facilities and increased general corporate expenses
attributable to the growth in our business. We expect general and
administrative expenses to continue to increase as we expand our sales,
increase our staff and incur additional costs related to the growth of our
business and our operations as a public company.
Amortization of Deferred Stock-Based Compensation
Deferred stock-based compensation represents the difference between the
exercise price of stock option grants and the deemed fair value of our stock at
the time of the grants. These amounts are amortized over the vesting period for
the grants, which is typically four years. Amortization of deferred stock-based
compensation increased from $404,000 for the period ended December 31, 1998 to
$5.1 million for the year ended December 31, 1999. This increase was
attributable to the grant of stock options to new employees as well as the
increase in the difference between the grant price and the deemed fair market
value of our common stock. At December 31, 1999, we had approximately $4.6
million in deferred stock-based compensation that will be amortized through
December 2003.
We expect to record additional deferred stock-based compensation for the
first quarter ended March 31, 2000 and future quarters related to stock grants,
the actual amount of which will depend on the number of options granted during
such quarter and their exercise prices.
From the period from January 9, 1998 (inception) to December 31, 1998,
approximately $11,000 of stock-based compensation charges are excluded from the
cost of net revenues, approximately $93,000 of stock-based compensation charges
are excluded from marketing and sales expenses, approximately $39,000 of stock-
based compensation charges are excluded from product development expenses and
approximately $261,000 of stock-based compensation charges are excluded from
general and administrative expenses.
For the year ended December 31, 1999, approximately $31,000 of stock-
based compensation charges are excluded from the cost of net revenues,
approximately $1.6 million of stock-based compensation charges are excluded
from marketing and sales expenses, approximately $2.0 million of stock-based
compensation charges are excluded form product development expenses and
approximately $1.4 million of stock-based compensation charges are excluded
from general and administrative expenses.
Interest Income (Expense)
Net interest income (expense) increased from $67,000 for the period ended
December 31, 1998 to $127,000 for the year ended December 31, 1999. This
increase was largely due to a higher average investment balance due to
issuances of preferred stock in October 1998 and October 1999.
Net Loss
Our net loss increased from $5.2 million for the period ended December
31, 1998 to $34.7 million for the year ended December 31, 1999. This increase
in net loss was due to increased losses on product sales, increased operating
expenses, including an increase in amortization of goodwill, and deferred
stock-based compensation.
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Quarterly Results of Operations
The following table presents unaudited quarterly results of operations in
dollars, for the year ended December 31, 1999. This information has been
derived from and prepared by us on a basis consistent with our audited
consolidated financial statements and includes all adjustments, consisting only
of normal recurring adjustments, which management considers necessary for a
fair presentation of the information for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
1999 1999 1999 1999
-------- -------- -------- --------
(unaudited)
(amounts in thousands)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues............................ $ 162 $ 260 $ 666 $ 1,835
Cost of net revenues.................... 206 323 756 2,468
-------- -------- ------- --------
Gross profit (loss)................... (44) (63) (90) (633)
-------- -------- ------- --------
Operating expenses:
Marketing and sales................... 1,030 1,888 7,724 9,838
Product development................... 620 1,010 101 1,523
General and administrative............ 752 866 1,284 2,285
Amortization of deferred stock-based
compensation......................... 87 458 560 3,956
-------- -------- ------- --------
Total operating expenses............ 2,489 4,222 9,669 17,602
-------- -------- ------- --------
Operating loss.......................... (2,533) (4,285) (9,759) (18,235)
Interest income....................... 89 57 34 302
Interest expense...................... (14) (12) (182) (147)
-------- -------- ------- --------
Net loss................................ $ (2,458) $ (4,240) $(9,907) $(18,080)
======== ======== ======= ========
</TABLE>
Our quarterly operating results have fluctuated in the past and may
continue to fluctuate in the future based on a number of factors, not all of
which are in our control.
Liquidity and Capital Resources
Due to our business model, we have generally operated with limited
working capital. Most of our customers pay for their purchases by credit cards
over the Internet, and as a result, we typically receive payment for shipments
within one to four business days of product shipment. Additionally, we rely on
our distribution and fulfillment providers to manage inventory. We typically
pay our distributors within seven days after the products have been shipped. As
a result of these factors, our business does not experience the level of
capital requirements faced by traditional brick and mortar retailers who must
maintain large inventories.
Since our inception, we have financed our operations primarily through
private sales of our equity securities, and to a lesser extent, debt from
financial institutions and vendors. Cash used in operating activities was $4.0
million for the period ended December 31, 1998 and $22.0 million for the year
ended December 31, 1999. Cash used in operating activities in 1998 and 1999 was
primarily attributable to the development and launch of our Web site, the
expansion of our infrastructure, our marketing campaigns and operations. Cash
used in investing activities was $2.1 million for the period ended December 31,
1998 and $5.5 million for the year ended December 31, 1999. Cash used in
investing activities was primarily attributable to purchases of fixed assets
and to a lesser extent, the acquisition of Clearly Contacts, the purchase of
customer lists from VitaSave and the purchase of the more.com domain name. Cash
provided by financing activities was $14.6 million for the period ended
December 31, 1998 and $43.6 million for the year ended December 31, 1999. We
anticipate that we will have negative cash flows for the foreseeable future. We
also currently anticipate that we will invest
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approximately $6.0 to $8.0 million in capital expenditures over the next 12
months to expand our infrastructure. These expenditures will include computer
hardware and enhancements to our Web site to improve functionality and
navigation, incorporating features that are intended to improve the customer
shopping experience and the scalability and performance of our Web site. We
expect to fund most of these expenditures with debt financing. Currently, we
are negotiating with a financial institution for a $6.0 million term loan to be
collateralized by future equipment purchases.
In January 2000, we entered into a strategic marketing arrangement and
issued 1,037,345 shares of Series D mandatorily redeemable convertible
preferred stock at $4.82 per share resulting in net cash proceeds of $5.0
million. Given the timing between this issuance and our public offering, the
difference between the value of our common stock and the issuance price of
$4.82 per share represents a deemed discount on the mandatorily redeemable
convertible preferred stock that will be accounted for as deferred marketing
costs and amortized to marketing and sales over the five year term of the
arrangement.
Upon the closing of this offering, all outstanding shares of Series E
mandatorily redeemable convertible preferred stock will be converted on a one-
for-one basis into shares of our common stock. For the quarter ending March 31,
2000, we will record a non-cash preferred stock dividend to reflect the
beneficial conversion feature as a result of the difference between the
issuance price of the Series E mandatorily redeemable convertible preferred
stock and the midpoint of the assumed initial price range of the common stock
in this offering.
In February 2000 we acquired Comfort Living, Inc. for $2.5 million cash
and 1,500,000 shares of our common stock.
We believe that the net proceeds from this offering, along with the
proceeds of our Series D and Series E convertible preferred stock financings,
will be sufficient to satisfy our working capital requirements through the next
12 months. Even if additional funds are not required, we may seek additional
equity or debt financing. We may not be able to obtain additional funds on
acceptable terms, if at all.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position 98-1, or SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires all costs related to the development of internal use software other
than those incurred during the application development stage to be expensed as
incurred. Costs incurred during the application development stage are required
to be capitalized and amortized over the estimated useful life of the software.
We adopted SOP 98-1 on January 1, 1999. Adoption did not have a material effect
on our consolidated financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. We adopted SOP 98-5 on January
1, 1999. Adoption did not have a material effect on our consolidated financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, or FAS 133, "Accounting for
Derivative Instruments and Hedging Activities." FAS 133, as amended by FAS 137,
is effective for fiscal years beginning after June 15, 2000. FAS 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income (loss) depending on whether a
derivative is designed as part of a hedge transaction and, if so, the type of
hedge transaction involved. We do not expect that adoption of FAS 133 will have
a material impact on our consolidated financial position or results of
operations as we do not currently hold any derivative financial instruments.
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Year 2000 Compliance
We are aware of year 2000 compliance issues and problems relating to
hardware and software systems incorrectly distinguishing 21st century dates
from 20th century dates. Year 2000 issues could affect both our products and
services as well as the hardware and software systems used, operated or
maintained by us. To date, we have not experienced any year 2000 problems
relating to our hardware or software systems or operations.
We have completed our year 2000 compliance review. We conducted a full
review of our systems and infrastructure and believe that our internal
infrastructure, including our non-information technology systems, is year 2000
compliant. We obtained assurances from our primary vendors from whom we
purchase hardware and software products, as well as from our distributors and
fulfillment providers who provide and distribute the health products we sell on
our Web site, that they are year 2000 compliant. Based on our internal tests
and the representations of our primary vendors, distributors and fulfillment
providers, we do not believe we will incur material losses relating to the
upgrade or replacement of our or their systems and infrastructure.
To date, our expenses in connection with identifying and addressing year
2000 compliance issues have been approximately $17,000. These expenses were
generally related to the operation costs associated with time spent by our
employees in the evaluation process and year 2000 compliance in general. We
cannot assure you that our total costs will be limited to these amounts. We
could incur additional costs in addressing any latent year 2000 issues, which
could have a material adverse affect on our business.
We believe we have identified and resolved all year 2000 problems that
could materially adversely affect our business. We do not anticipate material
year 2000 compliance costs in the future. However, we believe that it is not
possible to determine with complete certainty that all year 2000 problems
affecting us have been identified or corrected, and we cannot accurately
predict the extent to which latent year 2000 problem-related failures may
affect us. In the event we discover latent year 2000 problems in our hardware
and software systems or those of our primary vendors, distributors and
fulfillment providers, we will attempt to resolve these problems by making
appropriate modifications on a timely basis. However, we have no other
contingency plan nor have we surveyed our primary vendors, distributors and
fulfillment providers to assess whether they have developed any specific
contingency plan to address the effect of any latent year 2000 problems. We
cannot assure you that we or our primary vendors, distributors and fulfillment
providers will be able to resolve any latent year 2000 problem before
significant losses are incurred.
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BUSINESS
Overview
more.com is a leading online health superstore that currently offers its
customers more than 45,000 SKUs in a variety of health product categories at
everyday low prices. In addition to a large selection of the most popular
health products, we also offer additional products through our specialty
stores, or stores within the more.com superstore, including Acumins for
nutritional supplements, GreenTree for natural products, Clearly Contacts for
vision products, Comfort Living for baby, back and healthy home products and
Pharmacy for prescription drugs. We designed our Web site with an intuitive,
easy-to-use shopping interface that enables our customers to quickly find and
purchase the products they need in our online health superstore. To offer this
wide selection of products at everyday low prices while minimizing our
operating costs, we have adopted a business model in which we outsource the
majority of our operating infrastructure so that we can focus on our customers'
shopping experience and easily add new products and specialty stores. Through
our distribution and fulfillment providers, we will have the opportunity to
offer more than 300,000 SKUs. As of December 31, 1999, we have sold our health
products to more than 57,000 customers.
Industry Background
The Growth of the Internet and E-Commerce
The Internet has emerged as a significant interactive medium for
worldwide communication, instant access to information and e-commerce.
International Data Corporation estimates that the number of Internet users
worldwide will increase from more than 212 million at the end of 1999 to more
than 510 million by the end of 2003. The unique characteristics of the Internet
have created a number of advantages for online retailers and have dramatically
affected the manner in which companies market and sell goods and services. In
contrast to traditional brick and mortar retailers, the Internet allows online
retailers to offer a broad and evolving selection of merchandise to consumers
worldwide, while enabling consumers to shop at their convenience without
leaving their homes or offices.
Increasing numbers of consumers are engaging in e-commerce as online
retailers take advantage of technological improvements associated with the
Internet that allow the integration of product information, intelligent product
recommendations and near real-time customer service. This integration enables
online consumers to easily search for product information and make informed
purchase decisions. International Data Corporation estimates that the number of
customers making purchases on the Internet will grow from 48 million in 1999 to
183 million in 2003. As a result, International Data Corporation predicts the
total value of goods and services purchased annually by consumers from
businesses over the Internet will increase from approximately $31.0 billion in
1999 to approximately $177.7 billion in 2003.
The Internet has also become a compelling medium for advertisers. Online
retailers can obtain demographic and behavioral data about customers in real
time, increasing opportunities for targeted marketing and personalized services
that improve the conversion of shoppers to buyers at the point of sale. The
Internet allows advertisers to cost effectively interact with specific customer
groups to determine the effectiveness of targeted advertising campaigns. These
methods generally are not economically viable using traditional media.
Forrester Research estimates that the amount of Internet advertising worldwide
will grow from approximately $3.3 billion in 1999 to approximately $33.1
billion by 2004.
The Health Product Market
Healthcare is one of the largest sectors of the U.S. economy,
representing approximately 14% of the gross domestic product or over $1.0
trillion in annual spending. Furthermore, the purchase of health products is
typically less sensitive to fluctuations in the economy because people place a
high priority on their health and well being. This sector is expected to become
even more important to the U.S. economy as people live longer
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and healthier lives. The U.S. Bureau of Census expects the population over the
age of 45 to increase from 94 million in 1999 to 118 million by 2010. As a
result, the market for health products is expected to grow dramatically.
Forrester estimates that e-commerce transactions over the Internet for health
products will grow from $440 million in 1999 to $11.0 billion in 2003. Health
product categories in the consumer health product market include the following:
. Medicine chest--over-the-counter medicine products such as allergy
and sinus products, cough and cold remedies, digestive aids, pain and
fever relief products, sleep aids and stimulants and smoking
cessation products;
. Face and body care--health and beauty aids such as bath and skin care
products, eye and ear care, feminine hygiene, foot care, hair care,
oral care, sex and contraception products, shaving products and
deodorants;
. Vision care--contact lenses, contact lens products and prescription
and non-prescription eyewear;
. Nutrition and wellness--supplements used to promote health and well
being such as vitamins, minerals, herbs, homeopathic remedies and
wellness teas;
. Baby--consumable and durable baby products such as diapers, wipes,
infant formulas, strollers, car seats and nursing supplies;
. Healthy environment--products used primarily in the home to improve
air quality, comfort or the overall environment such as products for
allergy sufferers, air purifiers and humidifiers, water filters and
ergonomic supplies and furniture;
. Home healthcare--typically special-use or hard-to-find products
designed for use in the home by people with particular assisted
living and healthcare needs such as crutches, wheelchairs, shower
rails, convalescent bathroom aids, walkers, canes, electric scooters
and ergonomic supports;
. Cosmetics--products that promote personal beauty such as makeup,
fragrances and other high-end beauty products;
. Diet and fitness--weight loss and weight management products, sports
nutrition products, personal fitness equipment and accessories of all
kinds, as well as products people consume to promote their overall
health;
. Medical supplies--medical diagnostic kits such as home pregnancy
tests and HIV tests, and medical supplies such as glucose strips for
diabetics; and
. Pharmacy--prescription medications for both chronic and acute
conditions.
The Online Health Superstore Market Opportunity
Health products are ideally suited for e-commerce, and consumers can
enjoy numerous benefits by purchasing these products over the Internet. Those
particular attributes of health products and the health product market that
make the Internet an ideal mechanism for their purchase include:
Wide Variety of Products for a Wide Variety of Health Needs. Due to shelf
space limitations, traditional health product retailers typically carry only a
small fraction of these products. In contrast, online retailers do not face
these same space limitations. The addition of new products to an online store
and to the online retailer's distribution network is much less costly than it
is for traditional brick and mortar retailers. As a result, consumers are more
likely to find the products they need in stock at an online store.
Recurring Product Purchases. Many health products are consumable
necessities that require frequent repurchase by customers. Online health
product retailers can use technology to track a customer's frequent and
recurring purchases of consumable items and can customize product offerings to
support the repeat purchasing habits of customers.
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Rapidly Changing Product Requirements. Health product needs of consumers
may vary for many reasons and can fluctuate by season or geography. Health
product manufacturers continuously seek new ways to gain an advantage over
their competitors to meet these needs. Traditional brick and mortar health
product retailers are typically less able to change the format of their stores
to meet changes in supply and demand, and due to geographic limitations they
cannot easily span large geographic areas. The limited space available in a
traditional brick and mortar retail store constrains merchandising flexibility.
In addition, traditional brick and mortar retailers must make significant
investments in inventory that may become outdated. Online health product
retailers can easily overcome these limitations by providing a single location
where customers can purchase all their health products and changing their Web
sites to meet the evolving demands of customers and manufacturers.
Information Intensive Nature of Health Products. Health products
generally are information intensive, as the government and consumers require a
great deal of information regarding each product's use, potential side effects
and ingredients. Historically, healthcare information has been tightly
controlled or difficult to access or locate. More recently, consumers and
healthcare professionals have begun to openly debate the attributes and
benefits of different health products, placing more information demands on
health product retailers. Traditional brick and mortar retailers face
challenges in hiring, training and maintaining knowledgeable sales staff. The
Internet has enabled consumers to gain more control over their own care by
providing easier access to health product information and improving
communication between people with similar health issues and interests. Online
health product retailers have the ability to provide consumers with a trusted
source for healthcare information and can personalize this information to each
customer's unique interests. In addition, online health product retailers'
sales staffs can more easily communicate with a larger number of customers
using the Internet.
Consumer Privacy Requirements. Many health product purchases can make a
customer uncomfortable because they can reveal very personal information about
the purchaser. Customers may be unwilling to ask store employees questions
regarding these products to avoid embarrassment. As a result, the customer may
purchase the incorrect product or avoid purchasing the product altogether. The
Internet allows Web users to shop privately for personal products and ask
questions about these products without embarrassment.
While some online retailers offer health products, we believe that none
has fully met the broad needs of consumers. In particular, we believe that
consumers are seeking a single, trusted online store where they can find all
the health products they need, including hard to find or specialized health
products. We believe consumers want a health superstore that is electronically
personalized to their unique health product needs and that enables them to
quickly make recurring health product purchases.
The more.com Solution
more.com is a leading online health superstore that currently offers its
customers more than 45,000 SKUs in a variety of health product categories at
everyday low prices. Our online health superstore contains over-the-counter
medicine products, health and beauty aids, vision care products, nutritional
supplements, baby products, prescription medications and other health products.
Customers want to reduce their shopping time and increase the likelihood of
finding exactly what they want, no matter how specialized their need. We
satisfy this desire by providing a convenient, easy-to-use Internet shopping
experience that simplifies the purchase of health products and access to expert
information. For those customers with special health needs, we currently offer
five distinct specialty stores that are built around product categories,
including Acumins, GreenTree, Clearly Contacts, Comfort Living and Pharmacy. As
a result, our customers can shop for their daily necessities more efficiently,
conveniently and economically than traditional brick and mortar retailers. We
can provide these shopping advantages while maintaining competitive prices
because we operate based on a business model in which we outsource the majority
of our operating infrastructure, such as distribution and fulfillment of
product orders, to third-party providers. The key elements of our solution
include:
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Broad product selection. In terms of both product breadth and depth, we
believe we offer the largest selection of health products for sale directly to
consumers. We currently offer more than 45,000 SKUs and have access to over
300,000 health product SKUs through alliances with third-party providers. We
believe this is significantly more than the selection of traditional brick and
mortar drugstores. Because we outsource the majority of our operating
infrastructure, we can make adjustments quickly within existing product lines
and add new product categories or specialty stores easily and rapidly without
significant capital investment.
Superior convenience. Our online health superstore provides customers
with an intuitive, easy-to-use shopping interface that is available 24 hours a
day, seven days a week and may be reached anywhere that customers can access
the Internet. Our customers can quickly and privately find the products they
are looking for using our fast, intuitive search technology and proprietary
QuickShop(TM) process, which allows customers to choose from more than 2,000 of
the most popular SKUs in the 50 most popular product categories sold in our
store. Additionally, we allow customers to search for and compare products
based on attributes they find important such as price or significant features,
and personalize their experience in our online health superstore by creating
shopping lists to simplify the process of making recurring purchases. We
believe that the enhanced functionality of our Web site greatly improves the
overall customer experience and encourages repeat purchases.
Competitive pricing. We attempt to offer the lowest prices among online
retailers for the most commonly purchased items in our online health
superstore. For the remainder of products we sell, we offer our customers
value-based pricing. To ensure that we offer low prices in comparison with
other online stores, we frequently review ACNielsen reports that rank the top
selling health products. We then use specialized third-party software to track
the online prices for those products each week and set our prices at or below
those of online competitors. Additionally, we strive to set our prices 20%
below those of traditional brick and mortar retailers by consistently
monitoring pricing data supplied by our distribution and fulfillment providers.
Information focused on the customer purchase decision. We provide our
customers with information focused on enabling them to make informed product
purchasing decisions. Customers can use the Resource Center portion of our Web
site to find products related to specific health conditions or concerns. In
doing so, we give our customers the ability to rapidly access an extensive list
of health products that may meet their specific health needs. Within the
Resource Center, we also offer customers Buying Guides comprised of brand-
agnostic, detailed product information regarding product ingredients, efficacy
and use to assist in the purchase of health products. We currently provide
information on more than 100 health conditions through our in-house team of
health editors, an independent network of contributing editors and third-party
content licenses. We have a sixteen-member health advisory board, comprised of
physicians, nutritionists and other practitioners and academics, that guides
our use of health information.
World-class customer service. To build customer loyalty, we seek to
provide superior customer service throughout the shopping experience. We are
committed to customer satisfaction and regularly upgrade our services to ensure
total customer care. Every page of our Web site contains a customer service
link, "May We Help," which outlines store policies, provides answers to
frequently asked questions and gives our customers a direct online link to our
customer service agents. We provide free pre- and post-sales support via e-
mail, toll-free telephone service and instant chat during extended business
hours. We believe we are the only online health store that offers real-time
Web-based customer support incorporating full browser-synchronization
capability. This technology allows our customer service agents to control a
customer's Web browser and assist the customer in quickly finding products or
information to make a purchase decision.
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The more.com Strategy
Our objective is to be the world's leading online health superstore. Key
elements of our strategy to achieve this objective include:
Offer the World's Largest Selection of Health Products. Selection is a
key driver of commerce of all kinds, and to become the leading online health
superstore, we intend to offer the world's largest selection of consumer health
products. Unlike traditional brick and mortar retailers, the number of health
products we offer is not limited by shelf space or store size. As a result of
our business model, the incremental cost to us of offering new products is
small. As part of our strategy for offering the largest selection of health
products, we intend to open new specialty stores frequently over the next few
years. These specialty stores are dedicated to providing products to customers
with special interests or conditions. For example, we intend to offer contact
lenses and other vision products through our Vision Center and baby products in
our Baby Center.
Maximize Customer Value through Low Prices and Shopping Convenience. We
intend to maximize the value our customers recognize from purchasing products
through our online health superstore. In pursuit of this goal, we attempt to
offer our products at prices lower than our online and traditional brick and
mortar competitors. We believe that by continuing to use new technologies that
simplify our customers' recurring purchases, we can maximize value to our
customers. We enable customers to quickly reorder their favorite products
through the use of shopping lists and our proprietary QuickShop technology. We
believe our existing and future technology will continue to improve our
customers' shopping experience, increasing customer loyalty to our Web site and
resulting in more frequent and larger purchases by our customers.
Pursue a Business Model that Minimizes Operating Costs. Our business
model allows us to focus on the customer shopping experience and add new
products and specialty stores while minimizing our operating costs. Our
fulfillment providers are responsible for supply chain management, inventory
management and product shipping. We closely integrate our information systems
with those of our fulfillment providers giving us real-time insight into
product availability, customer order status, product costs and other purchasing
and accounting information. By eliminating a large portion of the normal
logistics of the typical health product retailer, we have substantially lowered
our overall operating costs.
Build Brand Recognition to Drive New Customer Acquisition. Our top
marketing objective is to make the more.com brand synonymous with the best
place to purchase health products. We attempt to drive new customers to our Web
site through the use of both traditional media, including radio and television
advertising, and online media. Our marketing programs place special emphasis on
cities that have the highest concentration of Internet users as well as on
particular demographic markets that are important to building our brand,
including a focus on serving the health needs of women. This demographic
segment represents an increasingly significant and fast-growing segment of
Internet users and health-conscious consumers. According to Jupiter
Communications, women are expected to represent the majority of U.S. Internet
users by the end of 2003. Jupiter Communications also estimates that women are
responsible for over 80% of healthcare decisions and over 60% of healthcare
purchases. We believe that women between the ages of 18 and 49 represent over
70% of our customer base. Additionally, over one-third of our customers are
female purchasers with families.
Continuously Improve Our Customer Shopping Experience. We actively seek
customer feedback regarding the shopping experience customers' have when using
our superstore. We poll more than 1,000 customers on a monthly basis to
determine overall customer satisfaction, identify problem areas for improvement
and opportunities for store expansion and enhancement. Similarly, we provide a
feedback card with every product shipment to encourage customer feedback. In
addition, we have developed a proprietary, scalable architecture designed to
support fast, secure and reliable online shopping. This architecture enables us
to personalize every customer's experience in our health superstore based on
their interests, product needs and past purchases.
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Expand Key Alliances and Pursue Selected Acquisitions. We intend to
expand our alliances with leading online health sites and health product
manufacturers. These relationships are contractual in nature. Our alliances
with leading online health sites, such as Dr. Koop at Go.com and drDrew.com,
have resulted in numerous co-promotion, content sharing and revenue sharing
arrangements. In addition, we offer an affiliate program to third-party Web
sites. This affiliate program enables these Web sites to send customers to our
site and in return receive a portion of the revenues those customers generate.
We currently have more than 13,000 members in the more.com affiliate program
and we intend to rapidly expand this program. Our alliances with leading health
product manufacturers such as Durex, Johnson & Johnson, Procter & Gamble and
Revlon have resulted in product sampling programs, media advertising and inbox
promotions. We also intend to pursue selected acquisitions of additional
businesses, products or technologies that we believe will complement our
current or future business, such as the Comfort Living acquisition.
Shopping at more.com
We have combined our commitment to providing enormous product selection
with easy-to-use Web site navigation capabilities that allow our customers to
quickly specify and find the particular product or health solution for which
they are shopping. Shoppers at our Web site are greeted by a home page that is
designed to anticipate the way people shop for various types and categories of
health products. Customers can choose between browsing our entire selection of
health products in our online health superstore or entering one of our five
distinct specialty stores that are built around specific product categories.
Specialty Stores. We currently have integrated the following five
specialty stores within the more.com superstore. These stores offer an
extensive selection of products for specific health interests or conditions.
. Acumins--our specialty store that contains our proprietary line of
nutritional supplement products. The Acumins SmartSelect(TM) process
enables each customer to create a customized mix of vitamins,
minerals and herbs. The process reduces the number of pills that need
to be taken daily to receive the same nutritional benefits. Acumins
is priced to be an attractive value when compared to purchasing the
combined ingredients separately. Acumins nutritional supplements are
the first in a series of personalized health products to be offered
in our Acumins store.
. GreenTree--our specialty store that contains 23 natural product
categories that would typically be found in natural products
supermarkets and supplements specialty stores. These products include
vitamins, nutritional supplements and homeopathic remedies.
. Clearly Contacts--our specialty store that currently offers a full
spectrum of all brand-name contact lenses and associated accessories
and products. We plan to expand the current offering to include
designer sunglasses and prescription eyeglasses as we continue to
build out our Vision Center.
. Comfort Living--our specialty store that offers higher priced, high
margin products that attempt to make customers feel better, safer and
more comfortable. This store currently offers products for such
categories as baby and maternity, back care and healthy home.
. Pharmacy--our specialty store that combines the flexibility of an
online pharmacy with the convenience of 2,000 Good Neighbor
Pharmacies that offer same day pickup and, where available, home or
office delivery. This delivery flexibility enables our customers to
either receive their prescription drugs through our current
distribution network for chronic conditions or through a Good
Neighbor Pharmacy for immediate pharmaceutical needs. Our pharmacy
provider and all of the Good Neighbor Pharmacy stores are included in
Bergen Brunswig's PlusCare Managed Care Network through which we have
access to 80 million individuals covered by 70 healthcare payors.
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Web Site Navigation. We strive to improve our customers' shopping
experience by designing our Web site navigation to enable customers to easily
and quickly make informed purchases among the broad selection of health
products we offer. We have the following inter-related navigation tools and
information features on our Web site:
. QuickShop--our proprietary QuickShop technology that allows customers
to choose from more than 2,000 of the most popular SKUs in the 50
most popular product categories sold in our online store. Unlike
shopping for books or computers online, customers shopping for health
products may want to purchase an entire basket of goods in one visit.
Using QuickShop, customers can screen products based on both brands
and unique product attributes to create a customized basket of their
most frequently ordered items in just four simple steps. Once a
customer has used QuickShop and saved the purchase history in the
shopping list, the customer can easily return to QuickShop the next
time the customer wishes to purchase that item.
. Shopping Lists--a tool that enables customers to retrieve a list, or
multiple lists, of their previous purchases made at our Web site.
Customers can personalize their shopping lists by editing and adding
products, and they can re-order previously purchased items or add a
particular item to their shopping cart in a single click.
. Shortcuts--a list of the most popular health product categories that
allows the customer to go immediately to the specific product page.
. Search--a shopping friendly tool, with links to related products and
related topics, as opposed to a research tool. Our search tool
differs from many others on the Web in that if no exact product match
is found, our search tool relays a related answer and avoids a "no
products found" result.
. My Account--the personal shopping information of individual customers
is securely stored in My Account. The information required to
checkout is an e-mail address, a password, a billing and shipping
address and a valid credit card number. All of this information is
maintained in a secure format and remains available for a customer's
future access. Customers are given the option to indicate the name by
which they would like to be greeted, their shipping options and their
desire to receive occasional promotional information and health
newsletters.
. Shopping Cart--a section of every page on the site that contains a
summary shopping cart, where the customer can see the number of items
selected, the total amount and the total savings of all the items
currently in the shopping cart. Customers can either check-out from
this shopping cart or get more detailed information about the items.
. Product Packaging Information--a section of our Web site that
contains information on almost every product available on our site
that can be viewed in an expanded format where package information,
including directions and warnings, can be read next to an enlarged
photograph of the product.
The Resource Center. Customers can use our Resource Center to access
information that enables them to make a more informed purchase decision. The
Resource Center allows customers to navigate the site from a conditions or
health concerns perspective, which is usually unavailable in traditional brick
and mortar stores. The Resource Center contains:
. Health Centers--centers that organize products and information
together around particular conditions or demographics and
. Buying Guides--links to category-based articles that offer brand-
agnostic, in-depth consumer information regarding product
ingredients, efficacy and use to support purchase decisions.
Customers can add products to their shopping cart directly from the
Buying Guides or click on a link to the appropriate product page.
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Content Services. We offer a variety of content services free to anyone
who visits our Web site. This content includes alphabetical listings of various
medical conditions, herbs and vitamins with links to related products offered
on our Web site. We also offer a daily newsletter, Health Headline News, which
contains major news stories related to health and well being. Additionally, our
Web site offers question and answer columns addressing our customers' nutrition
and skin care needs.
In addition to in-store content, we offer a twice-monthly health
newsletter that is available to all our customers. The newsletter contains news
stories and product information that we believe to be of particular interest to
the customer. We are able to provide this content through our in-house team of
health editors, a freelance network of contributing editors and an active
content licensing effort.
Health Advisory Board. We have a 16-member health advisory board
comprised of physicians, nutritionists and other practitioners and academics in
the healthcare field. We consult with our health advisory board on our
programs, strategies, content and overall store development.
Distribution Network
We use a business model in which we outsource the distribution and
fulfillment of a vast majority of our products, which is fundamental to our
efficiency and long-term profitability goals. Our current third-party
fulfillment providers include Bergen Brunswig Drug Company for health products,
Lens Express for contact lenses and Medi-Mail for prescription drugs. These
fulfillment providers maintain product inventory and pick, pack and ship our
customers' orders. We believe this business model enables us to cost-
effectively deliver the largest selection of products to our customers
nationwide. For example, Bergen Brunswig, which currently carries a catalog of
more than 300,000 SKUs, constructed an Internet direct-to-consumer fulfillment
center adjacent to its Louisville, Kentucky distribution center. This facility
is located less than one mile from a major United Parcel Service package
distribution hub. This allows us to minimize shipping costs and reduces the
time needed to deliver products to our customers.
Orders placed by our customers are transmitted directly to the
appropriate fulfillment provider through integrated and secured electronic
connections to each of our fulfillment providers. These orders are
automatically fed into the fulfillment provider's system where they are
processed and sent to a warehouse to be picked, packed and shipped. We strive
to process, pack and ship our customers' orders within 24 hours from the time
these orders are placed on our Web site. This connection with each of our
fulfillment providers also provides us with data on inventory quantities,
inventory location, shipping status, shipper tracking numbers and the estimated
time of arrival for back-ordered products. We offer a variety of shipping
options, including next-day delivery for orders received during the business
week, through Airborne Express, United Parcel Service and the U.S. Postal
Service. We have established various quality assurance programs at Bergen
Brunswig, Lens Express and Medi-Mail facilities to monitor quality control and
order fulfillment.
Bergen Brunswig Drug Company
Beginning in March 1999, we established a strategic alliance with Bergen
Brunswig Drug Company, a wholly owned subsidiary of Bergen Brunswig
Corporation, with the intent that Bergen Brunswig would act as our primary
fulfillment provider for the health products we offer on our online health
superstore. With $17.0 billion in annual revenues, Bergen Brunswig Corporation
is one of the nation's leading supply-chain management companies, providing
consumer health products, pharmaceuticals, medical-surgical supplies, home
healthcare specialty products, as well as information management solutions and
outsourcing services to retail pharmacies, managed care organizations and other
institutions across the United States.
In July 1999, we entered into an Internet fulfillment services agreement
with Bergen Brunswig through which it agreed to source, stock, pick, pack and
ship directly to our customers the health product orders placed on our Web
site. We are subject to a flexible pricing schedule for the products purchased
from Bergen
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Brunswig based on the cost of the product and the volume purchased. We are
responsible for the collection of payment for placed orders. This agreement
expires in July 2009, however, either party may terminate each successive year
upon the occurrence of specified events, including failure to perform material
obligations under the agreement, entering into a bankruptcy, receivership or
similar proceedings and adverse regulatory changes.
In August 1999, we entered into a service mark license and access
agreement with Bergen Brunswig through which Bergen Brunswig agreed to extend
to our customers the ability to pick up their pharmacy orders at a network of
over 2,000 retail stores nationwide through its affiliate, the Good Neighbor
Pharmacy network. Our customers may also participate in PlusCare, a provider
network maintained for the reimbursement of non-cash prescriptions with over 70
health plans. This agreement expires upon the expiration of the Internet
fulfillment services agreement with Bergen Brunswig.
In September 1999, we entered into an advertising representative
agreement with Bergen Brunswig through which it was appointed as our exclusive
sales representative for the marketing and sales of advertisements on our Web
site for all health products for which it acts as our fulfillment provider. We
may independently seek additional advertising revenue for products not
fulfilled by Bergen Brunswig. Bergen Brunswig may terminate this contractual
relationship anytime prior to August 1, 2000, and we may terminate the
exclusivity of our arrangement with Bergen Brunswig after August 1, 2000 if it
fails to generate a specified amount of advertising revenues. Further, on
February 1, 2001, Bergen Brunswig and our management will reconsider the
feasibility of our exclusive arrangement. We will pay Bergen Brunswig a
commission if it guarantees a specified amount of advertising revenue within a
specified time period. This agreement expires in September 2009, subject to
extension upon mutual agreement.
Lens Express
In January 2000, we entered into a database license and supply and
purchase agreement with Lens Express through which they agreed, on a
nonexclusive basis, to source, stock, pick, pack and ship directly to our
customers all contact lens orders placed on our Web site. With revenues of
$46.9 million for the year ended December 31, 1999, Lens Express is the second
largest national mail-order fulfillment contact lens operation and a direct
marketer of replacement contact lenses, eye care solutions and designer
sunglasses. Under the terms of this agreement, we have access to Lens Express's
entire product catalog of currently 250,000 contact lens products. We
negotiated a flexible pricing schedule for the products purchased from Lens
Express based on the retail price of the product and the volume purchased. We
are responsible for the collection of payment for placed orders. If Lens
Express provides an online retailer any contact lens products at lower prices
or under more favorable terms or conditions, it has agreed to provide the same
benefit to us. This agreement expires in December 2002. Either party may
terminate the agreement earlier upon the other party's material breach of any
representation, warranty or obligations under the agreement or upon adverse
regulatory changes.
Medi-Mail
In August 1999, we entered into a prescription pharmaceuticals Internet
fulfillment services agreement with Medi-Mail, a subsidiary of Bergen Brunswig
Corporation, located in Las Vegas, Nevada. Under this agreement, Medi-Mail will
fill, pack and ship directly to our customers the orders for prescription
pharmaceutical drugs placed on our Web site, as well as provide related
pharmacist counseling and customer service. Our cost for fulfillment of
prescription drugs is based on industry pricing guides and is subject to
adjustment based on whether we use Medi-Mail as our exclusive prescription
fulfillment provider. An additional dispensing fee scaled for volume incentives
is charged. We are responsible for the collection of payment from our customers
for that portion of the order that is not covered by any health insurance
provider. Medi-Mail is initially responsible for the collection of the insured
portion. This agreement expires in June 2009 but is subject to automatic one
year renewal periods. We may terminate this agreement earlier, subject to our
payment of a termination fee.
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In-House Fulfillment
In addition to our third-party fulfillment providers, our Acumin division
manufactures customized vitamins, minerals and herbs for our customers from our
facility in Philadelphia, Pennsylvania. We maintain minimal inventory of
products manufactured by Acumin relative to its total sales. The finished
product is typically shipped within 24 hours of its manufacture. Comfort Living
currently manages its own inventory and distributes and fulfills its own
orders. As part of the integration of Comfort Living, we intend to outsource
the distribution and fulfillment of these products through a third party.
Merchandising Strategies
We believe that our strong brand name and the breadth and depth of our
product selection in our online health superstore enable us to pursue unique
merchandising and pricing strategies. Because we are not restricted by physical
capacity limitations, we have a significant amount of flexibility with regard
to the presentation and organization of our product categories and the product
selection within each of those categories.
To date, our merchandising and pricing efforts have focused on offering
popular health products with high brand awareness at low prices to drive
traffic to our site. As customer loyalty and recognition of our brand name has
increased, we have begun cross-marketing higher margin products to our
customers once they are on our Web site. By operating specialty stores that
feature a broad range of product categories, we can promote higher margin
products, including accessories and other products that are complementary to
the customers' initial purchases, as well as popular point-of-purchase impulse
buys. In addition, we have begun to refine our pricing strategy and increase
gross margins by raising prices on selected products. We believe we can
continue to improve our pricing strategy by identifying products that are
characterized by lower degrees of price sensitivity, which will provide the
opportunity to raise margins through targeted price increases that do not
diminish overall sales volumes.
Within each specialty store, we offer an extensive selection of products
for specific health interests or conditions. For example, Acumin contains our
proprietary line of nutritional supplement products and Clearly Contacts offers
a full spectrum of all brand-name contact lenses and associated accessories and
products. The broad selection of product categories in our specialty stores is
also enhanced by our fast, intuitive search technology and the design of our
Web site navigation, which enable our customers to easily and quickly make
informed purchases.
Marketing and Business Development
Our marketing objective is to make the more.com brand synonymous with the
best place to purchase health products. Our major marketing strategies are to
build brand recognition, drive customer traffic to our Web site, stimulate
purchases, generate customer loyalty and maximize the lifetime value of the
customer by continued targeted marketing to existing customers.
Advertising and Promotion
We have engaged in a highly coordinated national advertising and public
relations effort since August 1999. Representative ad media include television,
radio, outdoor and various promotional vehicles. Public relations efforts
target the business and consumer press and media. As a result of our public
relations efforts to date and unsolicited inquiries, we have been featured in
Fortune, Newsweek, USA Today and the Wall Street Journal and other high profile
media, including broadcast outlets such as CNBC and CNN. Further, our Web site
has received widespread industry recognition, including being acknowledged in
1999 as the top online drugstore by eHealthcare World, receipt of a gold medal
for top online drugstore at the WWW Health Awards and ranking by Information
Week as one of the top 100 e-Business Innovators for 1999.
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Our broad-based demographic and geographic brand-building programs target
this customer demographic, among others, through the use of programming
vehicles that include:
. use of syndicated national radio programming featuring hosts such as
Dr. Joy Browne, Dr. Ronald Hoffman and Dr. Laura Schlessinger;
. prime-time TV shows such as Ally McBeal, ER and Friends; and
. highly targeted women's interest magazines such as Martha Stewart
Living, Good Housekeeping, Parents and Working Mother.
We place advertisements on Internet Web sites to optimize access to our
target audience. These currently include Alta Vista/Shopping.com, Ask Jeeves,
Go.com, Intellihealth, LifeMinders, Lycos, My Simon, Planet Out and uBid. The
majority of our online advertising consists of placements that encourage,
usually by trial offers, click-throughs directly to our Web site.
Session information is obtained from our Web site and combined with data
from our business systems and fed into a data warehouse. This allows us to
obtain and extrapolate information for business reporting and planning and
marketing activities. Experience to date has demonstrated the power of one-to-
one marketing to efficiently acquire new customers and activate shopping
interest among current customers. Currently, over 90% of our customers
subscribe to our promotional newsletter, which is sent to them twice monthly
with new product and promotional news. Our goal is to continue to build our
customer understanding and use database marketing as a key tool in driving
customer lifetime value.
Marketing Alliances
We have engaged in extensive alliance building efforts since our
inception in order to quickly build market share, acquire customers, create
brand presence and provide more integrated services to our customers. Strategic
alliances involve a combination of online and offline co-promotion, content
sharing, and revenue sharing or payments based on actual customers acquired.
Our alliance building efforts can be grouped into the following categories:
Phar-Mor.com. We entered into a Web site affiliate agreement with Phar-
Mor.com, a chain of discount retail drugstores, in January 2000. Under the
terms of this agreement, we will collaborate with Phar-Mor.com to create a URL
through which Phar-Mor.com's customers may access our Web site. This URL will
be linked to our Web site either directly or through an intermediate,
transition Web page hosted by us. Phar-Mor.com will prominently promote this
URL in its marketing materials, on its Web sites and in its stores.
Furthermore, we will become the exclusive online provider of health products
for Phar-Mor.com. As part of this exclusivity arrangement, Phar-Mor.com agreed
not to sell any products on its Web sites that are sold on our Web site. Phar-
Mor.com also will not display any advertisements of, link its Web sites to or
refer its customers to any third-party Web site that sells the same health
products that we sell. On each home page of Phar-Mor.com's Web sites, it will
identify more.com as its exclusive online provider of health products as well
as display a hyperlinked button labeled "Shop more.com." Phar-Mor.com will
receive a sales commission for each product sold to a customer who reached our
Web site via the collaborative URL.
Under the agreement, Phar-Mor.com also agreed to purchase at least $1.0
million but no more than $2.0 million of advertising annually from us during
the five-year term of the agreement. Also, our customers will be able to pick
up prescription drugs purchased on our Web site at participating Phar-Mor
stores. We believe this alliance will drive customer traffic to our Web site
and will represent a cost-efficient source of customer acquisition.
Sponsorships. Our alliances have offered us exclusive sponsorship
opportunities and premier access to efficient marketing vehicles such as e-mail
newsletters. An example of one of our sponsorships is an
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agreement that we have entered into with drDrew.com. Under the terms of this
agreement, drDrew.com prominently promotes more.com on the drDrew.com Web site
and in its marketing and promotional materials as its exclusive online
drugstore e-commerce partner. In addition, drDrew.com's weekly e-mail
newsletters will regularly contain a credit indicating that they are sponsored
by more.com. Other examples of our sponsorship agreements include a premier
sponsorship of Dr. Koop at Go.com, Gold merchant status in Go.com's shopping
channel, as well as similar arrangements with AccentHealth, e-Diets,
Perks@Work, Physicians Online, snap! and women.com.
Affiliate Programs. Leveraging the reach of complementary third-party
sites is a significant revenue driver for us. The more.com affiliate program
has over 13,000 members. These affiliates provide one of our most cost-
efficient sources of customer acquisition and have consistently contributed
over 15% of our aggregate sales. Under the terms of our standard affiliate
agreement, affiliate program applicants that we accept select a more.com icon
to feature on their Web site. Each icon contains an electronic link to our Web
site. When a customer follows a link from an affiliate's Web site to our Web
site and makes a purchase, the affiliate is credited with a referral fee based
on the sale price of the product purchased. Affiliates do not earn referral
fees for prescription items or contact lenses. We have outsourced the
management of our affiliate program to LinkShare to aggressively pursue
affiliate acquisition and build new partnerships.
Co-Marketing Ventures. We have engaged in co-marketing ventures and
sampling programs with manufacturers of health products, including Durex,
Johnson & Johnson, Procter & Gamble and Revlon. Our goal is to rapidly deepen
and broaden marketing partnerships with these and other manufacturers to
generate incremental product sales for all parties. In addition, we have
initiated an advertising sales program that will be managed by Bergen Brunswig
to assist manufacturers in accessing online health shoppers via paid
advertising and merchandising placements on the more.com site.
We plan to continue building important strategic alliances by positioning
ourselves as the e-commerce partner of choice for health portals, new
distribution channels, important health-related networks and healthcare
provider networks, both online and offline. Additionally, we will focus on
similar initiatives among important channels that reach primary target markets,
such as women, online shoppers and college students.
Customer Service
We believe that superior customer service and support are critical to
retain and expand our customer base. Our goal is to further facilitate the
customer experience, while at the same time providing the hands-on support and
interaction that currently is lacking in most e-commerce shopping experiences.
We anticipate that our customer support technology will also increase our
conversion of visitors into buyers.
Our customer service agents handle questions about orders and how to use
our Web site, assist customers in finding desired products and resolve
problems. Our customer service agents are a valuable source of feedback and
identifiers of opportunity for improvement regarding customer satisfaction.
Thus, in addition to traditional call center and help desk roles, our customer
service agents handle all products returned by customers. Customer returns
provide us with a valuable source of information for continuous improvement.
Our customer service offerings include:
. Help screen--our customers can browse help screens on our Web site.
These screens reflect the most common questions posed by our
customers and the most up to date answers we provided to them;
. E-mail--customers can send an e-mail to our customer service center;
. Toll-free telephone service--if a customer would prefer to speak to a
live person about their shopping experience at more.com, the customer
can call our toll-free telephone number. We staff
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our call center so that we can quickly respond to customer concerns.
We strive to answer 90% of the phone calls within 30 seconds. When
customers call, they are greeted by a live person to answer their
question instead of an automated list of options; and
. Live chat--because most of our customers are accessing our Web site
via a modem and may not want to use the telephone, we have provided
access to a live chat line where the customer can speak with a
customer service agent. Live chat allows our customer service agents
to push pages to the customer, which is a process in which the
customer's screen is moved to a page by the agent.
Technology and Infrastructure
We have designed and implemented a next generation health superstore
with complete supply chain and cash management integration. Our design is
based upon a three-tier architecture that can support extremely high volumes
of traffic with quick response and page display times. Our architecture
integrates our customer service applications with our Web site and business
solutions. This architecture is designed to allow use of thin browser and java
based clients that enable us to use customer service agents regardless of
their physical location. We have integrated multiple fulfillment providers
using industry standard data interchange methods such as EDI and XML.
We have employed a variety of scalable and reliable software and
hardware systems for transaction processing, administration, searching,
customer support, fulfillment and order tracking. These services and systems
use a combination of our own proprietary technologies and commercially
available licensed technologies. Our transaction processing systems are
integrated with our accounting and financial systems. We focus our internal
development efforts on creating and enhancing proprietary software that is
unique to our business. Session information is obtained from our Web site and
combined with data from our business systems and fed into a data warehouse.
This allows us to obtain and extrapolate information for business reporting
and planning and marketing activities.
Our systems are based on industry standard architectures and have been
designed to reduce downtime in the event of outages or catastrophic
occurrences. We use Sun Microsystem's UltraSPARC-based servers and Solaris
operating system. Front-end and back-end software systems use Oracle's DBMS.
Our system hardware is hosted at a Level 3 Communications facility in San
Francisco, California, which provides high-speed, redundant communications
lines, emergency power backup and continuous systems monitoring. We have
implemented load balancing systems and our own redundant servers to provide
for fault tolerance. We have implemented a variety of scalable and reliable
software and hardware systems for transaction processing, administration,
searching, customer support, fulfillment and order tracking. These services
and systems use a combination of our own proprietary technologies and
commercially available, licensed technologies. Our transaction-processing
systems are integrated with our accounting and financial systems. We focus our
internal development efforts on creating and enhancing the specialized,
proprietary software that is unique to our business.
We use an encryption technology that works with most common Internet
browsers and makes it extremely difficult for unauthorized parties to read
information sent by our customers. We outsource a majority of our credit card
authorization and settlement to CyberSource through secure Internet
connections.
Competition
The e-commerce market is new, rapidly evolving and highly competitive.
In particular, the online health market is intensely competitive and highly
fragmented, with no clear dominant leader in any of our product segments. Our
competitors can be divided into several broad categories, including:
. chain drugstores;
. mass market retailers;
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. supermarkets;
. warehouse clubs;
. online retailers;
. mail-order pharmacies;
. prescription benefits managers;
. Internet-portals and online service providers that feature shopping
services; and
. cosmetics departments at major department stores.
Each of these competitors operate within one or more of the health,
wellness, beauty, personal care or pharmacy product categories. In addition,
nearly all our competitors have, or have announced their intention to have, the
capability to accept orders for products online.
We believe that the following are principal competitive factors in our
market:
. selection;
. convenience;
. price;
. Web site performance and accessibility;
. customer service;
. quality of information services;
. reliability and speed of order fulfillment; and
. brand recognition.
We believe that our ability to compete depends in large part on our
ability to maintain a broad product selection, value and convenience.
Some of our competitors may be able to secure products from vendors on
more favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Traditional
brick and mortar retailers also enable customers to see and feel products in a
manner that is not possible over the Internet. Traditional brick and mortar
retailers can also sell products to address immediate, acute care needs, which
we and other online sites cannot do.
Intellectual Property
Our performance and ability to compete are dependent in part on our
proprietary and licensed technology. We rely on a combination of patent,
copyright, trademark and trade secret laws and contractual restrictions to
establish and protect our technology. All key employees have signed
confidentiality and invention assignment agreements and we intend to require
newly hired employees to execute similar agreements. We cannot be certain that
these contractual arrangements or other steps taken will be adequate to prevent
the misappropriation of our proprietary rights or technology. In addition, our
competitors may independently develop technologies that are substantially
equivalent or superior to our technology.
We have certain common law rights in the service marks and trademarks
used in our business and have applications pending to register several service
marks and trademarks used in our business. There can be no assurance that we
will be able to secure significant protection for all our service marks or
trademarks, or that are applications will be successful. Competitors of ours or
others could adopt product or service marks similar to our marks, or try to
prevent us from using our marks, thereby impeding our ability to build brand
identity and possibly leading to customer confusion.
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We do not currently have any issued patents or registered copyrights. Our
two patent applications were filed on February 24, 1999 and August 5, 1999. We
have been assigned the rights to patent applications claiming a number of the
technologies underlying our products and services. There can be no assurance
that the applications will result in the issuance of patents or that, if
issued, such patents would adequately protect us against competitive technology
or that they would be held valid and enforceable against a challenge. In
addition, it is possible that our competitors may be able to design around any
such patents. Also, our competitors may obtain patents that we would need to
license or circumvent in order to make, use, sell or offer for sale the
technology.
We believe that we do not infringe upon the proprietary rights of any
third party, and no third party has asserted a patent infringement claim
against us. It is possible, however, that such a claim might be asserted
successfully against us in the future. Our ability to make, use, sell or offer
for sale our products and services depends on our freedom to operate. That is,
we must ensure that we do not infringe upon the proprietary rights of others or
have licensed all such rights.
We rely on a variety of technology, primarily software, that we license
from third parties. There can be no assurances that the third-party technology
licenses that we do have will continue to be available to us on commercially
reasonable terms or at all. Also, the loss or inability to maintain or obtain
upgrades to any of these technology licenses could result in delays or
breakdowns in our ability to continue developing and providing our products and
services or to enhance and upgrade our products and services.
Government Regulation
Various aspects of our business are subject to extensive federal, state
and local regulations, many of which are specific to the practice of pharmacy.
For example, distributors of controlled substances are subject to requirements
established under the Controlled Substances Act, as well as related state and
local laws and regulations. These laws and regulations relate to pharmacy
operations, including registration, security, record keeping and reporting
requirements related to the purchase, storage and dispensing of controlled
substances, prescription drugs and some over-the-counter drugs. Our contract
with Medi-Mail, our prescription drug fulfillment provider, is structured to
ensure that only Medi-Mail is subject to federal, state and local licensing and
registration regulations with respect to prescription drug sales and pharmacy
operations.
Although the law surrounding internet sales is still developing, the Food
and Drug Administration, or FDA, currently asserts jurisdiction over Web site
claims based upon the agency's view that claims included on a Web site
constitute product labeling. The FDA also regulates the advertising of
prescription drug products, and the agency currently asserts jurisdiction over
prescription drug Web site claims based upon the agency's view that such claims
constitute product advertising. The Federal Trade Commission, or FTC, regulates
the advertising of over-the-counter drugs, conventional foods, dietary
supplements, cosmetics and medical devices. Most states have laws similar or
identical to the laws applied by the FDA and FTC with regard to the products we
distribute. The Consumer Product Safety Commission regulates consumer products
not regulated by the FDA.
The FDA and FTC are currently reviewing Web site formats for ordering
products subject to their jurisdiction. In the future, one or both agencies may
establish a formal policy, or apply an informal policy, regarding the format of
these Web sites with regard to content and disclosures. We may need to modify
the format of our Web site in the future to comply with FDA and FTC
requirements. We could also conceivably be found liable at present based upon
the format and content of our Web site.
The practice of medicine requires licensing under applicable state law.
It is not our intent to practice medicine, and we have tried to structure our
Web site and customer interactions to avoid practicing medicine. However, a
regulatory authority could at some time allege that some portion of our
business violates these statutes and, any liability based on a determination
that we engaged in the unlawful practice of medicine may be excluded from
coverage under the terms of our general liability insurance policy.
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The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing, placing particular focus on those who prescribe drugs online and
on pharmacies that fill invalid prescriptions, including those that are written
online. Because Medi-Mail makes every effort only to fulfill valid
prescriptions and we do not prescribe drugs, we believe that our business will
not be negatively affected by any regulations that result from the
investigations. However, we believe that any regulations resulting from the
investigations will likely result in increased reporting and monitoring
requirements.
The Clinton Administration recently announced a new initiative to protect
consumers who purchase prescription drugs over the Internet. The initiative is
intended to prevent rogue online prescription drug companies who unlawfully
prescribe drug products over the Internet and are not licensed to engage in the
practice of pharmacy or medicine. The initiative would establish new federal
requirements for all Internet pharmacies to ensure that they comply with
federal and state law. Based upon our contract with Medi-Mail, we believe we
are in compliance with the new initiative. Nevertheless, the final contours of
the initiative have not yet been established, and depending upon the content of
the initiative, compliance may cause delays or unexpected complications.
The National Association of Boards of Pharmacy, a coalition of state
pharmacy boards, has developed a program, the Verified Internet Pharmacy
Practice Sites, as a model for self-regulation for online pharmacies. We have
applied to the National Association of Boards of Pharmacy for certification by
its Verified Internet Pharmacy Practice Sites program and intend to comply with
its criteria for certification.
We are also subject to extensive regulation relating to the
confidentiality and release of patient records and the transmission of Medicare
eligibility information over the Internet. Additional legislation governing the
distribution of medical records exists or has been proposed at both the state
and federal level. Our business is also subject to rules, such as anti-kickback
laws, prohibiting certain practices that could result in overutilization of
healthcare services and supplies.
Legal Proceedings
We are a defendant in a lawsuit brought by More Online alleging, among
other things, that our name, more.com, is confusingly similar to More Online's
name. With this lawsuit, More Online is seeking to prevent us from using the
name more and the URL www.more.com. We believe we have strong defenses to these
allegations and are vigorously defending this litigation. We cannot be certain
that our defense will be successful. If we do not prevail in this litigation,
we could be prevented from using the more.com name and be liable from monetary
damages.
Other than the More Online litigation, we are not currently party to any
material legal proceedings. We may in the future be party to litigation arising
in the ordinary course of business. These claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources.
Employees
As of December 31, 1999, we had 122 full-time employees. Of our
employees, 44 were primarily involved in the development and production of our
Web site, 30 in our marketing and sales department, 16 in our customer service
department, 11 in our manufacturing department and 21 in our general and
administrative department. We believe that our relationship with our employees
is good.
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Facilities
Our principal executive and administrative offices are located at 520
Third Street, Second Floor, San Francisco, California 94107, where we lease
approximately 15,000 square feet, under a lease that expires in July 2000. We
also lease approximately 1,900 square feet at 485 Third Street, San Francisco,
California 94107, and approximately 2,125 square feet at 495 Third Street, San
Francisco, California 94107; both leases expire in November 2002. Our
manufacturing facility for the production of Acumin products, where we lease
approximately 2,440 square feet, is located at 3401 Market Street,
Philadelphia, Pennsylvania 19104, under a year-to-year lease that started on
May 31, 1999. We will likely require additional space before the end of 2000.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages and positions, as of
February 5, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Donald M. Kendall, Jr... 32 Chief Executive Officer and Director
Bradford S. Oberwager... 30 Chief Operating Officer
Laureen De Buono........ 42 Chief Financial Officer and Secretary
Eric Budin.............. 31 Vice President of Corporate Development
Clarence A. Felong...... 46 Vice President of Engineering
Bruce S. Mowery......... 55 Vice President of Marketing and Business Development
Samuel J. Salkin........ 49 Vice President of Merchandising and Operations
Mark Leschly............ 31 Director
Thomas A. Penn.......... 53 Director
Perk Perkins............ 46 Director
Donald R. Roden......... 53 Director
E. Scott Russell........ 39 Director
John Sculley III........ 60 Director
John Neil Weintraut..... 41 Director
</TABLE>
Donald M. Kendall, Jr., co-founder of more.com, has served as our Chief
Executive Officer and a member of our board of directors since our inception.
From 1992 until January 1998, Mr. Kendall was the co-founder and president of
American Retail Systems, which operates 85 Pizza Hut and Kentucky Fried Chicken
restaurants in the Republic of Poland and the Czech Republic, with annual sales
of $100 million and 5,000 employees. From 1990 to 1992, Mr. Kendall was a
management consultant for McKinsey & Co. in the consumer industries group. Mr.
Kendall earned a B.A. in U.S. History from Stanford University.
Bradford S. Oberwager has served as our Chief Operating Officer since
November 1998. From January 1997 to November 1998, Mr. Oberwager was the
founder and president of Acumin Corporation, a manufacturer and Internet
retailer of customized vitamins, which has been incorporated as a division of
more.com. Before founding Acumin, from 1992 to 1995, Mr. Oberwager worked in
the investment banking divisions of Smith Barney and Bear Stearns. Mr.
Oberwager is a member of the board of advisors of various private companies.
Mr. Oberwager earned a B.S. in Finance from Georgetown University and an M.B.A.
from the Wharton School of Business.
Laureen De Buono has served as our Chief Financial Officer since November
1999 and our Secretary since January 2000. From June 1998 until October 1999,
Ms. De Buono was the chief operating officer and chief financial officer of
Resound Corporation, a public hearing device and communications company. From
1992 to 1998, Ms. De Buono was an executive vice president at Nellcor Puritan
Bennett, a public respiratory products company, where she led the legal,
mergers and acquisitions, human resources and communications groups. Ms. De
Buono was corporate counsel at The Clorox Company from 1987 to 1992. Ms. De
Buono is a member of the board of directors of Invivo Corporation and a member
of the Board of Visitors of the Institute of Public Policy at Duke University.
She earned a B.A. in Economics, Political Science and History from Duke
University, an M.A. in Economics and Political Science from Stanford University
and a J.D. from New York University School of Law.
Eric Budin, co-founder of more.com, has served as our Vice President of
Corporate Development since May 1998, and previously served as a member of our
board of directors from May 1998 to October 1999 and our President from January
1998 to May 1998. From March 1996 to July 1997, Mr. Budin was a senior product
manager in charge of product management for client applications at OnLive!
Technologies, a company that pioneered real-time group communications over the
Internet. From August 1994 to February 1996, Mr. Budin
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<PAGE>
was a director of product development and marketing at Worlds, Inc., a provider
of three dimensional multi-user spaces over the Internet. Mr. Budin worked as a
management consultant for McKinsey & Co. from 1990 to 1992. Mr. Budin holds a
B.A. in economics and psychology from the University of Michigan and an M.B.A.
from Stanford Graduate School of Business.
Clarence A. Felong has served as our Vice President of Engineering since
March 1999. From April 1996 to March 1999, Mr. Felong was a vice president at
Oracle's Internet applications division, where he managed the e-commerce,
messaging and document management groups, as well as a joint effort between CNN
and Oracle to produce a personalized news Web site. From June 1988 to March
1996, Mr. Felong held various positions at Apple Computer, Inc., including
senior director of communications and collaboration technologies and was a
member of the product strategy council. Prior to joining Apple, Mr. Felong held
senior management positions at Frame Technology Corporation, GO Corporation,
Claris Corporation and the Jet Propulsion Laboratory. Mr. Felong studied
Mathematics at the State University of New York at Fredonia and Computer
Science at West Los Angeles College and West Coast University.
Bruce S. Mowery has served as our Vice President of Marketing and
Business Development since April 1999. Mr. Mowery has more than 20 years of
technology marketing experience. From June 1997 to March 1999, Mr. Mowery was
the owner and managing partner of Ellipsis Consulting, a marketing consulting
firm. From March 1996 to May 1997, Mr. Mowery served as a vice president of
marketing at Visioneer, a manufacturer of personal imaging products. From
October 1993 to November 1996, Mr. Mowery was a vice president of sales and
marketing at MNI Interactive, Inc., an Internet e-commerce firm involved in the
sale of music products. He was the senior director of marketing at Apple from
April 1984 to September 1996. Mr. Mowery also served as an entrepreneur in
residence at Kleiner, Perkins, Caulfield and Byers, a venture capital firm,
during 1996. Mr. Mowery received a B.A. in International Studies from Ohio
State University and an M.A. in Management from American Graduate School of
International Management.
Samuel J. Salkin has served as our Vice President of Merchandising and
Operations since August 1998. He served as the chief operating officer for the
Jewish Community Federation, the central fund-raising and community-planning
agency of the San Francisco Jewish community from September 1997 to September
1998. From January 1994 to September 1996, Mr. Salkin was the president and
chief executive officer of Peet's Coffee & Tea, Inc., then a privately held
retailer of specialty coffee with more than 50 retail stores in California. Mr.
Salkin currently serves on the board of directors of Real Good Trading Company,
a retail firm specializing in ecological energy systems and consumer products.
Mr. Salkin received a B.S. in Industrial and Labor Relations and an M.S. in
Development Sociology from Cornell University.
Mark Leschly has been a member of our board of directors since October
1998. Since June 1999, Mr. Leschly has served as a managing director of Rho
Management Company, Inc., a New York-based international investment firm with
principal activities in venture capital, private equity funds and public
securities. From September 1995 to June 1999, Mr. Leschly was a general partner
at Healthcare Ventures, a venture capital firm specializing in making
healthcare investments. Mr. Leschly currently serves on the board of directors
of Diversa Corporation and is a member of the Board of Directors of various
private companies. He is also a member of the advisory board of the Harvard
AIDS Institute. Mr. Leschly received an M.B.A. from the Stanford Graduate
School of Business.
Thomas A. Penn has been a member of our board of directors since October
1999. Since June 1998, Mr. Penn has been a partner at Boston Millennia
Partners, a Boston-based venture capital firm. From March 1994 to March 1998,
Mr. Penn served as the president and chief executive officer of Tektagen, Inc.,
a contract services organization that provides product development services and
support to the biotechnology and pharmaceutical industries. Mr. Penn is a
member of the board of directors of various private companies. Mr. Penn
received a B.S. in Metallurgy and Materials Science and a B.S. in Industrial
Management from the Massachusetts Institute of Technology, an M.B.A. from the
Stanford Graduate School of Business and a J.D. from the University of
Pennsylvania.
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<PAGE>
Perk Perkins has been a member of our board of directors since June 1998.
Since November 1992, Mr. Perkins has served as president and chief executive
officer of The Orvis Company, a retailer of outdoor sporting equipment and
clothing. From July 1977 to November 1992, Mr. Perkins served in various
positions with Orvis, including vice president of merchandising, vice president
of operations and president of Orvis UK. He currently serves on the board of
directors of the Center for Compatible Economic Development and is the co-chair
of the Conservation Committee of The Nature Conservancy.
Donald R. Roden has been a member of our board of directors since January
2000. From October 1995 to November 1999, Mr. Roden was the president, chief
executive officer and a member of the board of directors of Bergen Brunswig
Corporation. Prior to joining Bergen Brunswig Corporation, he was the chief
executive officer of Reed Elsevier Medical, North America Division. From
October 1977 to April 1989, Mr. Roden was the owner of Pracon Incorporation, a
healthcare consulting and communications company. Mr. Roden received a B.A. in
Business from University of Wisconsin and an M.B.A. in Pharmaceutical
Management from Fairleigh Dickinson University.
E. Scott Russell has been a member of our board of directors since
October 1998. Since September 1996, Mr. Russell has served as a general partner
of SOFTBANK Venture Capital. Prior to joining SOFTBANK, Mr. Russell spent 16
years managing corporate MIS technology for Swiss Bank Corporation, SBC
Warburg, Goldman, Sachs & Co. and J.P. Morgan & Co. Incorporated. While with
SBC Warburg, he headed the technology division in Asia and later served on the
firm's information technology management committee based in London. Mr. Russell
currently serves on the board of directors of BUY.COM Inc. and E-Loan, Inc.,
and is a member of the board of directors of various private companies. Mr.
Russell received a B.S. in Engineering from Carnegie Mellon University and an
executive M.B.A. from London School of Business.
John Sculley III has been a member of our board of directors since June
1998. Since March 1994, Mr. Sculley has served as a partner in the investment
firm of Sculley Brothers LLC. From November 1993 to February 1994, Mr. Sculley
served as the chief executive officer of Spectrum Information Technologies,
Inc., a manufacturer of weather monitoring and soil testing equipment. In
January 1995, Spectrum, together with three of its four operating subsidiaries,
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of New York. From 1983 to 1993, Mr. Sculley served as the chief
executive officer of Apple Computer, Inc. Since 1984, Mr. Sculley has also been
the chief executive officer of Sculley Bros., Inc., a private investment
company. Mr. Sculley currently serves on the board of directors of NetObjects,
Inc. and Talk City, Inc. Mr. Sculley received a B.S. in Architecture from Brown
University and an M.B.A. from the Wharton School of Business.
John Neil Weintraut has been a member of our board of directors since
June 1998. Mr. Weintraut is a founder of 21st Century Internet Venture
Partners, a venture capital firm, and has been a partner since its founding in
October 1996. From June 1987 to May 1996, Mr. Weintraut was a partner at
Hambrecht & Quist, an investment banking firm, where he led the enterprise
software practice and, later, the Internet practice. He currently serves on the
board of directors of CareerBuilder, Inc. Mr. Weintraut received a B.S. in
Electrical Engineering from Drexel University and an M.B.A. from the Wharton
School of Business.
Classified Board of Directors
Our board of directors is currently comprised of eight directors. Our
board will be divided into three classes of directors serving staggered three-
year terms upon the effectiveness of this offering. As a result, approximately
one-third of the board of directors will be elected each year. These
provisions, together with provisions in our certificate of incorporation, allow
our board of directors to fill vacancies of or increase the size of the board
and may deter our stockholders from removing incumbent directors and filling
these vacancies with their own nominees to gain control of the board.
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<PAGE>
Our board of directors has designated that Messrs. Leschly, Penn and
Weintraut will serve as Class I directors, whose terms expire at the 2001
annual meeting of stockholders. Messrs. Kendall and Russell will serve as Class
II directors whose terms expire at the 2002 annual meeting of stockholders.
Messrs. Perkins, Roden and Sculley will serve as Class III directors whose
terms expire at the 2003 annual meeting of stockholders.
Director Compensation
Our directors who are also employees will receive no additional
compensation for their services as directors. Our non-employee directors will
receive a fee of $1,000 for each meeting of the board attended in person. In
addition, our non-employee directors are eligible to receive options and be
issued shares of common stock directly under our 2000 non-employee director
stock option program. Non-employee directors will be granted an initial option
to purchase 25,000 shares of our common stock with subsequent annual option
grants to purchase 5,000 shares of our common stock. The exercise price per
share for these options will equal the fair market value of our common stock at
the date of grant. Each stock option received by our non-employee directors
will vest and become exercisable over a period of four years. Our directors who
are also employees are eligible to receive options and be issued shares of
common stock directly under our amended and restated 1998 stock option plan and
2000 stock incentive plan.
Board Committees
Our board of directors has established a compensation committee and an
audit committee. The compensation committee, consisting of Messrs. Leschly and
Penn, reviews and approves the salaries, bonuses and other compensation payable
to our executive officers and administers and makes recommendations concerning
our employee benefit plans.
The audit committee, consisting of Messrs. Penn, Roden and Sculley, makes
recommendations to our board of directors regarding selection of independent
public accountants. The committee reviews the scope and results of the audit
and other services provided by our independent accountants, and reviews our
accounting policies and systems of internal accounting controls.
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or
compensation committee.
There are no family relationships among any of our directors or executive
officers.
Executive Compensation
Summary Compensation Information
The following table contains information in summary form concerning the
compensation paid to our Chief Executive Officer and each of our four most
highly compensated executive officers whose total salary, bonus and other
compensation exceeded $100,000 during the fiscal year ended December 31, 1999.
In accordance with the rules of the Securities Exchange Commission, the
compensation described in this table does not include perquisites and other
personal benefits received by the executive officers named in the table below
which do not exceed the lesser of $50,000 or 10% of the total salary and bonus
reported for these executive officers.
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term All Other 1999
Compensation Compensation Compensation(1)
--------------- ------------ ---------------
Securities
Underlying Total Health
Name and Principal Position Year Salary Bonus Options Insurance
- --------------------------- ---- -------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Donald M. Kendall, Jr........ 1999 $132,500 $ -- -- $ --
Chief Executive Officer and 1998 85,000 -- -- --
Director
Bradford S. Oberwager........ 1999 131,250 2,500 300,000 --
Chief Operating Officer 1998 15,057 -- 235,000 --
Eric Budin................... 1999 144,167 -- -- --
Vice President of Corporate 1998 70,000 -- -- --
Development
Samuel J. Salkin............. 1999 172,221 -- 133,078 912
Vice President of 1998 55,549 -- 144,000 --
Merchandising and Operations
Clarence A. Felong........... 1999 164,031 25,000 519,207 1,166
Vice President of 1998 -- -- -- --
Engineering
</TABLE>
- --------
(1) Consists of medical reimbursements.
Option Grants During Fiscal 1999
The following table sets forth information concerning grants of stock
options to each of the executive officers named in the table above during the
fiscal year ended December 31, 1999. All of these options were granted under
our amended and restated 1998 stock option plan at an exercise price equal to
the fair market of our common stock at the time of grant. Except as noted in
the footnote for the respective executive officer, each option vests over a
period of four years and is exercisable immediately. Our board of directors
determined the fair market value of our common stock on the date of grant based
on, among other things, our financial results and prospects and the share price
in arms-length transactions that accrued around the time of the grant. The
exercise price may in some cases be paid by delivery of other shares or by
offset of the shares subject to options. Potential realizable values are net of
exercise price, but before taxes associated with exercise. Amounts represent
hypothetical gains that could be achieved for the options if exercised at the
end of the option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with the rules of the Securities and
Exchange Commission and do not represent our estimate or projection of the
future common stock price.
Options Granted in Fiscal Year Ended December 31, 1999
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed
Number of Total Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees in for Option Term
Options Fiscal Year Exercise Price Expiration ---------------------
Name Granted 1999(1) Per Share Date 5% 10%
- ---- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald M. Kendall, Jr... -- -- $ -- --
Bradford S. Oberwager... 300,000 9.4% 0.330 10/8/2009 62,261 157,776
Eric Budin.............. -- -- -- --
Samuel J. Salkin........ 83,078 2.6% 0.166 5/25/2009 8,673 21,979
50,000 1.6% 3.620 12/15/2009 113,831 288,460
Clarence A. Felong...... 419,207 13.2% 0.166 4/14/2009 43,764 110,903
100,000 3.1% 3.620 12/15/2009 227,662 576,920
</TABLE>
- --------
(1) The percentage of total options is based on an aggregate of 3,181,888
options granted to employees in fiscal 1999.
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<PAGE>
Option Exercises
The following table sets forth information concerning exercisable and
unexercisable stock options held by each of the executive officers named in the
summary compensation table at the fiscal year ended December 31, 1999. The
value realized upon exercise is based on the estimated fair value of our common
stock of $0.33 per share at the time of exercise less the per share exercise
price, multiplied by the number of shares acquired upon exercise. The value of
unexercised in-the-money options is based on the assumed initial public
offering price of $ per share less the per share exercise price, multiplied
by the number of shares underlying the options. All options were granted under
our amended and restated 1998 stock option plan.
Aggregate Option Exercises in Fiscal Year Ended December 31, 1999
and Option Values at December 31, 1999
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year End at Fiscal Year End
Shares Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Donald M. Kendall, Jr... -- $ -- -- --
Bradford S. Oberwager... 235,000 38,540 300,000/0 --
Eric Budin.............. -- -- -- --
Samuel J. Salkin........ 144,000 31,824 133,078/0 --
Clarence A. Felong...... -- -- 519,207/0 --
</TABLE>
Compensation Protection Agreements
We will enter into compensation protection agreements with each of our
executive officers. These agreements are for a term of three years commencing
in January 2000 and are subject to automatic annual extensions. If within 12
months of a change of control of our company, an executive officer's employment
with us is terminated by us other than for cause or by the officer personally
for good reason, excluding by reason of the officer's disability, death or
retirement, then we must pay that officer: (a) his or her accrued compensation,
including unpaid base salary, pro rata bonus, and vacation pay; and (b) an
amount equal to two times the sum of the officer's highest annual base salary
and annual bonus in effect immediately prior to the change of control. In
addition, until the third anniversary of the officer's termination we will
provide the officer with the maximum benefits provided to that officer between
the effective date of the agreement and 90 days preceding the date of the
change of control. The officer will also receive immediate vesting and removal
of all restrictions on any outstanding incentive awards granted under our stock
option and other stock incentive plans, excluding our employee stock purchase
plan, or any other arrangement, unless it would render unavailable pooling of
interest accounting for a change of control, and the board of directors
determined that such change of control shall be accounted for as a pooling of
interest. However, acceleration shall occur regardless of whether it would
render pooling of interest accounting unavailable to the extent provided in any
employment agreement, offer letter, stock option or other equity-based
compensation protection agreement with an executive officer prior to the date
of the compensation protection agreement with us. The compensation protection
agreements further provide that the executive officers will not be required to
mitigate the amounts due to them as a result of their termination.
Benefit Plans
Amended and Restated 1998 Stock Option Plan
Our amended and restated 1998 stock option plan was adopted by our board
of directors in January 2000. We expect to receive stockholder approval prior
to the effectiveness of this offering. We have reserved a total of 8,117,500
shares of our common stock under our 1998 stock option plan for issuance
pursuant to stock
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<PAGE>
options. As of December 31, 1999, options to purchase an aggregate of 3,261,344
shares were outstanding, 736,416 shares of common stock had been purchased
pursuant to exercises of stock options and 119,740 shares were available for
future grant. Our board of directors may grant incentive stock options, which
are stock options that qualify under Section 422 of the Internal Revenue Code,
to our employees. Non-qualified stock options may be granted to employees, non-
employee directors and consultants. The maximum term of options granted under
our 1998 stock option plan is ten years, however, the maximum term for
incentive stock options granted to any person holding more than 10% of the
voting power of all classes or our stock is five years. Our board of directors
may amend our 1998 stock option plan at any time. Our 1998 stock option plan
will terminate in 2008, unless terminated earlier by the board of directors.
An option holder may exercise an option granted under our 1998 stock
option plan in whole or in part at any time during the term of the option and
the option holder's continuous service with us. Shares purchased under an
option are subject to our right to repurchase them, to the extent that the
shares have not yet vested, when the option holder's service with us ceases. An
option granted under the plan generally vests over a four-year period, with 25%
vesting after one year and the remaining shares vesting monthly over a three-
year period. An option holder whose service with us ceases for any reason,
other than upon death, disability or termination for cause, may exercise vested
options in the 60-day period following termination, unless the options expire
sooner by their terms. The 60-day period is extended by up to six months for
terminations due to death or disability. An option holder whose service is
terminated by us for cause may not exercise vested options after the date of
termination.
Employees who were offered positions of employment with us prior to March
1, 1999, also have an acceleration provision in their option agreement in the
case of a change of control transaction. A change of control transaction is
defined generally as a transaction or series of transactions in which our
equity holders immediately prior to the change of control do not retain at
least 50% of the voting power of and interest in the successor entity. In the
case of a change of control, an additional 12.5% of the employee's shares
covered by the option will immediately vest. This percentage will increase to
25% if the employee is employed by us immediately prior to the change of
control and will be laid off by the successor entity as of the time of the
change of control.
2000 Stock Incentive Plan
Our 2000 stock incentive plan was adopted by our board of directors in
January 2000. We expect to receive stockholder approval prior to the
effectiveness of this offering. Our 2000 stock incentive plan provides for the
grant of:
. incentive stock options to our employees, including officers and
employee directors;
. non-qualified stock options to our employees, directors and
consultants;
. stock appreciation rights; and
. other types of awards.
Our 2000 stock incentive plan will be administered by our compensation
committee which selects the optionees, determines the number of shares to be
subject to each option, determines the exercise price of each option and
determines the vesting and exercise periods of each option. Our 2000 stock
incentive plan authorizes the issuance of an aggregate of up to 4,000,000
shares of common stock plus any remaining shares under the 1998 stock option
plan. The 2000 stock incentive plan also provides for annual increases in the
number of shares of common stock subject to the plan by the number of shares
equal to 5% of the total number of shares outstanding or a lesser number of
shares as determined by the compensation committee. We have not yet granted any
options under this plan.
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The exercise price of all incentive stock options granted under our 2000
stock incentive plan must be at least equal to the fair market value of the
common stock on the date of grant. The exercise price of all non-qualified
stock options granted under our 2000 stock incentive plan shall be determined
by the compensation committee, but cannot be less than 85% of the fair market
value on the date of grant unless otherwise determined by the compensation
committee. With respect to any participant who owns stock possessing more than
10% of the voting power of all our classes of stock, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market
value on the grant date and the maximum term of any these options must not
exceed five years. The term of all other awards granted under our 2000 stock
incentive plan will be determined by the compensation committee.
An option holder's initial grant will vest 25% at the first anniversary
date and monthly thereafter, such that the option will be fully exercisable
four years after its date of grant. Subsequent options will vest monthly
commencing on the first month after the grant date, such that the option will
be fully exercisable four years after the grant date.
An option holder under our 2000 stock incentive plan whose services with
us ceases for any reason, other than death or disability, may exercise vested
options in the 90-day period following termination, unless the options expire
sooner by their terms. For terminations caused by death or disability, the
exercise period is 12 months.
In the event of a change of control where the acquiror assumes options
granted under the 2000 stock incentive plan, none of these options are subject
to accelerated vesting. However, assumed options will automatically become
fully vested if the grantee is terminated by the acquiror within six months of
a change of control. In the event of a change of control where the acquiror
does not assume options granted under the 2000 stock incentive plan, all of
these options become fully vested upon the closing of the acquisition.
Unless terminated earlier, our 2000 stock incentive plan will terminate
in 2010. Our board of directors has authority to amend or terminate our 2000
stock incentive plan, provided that this action will not impair the rights of
any participant without the written consent of that participant.
2000 Non-Employee Director Stock Option Program
Our 2000 non-employee director stock option program was adopted by our
board of directors pursuant to the 2000 stock incentive plan and is subject to
the terms and conditions of the 2000 stock incentive plan. The non-employee
director program provides for automatic option grants to non-employee
directors. Our non-employee director program has been approved by our board of
directors prior to the effectiveness of this offering. The non-employee
director program is effective upon the effectiveness of this offering, and no
options will be granted under this program until that time.
The purpose of the non-employee director program is to enhance our
ability to attract and retain the best available non-employee directors and to
provide them additional incentives to promote the success of our business.
Under this program, each non-employee director in office upon the
effectiveness of this offering and each non-employee director first elected to
our board of directors following the effectiveness of this offering will
automatically be granted an option to acquire 25,000 shares of our common stock
at an exercise price per share equal to the fair market value of our common
stock at the date of grant. Twenty-five percent of the options will vest and
become exercisable 12 months after the grant date, with the remaining option
shares vesting monthly over the remaining three-year period and an additional
1/48 of the shares subject to the option will vest on each monthly anniversary
of the grant date thereafter. Upon the date of each annual stockholders'
meeting, each non-employee director who has been a member of our board of
directors for at least 11 months prior to the date of the stockholders' meeting
will receive an automatic option grant for 5,000 shares of our
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<PAGE>
common stock at an exercise price equal to the fair market value of our common
stock at the date of grant. These options will vest monthly over a four-year
period and become exercisable as to 1/48 of the shares subject to the option on
each monthly anniversary of the grant date.
The term of each automatic option grant and the extent to which it will
be transferable will be provided in a stock option agreement. The option
exercise price may be paid by cash, check, shares of our common stock, the
assignment of part of the proceeds from the sale of shares acquired upon
exercise of the option or any combination of these methods.
The non-employee director program is administered by our board of
directors or a committee designated by the board made up of two or more non-
employee directors. The program administrator determines the terms and
conditions of awards and interprets the terms of the program.
Unless terminated earlier, the non-employee director program will
terminate automatically in 2010 when the 2000 stock incentive plan terminates.
Our board of directors has the authority to amend, suspend or terminate the
non-employee director program provided that these actions do not affect awards
to non-employee directors previously granted under the program unless agreed to
by the affected non-employee directors.
2000 Employee Stock Purchase Plan
Our employee stock purchase plan was adopted by our board of directors in
January 2000. We expect to receive stockholder approval prior to the
effectiveness of this offering. Our employee stock purchase plan is intended to
qualify as an employee stock purchase plan under Section 423 of the Internal
Revenue Code to provide our employees with an opportunity to purchase common
stock through payroll deductions.
An aggregate of 2,000,000 shares of common stock has been reserved for
issuance and are available for purchase under our employee stock purchase plan,
pending adjustment for a stock split, or any future stock dividend or other
similar change in our common stock or our capital structure. The employee stock
purchase plan provides for annual increases in the number of shares of common
stock subject to the plan equal to the lesser of:
. two million shares;
. the number of shares equal to 1.75% of the total number of shares
outstanding; or
. a lesser number of shares as determined by the compensation
committee.
All of our employees who are regularly employed for more than five months
in any calendar year and work more than 20 hours per week are eligible to
participate in our employee stock purchase plan. Employees hired after the
closing of this offering are eligible to participate in our employee stock
purchase plan, subject to a ten-day waiting period after hiring. Non-employee
directors, consultants, and employees subject to the rules or laws of a foreign
jurisdiction that prohibit or make impractical their participation in our
employee stock purchase plan are not eligible to participate in this plan.
Our employee stock purchase plan designates offer periods, purchase
periods and exercise dates. Offer periods are generally overlapping periods of
24 months. The initial offer period begins on the effective date of our
employee stock purchase plan, which is the effective date of the registration
statement relating to this offering, and ends on February 14, 2002. Additional
offer periods will commence each February 15 and August 15. Purchase periods
are generally six months in length, with the initial purchase period commencing
on the effective date of our employee stock purchase plan and ending on August
14, 2000. Thereafter, purchase periods will commence each February 15 and
August 15. Exercise dates are the last day of each purchase period. In the
event we merge with or into another corporation, sell all or substantially all
of our assets, or enter into other transactions in which all of our
stockholders before the transaction own less than 50% of the total combined
voting power of our outstanding securities following the transaction, the
administrator of our employee stock purchase plan may elect to shorten the
offer period then in progress.
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On the first day of each offer period, a participating employee is
granted a purchase right. A purchase right is a form of option to be
automatically exercised on the forthcoming exercise dates within the offer
period during which authorized deductions are to be made from the pay of
participants and credited to their accounts under our employee stock purchase
plan. When the purchase right is exercised, the participant's withheld salary
is used to purchase shares of common stock. The price per share at which shares
of common stock are to be purchased under our employee stock purchase plan
during any purchase period is the lesser of 85% of the fair market value of the
common stock on the date of the grant of the option, which is the commencement
of the offer period, or 85% of the fair market value of the common stock on the
exercise date, which is the last day of a purchase period. The participant's
purchase right is exercised in this manner on each exercise date arising in the
offer period unless, on the first day of any purchase period, the fair market
value of the common stock is lower than the fair market value of the common
stock on the first day of the offer period. If so, the participant's
participation in the original offer period is terminated, and the participant
is automatically enrolled in the new offer period effective the same date.
Payroll deductions may range from 1% to 10% in whole percentage
increments of a participant's regular base pay, exclusive of bonuses, overtime,
shift-premiums, commissions, reimbursements or other expense allowances.
Participants may not make direct cash payments to their accounts. The maximum
number of shares of common stock that any employee may purchase under our
employee stock purchase plan during a purchase period is 500 shares. The
Internal Revenue Code imposes additional limitations on the amount of common
stock that may be purchased during any calendar year.
Our employee stock purchase plan will be administered by our board of
directors or a committee designated by our Board, which will have the authority
to terminate or amend our employee stock purchase plan, subject to specified
restrictions, and otherwise to administer our employee stock purchase plan and
to resolve all questions relating to the administration of the plan.
401K Plan
In 1999, we implemented a 401(k) plan covering all employees. Pursuant to
the 401(k) plan, employees may elect to reduce their current compensation up to
the prescribed annual limit, which is $10,500 in 2000, and contribute these
amounts to the 401(k) plan. Employees become fully vested in these
contributions immediately, subject to limitations on access to the
contributions during the duration of employment. The 401(k) plan is intended to
qualify under Section 401 of the Internal Revenue Code so that contributions by
employees or by us to the 401(k) plan, and income earned on the 401(k) plan
contributions, are not taxable to employees until withdrawn from the 401(k)
plan. Contributions by us, if any, will be deductible by us when made. We have
not made any contributions under this plan. The trustee under the 401(k) plan,
at the direction of each participant, invests the 401(k) plan employee salary
deferrals in selected investment options.
Limitation of Liability and Indemnification Matters
The certificate of incorporation that we will adopt immediately prior to
the effectiveness of this offering provides that, except to the extent
prohibited by Delaware law, our directors will not be personally liable to us
or our stockholders for monetary damages for any breach of fiduciary duty as
directors. Under Delaware law, the directors have a fiduciary duty to our
company that is not eliminated by this provision of the certificate of
incorporation and, in appropriate circumstances, equitable remedies including
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the
Delaware law for:
. breach of the director's duty of loyalty;
. acts or omissions which are found by a court of competent
jurisdiction to be not in good faith or which involve intentional
misconduct, or knowing violations of law;
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. actions leading to improper personal benefit to the director; and
. payment of dividends or approval of stock repurchases or redemptions
that are prohibited by Delaware law.
This provision also does not affect a director's responsibilities under any
other laws, including the federal securities laws or state or federal
environmental laws.
Delaware law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors and officers may be entitled under the corporation's bylaws, any
agreement, a vote of stockholders or otherwise. The certificate of
incorporation provides that we will indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding by reason of the fact that the person is or was a
director or officer, or is or was serving at our request as a director or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses, judgements, fines and
amounts paid in settlement actually and reasonably incurred by the person in
the action, suit or proceeding.
We plan to enter into indemnification agreements with our directors and
our executive officers containing provisions that may require us, among other
things, to indemnify our directors and officers against liabilities that may
arise by reason of their status of service as directors or officers other than
liabilities arising from willful misconduct of a culpable nature, to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified. We also intend to obtain directors and officers'
liability insurance for our directors or officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.
The Securities and Exchange Commission is of the opinion that
indemnification of directors, officers and persons controlling our company for
violations of the Securities Act is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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<PAGE>
RELATED PARTY TRANSACTIONS
In May 1998, we entered into restricted stock purchase agreements with
our co-founders, Donald M. Kendall, Jr. and Eric Budin, under which they
received shares of our securities in exchange for their entire membership
interest in Nutrition Direct, LLC, our predecessor entity. Mr. Kendall received
1,449,834 shares of our common stock and 22,976 shares of our Series A
convertible preferred stock. Mr. Budin received 989,526 shares of our common
stock. Under the terms of these agreements, we have repurchase rights with
respect to any unvested shares. Approximately 30% of their shares vested
immediately and the remainder vest monthly over a 34-month period beginning in
May 1998. In March 1999, the agreements were revised to amend the accelerated
vesting provisions upon a change of control transaction and the subsequent
termination of their employment.
The following table sets forth information concerning option grants to
our current executive officers and directors since our inception in January
1998. In each case, the exercise price for the options reflected the fair
market value per share of our common stock as determined by our board of
directors or its compensation committee.
<TABLE>
<CAPTION>
Exercise Price
Name Date of Grant Options Per Share
- ---- ------------- ------- --------------
<S> <C> <C> <C>
Bradford S. Oberwager...................... 12/18/1998 235,000 $0.166
10/8/1999 300,000 0.330
Laureen De Buono........................... 11/3/1999 375,000 3.620
Clarence A. Felong......................... 4/14/1999 419,207 0.166
12/15/1999 100,000 3.620
Bruce S. Mowery............................ 6/1/1999 227,078 0.166
12/15/1999 50,000 3.620
Samuel J. Salkin........................... 8/4/1998 144,000 0.109
5/25/1999 83,078 0.166
12/15/1999 50,000 3.620
Perk Perkins............................... 10/29/1998 30,000 0.166
John Sculley III........................... 10/29/1998 90,000 0.166
</TABLE>
Mr. Oberwager's option to purchase 235,000 shares of our common stock
vests over a 23-month period, which began in May 1999. Upon a change of control
of our company, an additional 12.5% of the shares into which the options are
exercisable immediately vest. Upon a change of control and a subsequent
termination of employment, an additional 25% of the shares into which the
options are exercisable immediately vests. Mr. Oberwager's option to purchase
300,000 shares of our common stock vests subject to the terms and conditions of
our 1998 stock option plan. Upon a change of control of our company, an
additional 12.5% of the shares into which the options are exercisable
immediately vest. Upon a change of control and a subsequent termination of
employment, an additional 25% of the shares into which the options are
exercisable immediately vests. Solely upon the termination of employment
without cause, 50% of the shares into which the options are exercisable
immediately vest.
Ms. De Buono's option to purchase 375,000 shares of our common stock
vests subject to the terms and conditions of our 1998 stock option plan. Upon
termination of employment for reasons other than those indicated in Ms. De
Buono's employment offer letter, between six and 12 months from the start of
her employment, 25% of the options immediately vest. Upon a change of control
of our company, 12.5% of the shares into which the options are exercisable
immediately vest, and upon a change of control and a subsequent termination of
employment or diminution of duties, 37.5% of the shares into which the options
are exercisable immediately vest.
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Mr. Mowery's option to purchase 277,078 shares of our common stock and
Mr. Felong's option to purchase 519,207 shares of our common stock vest subject
to the terms and conditions of our 1998 stock option plan with no accelerated
vesting.
Mr. Salkin's option to purchase 144,000 shares of our common stock vests
subject to the terms and conditions of our 1998 stock option plan. Upon a
change of control of our company, 12.5% of the shares into which the options
are exercisable immediately vest, and upon a change of control and a subsequent
termination of employment or diminution of duties, 25% of the shares into which
the options are exercisable immediately vest. Mr. Salkin's option to purchase
133,078 shares of our common stock vests subject to the terms and conditions of
our 1998 stock option plan with no accelerated vesting.
Mr. Perkins' option to purchase 30,000 shares of our common stock and Mr.
Sculley's option to purchase 90,000 shares of our common stock vested
immediately.
In February 1998, we issued a warrant to purchase an aggregate of 14,634
shares of our Series A convertible preferred stock to Donald M. Kendall, Sr.,
father to Donald M. Kendall, Jr., our Chief Executive Officer. The warrant
expires in May 2003, or immediately upon the occurrence of any of the
following:
. liquidation, dissolution or winding up of our business;
. sale, lease or other disposition of all or substantially all of our
assets; or
. our merger or consolidation with or into any corporation or other
entity where our equity holders immediately prior to such event do
not retain at least 50% of the voting power of and interest in the
successor entity.
In August 1999, we entered into a stock purchase agreement with Bergen
Brunswig Drug Company, our primary fulfillment provider of health products. In
this agreement we issued 1,169,922 shares of our common stock to Bergen
Brunswig in connection with transactions related to the prescription
pharmaceuticals Internet fulfillment services agreement with Medi-Mail, a
wholly owned subsidiary of Bergen Brunswig.
In November 1999, we entered into a share purchase agreement with Roger
Hardy and William Wrixon, who in the aggregate owned the entire equity interest
in Clearly Contacts, now a division of our company. In exchange for Mr. Hardy's
entire interest in Clearly Contacts, he received $262,500 and 165,000 shares of
our common stock. In exchange for Mr. Wrixon's entire interest in Clearly
Contacts, he received $87,500 and 55,000 shares of our common stock.
As of December 31, 1999, we have issued shares of preferred stock in
private placement transactions as follows:
. an aggregate of 398,109 shares of Series A convertible preferred
stock at $1.64 per share to five investors;
. an aggregate of 1,528,000 shares of Series B mandatorily redeemable
convertible preferred stock at $1.64 per share to four investors;
. an aggregate of 6,611,446 shares of Series C mandatorily redeemable
convertible preferred stock at $1.66 per share to seven investors;
and
. an aggregate of 9,233,864 shares of Series D mandatorily redeemable
convertible preferred stock at $4.82 per share to 39 investors.
The following table sets forth the number of shares of Series A
convertible preferred stock and, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock purchased by our directors,
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officers, five percent stockholders and their respective affiliates. Upon the
completion of this offering, each share of the preferred stock converts into
shares of our common stock. Each share of Series A convertible preferred stock
and Series B mandatorily redeemable convertible preferred stock converts into
one and one half shares of our common stock. Each share of Series C and D
mandatorily redeemable preferred stock converts into one share of our common
stock.
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Holder Preferred Preferred Preferred Preferred
- ------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Donald M. Kendall, Jr................. 22,976 46,000 12,169 18,520
Donald M. Kendall, Sr................. 250,384 -- -- --
John Sculley, III..................... -- 46,000 -- 41,493
21st Century Internet Fund, L.P....... -- 1,105,000 1,117,470 989,626
SOFTBANK Affiliates................... -- -- 1,746,988 1,659,751
Rho Management Trust I................ -- -- 1,987,952 1,360,995
Boston Millennia Limited Partnership
and affiliates....................... -- -- -- 1,659,746
Health Business Partners, LLC and its
affiliates........................... -- 331,000 391,566 636,203
HealthCare Ventures V, L.P............ -- -- 1,325,301 220,796
</TABLE>
We have entered into a registration rights agreement with various
preferred stockholders described above pursuant to which they will have
specified registration rights with respect to their shares of common stock
following this offering. Upon the completion of this offering, all shares of
our outstanding preferred stock will be automatically converted into shares of
common stock.
We intend to enter into indemnification agreements with each of our
directors and officers. These indemnification agreements will require us to
indemnify these individuals to the fullest extent permitted by Delaware law. We
will enter into compensation protection agreements with each of our executive
officers.
We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. We intend that all future transactions, including loans, between
us and our officers, directors, principal stockholders and their affiliates
will be approved by a majority of our board of directors, including a majority
of the independent and disinterested outside directors on our board of
directors and will be on terms no less favorable to us than could be obtained
from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of December 31, 1999 and as adjusted to reflect the sale of the shares
of common stock in this offering by:
. each person or entity known by us to own beneficially more than 5% of
our common stock;
. our Chief Executive Officer, each of the executive officers named in
the summary compensation table and each of our directors; and
. all of our executive officers and directors as a group.
The beneficial ownership is calculated based on 23,800,172 shares of our
common stock issued and outstanding as of December 31, 1999, assuming the
conversion of Series A convertible preferred stock and Series B, Series C and
Series D mandatorily redeemable convertible preferred stock into common stock,
which will occur automatically upon the effectiveness of this offering, and
shares outstanding immediately following the completion of this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares issuable upon the exercise of options
that are currently exercisable or become exercisable within 60 days of December
31, 1999 are considered outstanding for the purpose of calculating the
percentage of outstanding shares of our common stock held by the individual,
but not for the purpose of calculating the percentage of outstanding shares of
our common stock held by an other individual. Except as indicated in the
footnotes to this table, and as affected by applicable community property laws,
all persons listed have sole voting and investment power for all shares shown
as beneficially owned by them.
The address of each of the executive officers and directors is c/o
more.com, Inc., 520 Third Street, Second Floor, San Francisco, California
94107.
<TABLE>
<CAPTION>
Number of Percentage of Shares
Shares Beneficially Owned
Beneficially --------------------------------
Beneficial Owner Owned Prior to Offering After Offering
- ---------------- ------------ ----------------- --------------
<S> <C> <C> <C>
21st Century Internet Fund, 3,764,596 15.8%
L.P.............................
John Neil Weintraut, Member
21st Century Internet Management
Partners, LLC
Two South Park, 2nd Floor, San
Francisco, CA 94107
Rho Management Trust I........... 3,348,947 14.1%
Mark Leschly, Managing Director
Rho Management Company, Inc.,
Investment Advisor
152 W 57th Street, New York, NY
10019
SOFTBANK Affiliates (1).......... 3,406,739 14.3%
E. Scott Russell
200 West Evelyn Ave., Suite 200,
Mountain View, CA 94043
Boston Millennia Limited 1,314,315 5.5%
Partnership and Affiliates (2)..
Martin Hernon, General Partner
Glen Partners Limited
Partnership, General Partner
30 Rowes Wharf, Boston, MA 02110
HealthCare Ventures V, L.P....... 1,546,097 6.5%
Jeffrey Steinberg
Administrative Partner of
HealthCare Partners V, L.P.
The General Partner of
HealthCare Partners V, L.P.
44 Nassau Street, Princeton, NJ
08542-4511
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of Shares
Shares Beneficially Owned
Beneficially --------------------------------
Beneficial Owner Owned Prior to Offering After Offering
- ---------------- ------------ ----------------- --------------
<S> <C> <C> <C>
Health Business Partners, LLC 1,524,269 6.4%
and its Affiliates (3).........
Daniel Warshay, Member
5784 Post Road, Suite 5,
Warwick, RI 02818
Donald M. Kendall, Jr. (4)...... 1,583,987 6.7%
Eric Budin (5).................. 989,526 4.2%
Bradford Oberwager (6).......... 820,375 3.4%
Samuel Salkin (7)............... 277,078 1.2%
Clarence A. Felong (8).......... 519,207 2.2%
Mark Leschly (9)................ 3,348,947 14.1%
Thomas A. Penn (10)............. 1,314,315 5.5%
Perk Perkins (11)............... 30,000 *
Donald R. Roden................. -- --
E. Scott Russell (12)........... 3,406,739 14.3%
John Sculley III (13)........... 90,000 *
John Neil Weintraut (14)........ 3,764,596 15.8%
Executive officers and directors 16,796,848 70.6%
as a group (11 persons) (15)...
</TABLE>
- --------
(1) Consists of (a) 2,528,419 shares held by SOFTBANK Venture Capital IV,
L.P.; (b) 48,445 shares held by SOFTBANK Technology Advisors Fund, L.P.;
(c) 795,128 shares held by SOFTBANK Venture Capital V, L.P.; (d) 21,694
shares held by SOFTBANK Technology Advisors Fund V, L.P.; and (e) 13,053
shares held by SOFTBANK / Technology Entrepreneurs Fund V, L.P.
(2) Consists of 1,293,230 shares held by Boston Millennia Limited Partnership
and 21,085 shares held by Boston Millennia Associates I Partnership.
(3) Consists of (a) 496,500 shares held by GreenTree Nutrition Investors,
LLC; (b) 391,566 shares held by Greentree Nutrition Investors II, LLC;
and (c) 636,203 shares held by Greentree Nutrition Investors IV, L.P.
Health Business Partners, LLC is the general partner and administrator of
the above funds.
(4) Includes 463,843 shares subject to repurchase by us as of December 31,
1999.
(5) Includes 309,227 shares subject to repurchase by us as of December 31,
1999.
(6) Includes 163,478 shares subject to repurchase by us as of December 31,
1999 and an option to purchase 300,000 shares of common stock exercisable
within 60 days of December 31, 1999.
(7) Includes 96,000 shares subject to repurchase by us as of December 31,
1999 and an option to purchase 133,078 shares of common stock exercisable
within 60 days of December 31, 1999.
(8) Represents an option to purchase 519,207 shares of common stock
exercisable within 60 days of December 31, 1999.
(9) Mark Leschly, one of our directors, is a director of Rho Management
Company, Inc. The shares represent shares held by Rho Management Company,
Inc. Mr. Leschly disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest as a director.
(10) Thomas A. Penn, one of our directors, is a Partner at Boston Millennia
Partners. The shares represent shares held by Boston Millennia Limited
Partnership and its affiliate. Mr. Penn disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest as a general
partner.
(11) Represents an option to purchase 30,000 shares of common stock
exercisable within 60 days of December 31, 1999.
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(12) E. Scott Russell, one of our directors, is a managing member of SOFTBANK
Venture Capital. The shares represent shares held by SOFTBANK affiliates.
Mr. Russell disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest as a managing member.
(13) Represents an option to purchase 90,000 shares of common stock
exercisable within 60 days of December 31, 1999.
(14) John Neil Weintraut, one of our directors, is a partner at 21st Century
Internet Venture Partners. The shares represent shares held by 21st
Century Internet Ventures Partners. Mr. Weintraut disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest
as a partner.
(15) Includes (a) 11,834,597 shares deemed to be beneficially owned by certain
of our directors as set forth in notes (2), (9), (10) and (11) above; and
(b) 1,724,363 shares of common stock issuable upon exercise of stock
options held by our executive officers and directors within 60 days of
December 31, 1999.
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DESCRIPTION OF CAPITAL STOCK
The following description of our securities and of provisions of our
certificate of incorporation and bylaws is merely a summary. A complete
description of the rights and preferences is set forth in the provisions of our
certificate of incorporation, our bylaws and applicable corporate laws. The
description of common stock and preferred stock reflect changes to our capital
structure that will occur upon the effectiveness of this offering in accordance
with the terms of the certificate of incorporation that we will adopt
immediately prior to the effectiveness of this offering.
Upon the effectiveness of this offering, our authorized capital stock
will consist of 100,000,000 shares of common stock, $0.001 par value per share
and 10,000,000 shares of undesignated preferred stock, par value $0.001.
Common Stock
As of December 31, 1999, we are authorized to issue 30,000,000 shares of
common stock. After giving effect to the conversion of all outstanding shares
of our Series A convertible preferred stock and Series B, Series C and Series D
mandatorily redeemable convertible preferred stock upon the completion of this
offering, 23,800,172 shares of our common stock were issued and outstanding.
The holders of our common stock are entitled to one vote for each share
held of record upon such matters and in such manner as may be provided by law.
Subject to preferences applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably dividends, if any,
as may be declared by our board of directors out of funds legally available for
dividend payments. In the event we liquidate, dissolve or wind up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares of
the preferred stock. Holders of common stock have no preemptive rights or
rights to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
As of December 31, 1999, we are authorized to issue 19,706,478 shares of
our preferred stock. As of December 31, 1999, each of the 398,109 shares of our
Series A convertible preferred stock and 1,528,000 shares of our Series B
mandatorily redeemable convertible preferred stock will convert into one and
one half shares of common stock. Each of the 6,611,446 shares of our Series C
mandatorily redeemable convertible preferred stock and 9,233,864 shares of our
Series D convertible preferred stock will convert into one share of common
stock upon the effectiveness of this offering. Upon the effectiveness of this
offering, our board of directors will be authorized, absent any limitations
prescribed by law, without stockholder approval, to issue up to an aggregate of
10,000,000 shares of preferred stock, in one or more series, each of the series
to have rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by our board of directors. The rights of the holders of common
stock will be subject to, and maybe adversely affected by, the rights of
holders of any preferred stock that maybe issued in the future. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. We have no present plans to issue any shares of preferred stock.
Registration Rights
After this offering, a number of holders of shares of our common stock
will be entitled to registration rights with respect to their shares. Beginning
180 days after this offering, a number of holders may require us to register
all or part of their shares. In addition, these holders may require us to
include their shares in future
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registration statements that we file and may require us to register their
shares on Form S-3. Furthermore, beginning 180 days after this offering, other
holders of our common stock may also require us to include their shares in
future registration statements that we file. Upon registration, these shares
will be freely tradable in the public market without restriction.
All expenses in effecting these registrations, with the exception of
underwriting discounts and selling commissions, will be borne by us. These
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in the registration. We have agreed to indemnify the holders of these
registration rights, and each selling holder has agreed to indemnify us,
against liabilities under the Securities Act, the Securities Exchange Act or
other applicable federal or state law.
Warrants
Series A Warrants
We issued warrants to purchase an aggregate of 20,731 shares of Series A
convertible preferred stock to all our Series A convertible preferred stock
holders except Donald M. Kendall, Jr. The warrants expire in May 2003, or
immediately upon the occurrence of any of the following:
. liquidation, dissolution or winding up of our business;
. sale, lease or other disposition of all or substantially all of our
assets; or
. our merger or consolidation with or into any corporation or other
entity where our equity holders immediately prior to such event do
not retain at least 50% of the voting power of and interest in the
successor entity.
Series C Warrants
In connection with an equipment leasing facility, we issued warrants to
purchase an aggregate of 48,192 shares of Series C convertible preferred stock
with an exercise price of $1.66 per share. In general, the warrants expire on
the later of ten years from issuance, or five years from the closing of an
initial public offering by us.
Anti-Takeover Provisions
Provisions of Delaware law and our certificate of incorporation and
bylaws could make our acquisition by means of a tender offer, a proxy contest
or otherwise, and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage types of coercive
takeover practices and inadequate takeover bids and to encourage persons
seeking to acquire control to first negotiate with us. 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
outweighs the disadvantages of discouraging proposals, including proposals that
are priced above the then current market value of our common stock, because,
among other things, negotiation of these proposals could result in an
improvement of their terms.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law.
This provision generally prohibits any Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date the stockholder became an interested stockholder,
unless:
. prior to that date the board of directors approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
69
<PAGE>
. upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock outstanding at the time the
transaction began; or
. on or following that date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the
interested stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
. the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of
the corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Certificate of Incorporation and Bylaws
Our certificate of incorporation and bylaws will contain provisions that
could have the effect of discouraging potential acquisition proposals or making
a tender offer or delaying or preventing a change in control of our company. In
particular, our certificate of incorporation and bylaws, as applicable, among
other things:
. provide that our board of directors will be divided into three
classes of directors, as nearly equal in number as is reasonably
possible, serving staggered terms so that directors' initial terms
will expire at the first, second and third succeeding annual meeting
of the stockholders following our initial public offering,
respectively. At each such succeeding annual meeting, directors
elected to succeed those directors whose terms are expiring at such
meeting shall be elected for a three-year term of office. A vote of
at least 80% of our capital stock would be required to amend this
provision;
. provide that special meetings of the stockholders may be called only
by our president, our secretary or at the direction of the board.
Advance written notice is required, which generally must be received
by the secretary not less than 30 days nor more than 60 days prior to
the meeting, by a stockholder of a proposal or director nomination
that such stockholder desires to present at a meeting of
stockholders. Any amendment of this provision would require a vote of
at least 80% of our capital stock;
. provide that our stockholders will not be permitted to act by written
consent;
. do not include a provision for cumulative voting in the election of
directors. Under cumulative voting, a minority stockholder holding a
sufficient number of shares may be able to ensure the election of one
or more directors. The absence of cumulative voting may have the
effect of
70
<PAGE>
limiting the ability of minority stockholders to effect changes in
the board and, as a result, may have the effect of deterring a
hostile takeover or delaying or preventing changes in control or
management of our company;
. provide that vacancies on our board may be filled by a majority of
directors in office, although less than a quorum, and not by the
stockholders; and
. allow us to issue up to 10,000,000 shares of undesignated preferred
stock with rights senior to those of the common stock and that
otherwise could adversely affect the rights and powers, including
voting rights, of the holders of common stock. In certain
circumstances, this issuance could have the effect of decreasing the
market price of the common stock, as well as having the anti-takeover
effect discussed above.
These provisions are intended to enhance the likelihood of continuity
and stability in the composition of our board and in the policies formulated
by them, and to discourage certain types of transactions that may involve an
actual or threatened change in control of our company. These provisions are
designed to reduce our vulnerability to an unsolicited acquisition proposal
and to discouraging certain tactics that may be used in proxy fights. However,
these provisions could have the effect of discouraging others from making
tender offers for our shares that could result from actual or rumored takeover
attempts. These provisions also may have the effect of preventing changes in
our management.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is EquiServe. Its
address is 150 Royall Street, Canton, Massachusetts 02021, and its telephone
number is (781) 575-2469.
71
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have shares of common stock
outstanding. Of this amount, the shares offered by this prospectus will be
available for immediate sale in the public market as of the date of this
prospectus. Following the expiration of 180-day lockup agreements with the
representatives of the underwriters, shares will be available for sale in
the public market, subject in some cases to compliance with the volume and
other limitations of Rule 144 of the Securities Act.
<TABLE>
<CAPTION>
Approximate Number
Days after the Date of of Shares Eligible for
this Prospectus Future Sale Comment
- ------------------------ ---------------------- ---------------------------------------------------------------
<S> <C> <C>
Upon effectiveness...... Freely tradable shares sold in this offering
180 days................ Lock-up released; shares saleable under Rule 144, 144(k) or 701
</TABLE>
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
. one percent of the then outstanding shares of common stock; or
. the average weekly trading volume during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect
to the sale.
A person who is not deemed to have been an affiliate of ours at any time
during the 90 days immediately preceding the sale and who has beneficially
owned his or her shares for at least two years is entitled to sell his or her
shares under Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell under the limitations imposed
by Rule 144, even after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under
Rule 144 because this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to the offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
Our company and our directors, executive officers, stockholders with
registration rights and other stockholders and option holders have agreed,
under the purchase agreement and other agreements, that they will not sell any
common stock without the prior written consent of Merrill Lynch for a period of
180 days from the date of this prospectus, except that we may, without consent,
grant options and sell shares under our stock plans.
Any employee or consultant who purchased his or her shares under a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of December 31, 1999, the holders of options to purchase
approximately shares of common stock will be eligible to sell their shares
upon the expiration of the 180-day lockup period, subject to the vesting of
those options.
We intend to file a registration statement on Form S-8 under the
Securities Act of 1933, as amended, as soon as practicable after the completion
of this offering to register shares of common stock
72
<PAGE>
subject to outstanding stock options or reserved for issuance under our stock
plans. This registration will permit the resale of these shares by
nonaffiliates in the public market without restriction under the Securities
Act, upon completion of the lock-up period described above. Shares registered
under the Form S-8 registration statement held by affiliates will be subject to
Rule 144 volume limitations.
73
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc.
and U.S. Bancorp Piper Jaffray Inc. are acting as representatives of the
underwriters named below. Subject to the terms and conditions described in a
purchase agreement among us and the underwriters, we have agreed to sell to the
underwriters, and the underwriters severally have agreed to purchase from us,
the number of shares listed opposite their names below.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
Lehman Brothers Inc. ............................................
U.S. Bancorp Piper Jaffray Inc. .................................
------
Total.......................................................
======
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against specified
liabilities, including liabilities under the Securities Act, or to contribute
to payments the underwriters may be required to make in respect of those
liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters
of officer's certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to reject orders
in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose
initially to offer the shares to the public at the initial public offering
price on the cover page of this prospectus and to dealers at that price less a
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a discount not in excess of $ per share to other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
74
<PAGE>
The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes 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
more.com........................... $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount,
are estimated at $ million and are payable by us.
Over-allotment Option
We have granted options to the underwriters to purchase up to
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise these options for 30 days from the date of this
prospectus solely to cover any over-allotments. If the underwriters exercise
these options, each will be obligated, subject to conditions contained in the
purchase agreements, to purchase a number of additional shares proportionate to
that underwriter's initial amount reflected in the above table.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares offered by this prospectus for
sale to some of our directors, officers, employees, distributors, dealers,
business associates and related persons. If these persons purchase reserved
shares, this will reduce the number of shares available for sale to the general
public. Any reserved shares that are not orally confirmed for purchase within
one day of the pricing of this offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
No Sales of Similar Securities
We, our executive officers and directors and all existing stockholders
have agreed, with exceptions, not to sell or transfer any common stock for 180
days after the date of this prospectus without first obtaining the written
consent of Merrill Lynch. Specifically, these other individuals and we have
agreed not to directly or indirectly:
. offer, pledge, sell or contract to sell any common stock;
. sell any option or contract to purchase any common stock;
. purchase any option or contract to sell any common stock;
. grant any option, right or warrant for the sale of any common stock;
. lend or otherwise dispose of or transfer any common stock;
. request or demand that we file a registration statement related to
the common stock; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.
75
<PAGE>
Quotation on the Nasdaq National Market
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "MORE."
Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations among the representatives and us. In addition to prevailing market
conditions, the factors to be considered in determining the initial public
offering price are:
. the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
. our financial information;
. the history of, and the prospects for, our company and the industry
in which we compete;
. an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues;
. the present state of our development; and
. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short
position by purchasing shares in the open market. The representatives may also
elect to reduce any short position by exercising all or part of the over-
allotment option described above. Purchases of the common stock to stabilize
its price or to reduce a short position may cause the price of the common stock
to be higher than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
in the open market to reduce the underwriters' short position or to stabilize
the price of such shares, they may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those shares. The
imposition of a penalty bid may also affect the price of the shares in that it
discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
76
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Morrison & Foerster LLP, San Francisco, California. Legal matters in
connection with this offering will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Attorneys employed by Morrison & Foerster LLP will purchase shares
in our directed share program.
EXPERTS
The consolidated financial statements of more.com, Inc. as of December
31, 1998 and 1999 and for the period from January 9, 1998 (inception) to
December 31, 1998 and the year ended December 31, 1999, and the financial
statements of Comfort Living, Inc. as of December 31, 1998 and 1999 and for
each of the years then ended, included in this prospectus have been so included
in reliance on the reports (which for Comfort Living, Inc. contains an
explanatory paragraph relating to the ability of Comfort Living, Inc. to
continue as a going concern as described in Note 1 to its financial statements)
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
CHANGE IN PRINCIPAL ACCOUNTANTS
In January 2000, Ernst & Young LLP was dismissed, and
PricewaterhouseCoopers LLP replaced Ernst & Young LLP as our independent
accountants. The selection of PricewaterhouseCoopers LLP as our independent
accountants was ratified by our audit committee in January 2000. During fiscal
1998 and fiscal 1999, we had no disagreement with our former accountants, Ernst
& Young LLP, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements if not
resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement. Ernst
& Young LLP did not issue a report on our financial statements with respect to
the year ended December 31, 1999.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with Securities and Exchange Commission in Washington, D.C.
a Registration Statement on Form S-1 under the Securities Act with respect to
the common stock offered in this prospectus. This prospectus, filed as part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement and its exhibits and schedules, portions of which
have been omitted as permitted by the rules and regulations of the SEC. For
further information about us and our common stock, we refer you to the
Registration Statement and to its exhibits and schedules. Statements in this
prospectus about the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, we refer you to the copy of
such contract, agreement or document filed as an exhibit to the Registration
Statement, with each such statement being qualified in all respects by
reference to the document to which it refers. Anyone may inspect the
Registration Statement and its exhibits and schedules without charge at the
public reference facilities the SEC maintains at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the SEC located at 7
World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661. You may obtain copies of all or
any part of these materials from the SEC upon the payment of certain fees
prescribed by the SEC. You may also inspect these reports and other information
without charge at a Web site maintained by the SEC. The address of this site is
http://www.sec.gov.
Upon completion of this offering, we will become subject to the
informational requirements of the Exchange Act and will be required to file
reports, proxy statements and other information with the SEC. You will be able
to inspect and copy these reports, proxy statements and other information at
the public reference
77
<PAGE>
facilities maintained by the SEC and at the SEC's regional offices at the
addresses noted above. You also will be able to obtain copies of this material
from the Public Reference Section of the SEC as described above, or inspect
them without charge at the SEC's Web site. We have applied for quotation of our
common stock on the Nasdaq National Market. If we receive approval for
quotation on the Nasdaq National Market, then you will be able to inspect
reports, proxy and information statements and other information concerning us
at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
78
<PAGE>
MORE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
more.com, Inc. Consolidated Financial Statements
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Deficit........................... F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Pro Forma Combined Consolidated Financial Information
Overview................................................................... F-31
Pro Forma Combined Consolidated Balance Sheet.............................. F-32
Pro Forma Combined Consolidated Statement of Operations Information........ F-33
Notes to Pro Forma Combined Consolidated Financial Information............. F-34
Comfort Living, Inc.
Report of Independent Accountants.......................................... F-35
Balance Sheets............................................................. F-36
Statements of Operations................................................... F-37
Statements of Stockholders' Equity (Net Capital Deficiency)................ F-38
Statements of Cash Flows................................................... F-39
Notes to Financial Statements.............................................. F-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of more.com, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
more.com, Inc. and its subsidiaries at December 31, 1998 and 1999, and the
results of their operations and their cash flows for the period from January 9,
1998 (inception) through December 31, 1998 and for the year ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 4, 2000
F-2
<PAGE>
MORE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
December 31, December 31, December 31,
1998 1999 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 8,549 $ 24,655
Short-term investments............... 1,003 --
Accounts receivable, net............. 23 591
Inventories.......................... 22 175
Prepaid expenses and other current
assets.............................. 172 641
-------- --------
Total current assets............... 9,769 26,062
Fixed assets, net...................... 300 6,452
Intangible assets, net................. 1,472 7,551
Other assets........................... -- 96
-------- --------
Total assets........................... $ 11,541 $ 40,161
======== ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................... $ 331 $ 1,421
Accrued liabilities.................. 466 6,174
Current portion of borrowings under
lines of credit..................... 375 891
-------- --------
Total current liabilities.......... 1,172 8,486
-------- --------
Borrowings under lines of credit, less
current portion....................... 225 1,376
Mandatorily redeemable convertible
preferred stock (Note 6).............. 13,481 58,064 $ --
Commitments and contingencies (Note 8)
Stockholders' equity (deficit):
Preferred stock: issuable in series,
$0.001 par value; 419 shares
authorized, 398 shares issued and
outstanding, actual; none issued and
outstanding, pro forma.............. 10 10 --
Common stock: $0.001 par value;
30,000 shares authorized; 2,939 and
5,065 shares issued and outstanding,
actual; 30,000 shares authorized,
23,800 shares issued and
outstanding, pro forma.............. 3 5 24
Additional paid-in capital........... 2,190 16,698 74,753
Deferred stock-based compensation.... (371) (4,624) (4,624)
Accumulated deficit.................. (5,169) (39,854) (39,854)
-------- -------- --------
Total stockholders' equity
(deficit)......................... (3,337) (27,765) $ 30,299
-------- -------- ========
$ 11,541 $ 40,161
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
MORE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
January 9, 1998
(inception) to Year ended
December 31, 1998 December 31, 1999
----------------- -----------------
<S> <C> <C>
Net revenues:.............................. $ 99 $ 2,923
Cost of net revenues (1)................. 143 3,753
------- --------
Gross profit (loss).................... (44) (830)
------- --------
Operating expenses:
Marketing and sales (2).................. 2,613 20,480
Product development (3).................. 1,387 3,254
General and administrative (4)........... 788 5,187
Amortization of deferred stock-based
compensation............................ 404 5,061
------- --------
Total operating expenses............... 5,192 33,982
------- --------
Operating loss............................. (5,236) (34,812)
Other income (expense):
Interest income.......................... 107 482
Interest expense......................... (40) (355)
------- --------
Net loss................................... $(5,169) $(34,685)
Accretion of discount on mandatorily
redeemable convertible preferred stock.... (101) (1,597)
------- --------
Net loss available to common stockholders.. $(5,270) $(36,282)
======= ========
Basic and diluted net loss per share....... $ (5.90) $ (15.74)
Pro forma basic and diluted net loss per
share (unaudited)......................... $ (2.68)
Weighted average shares outstanding used to
compute basic and diluted net loss per
share..................................... 893 2,305
Weighted average shares outstanding used to
compute pro forma basic and diluted net
loss per share (unaudited)................ 13,556
</TABLE>
- --------
(1) Excludes stock-based compensation charges of $11 in 1998 and $31 in 1999.
(2) Excludes stock-based compensation charges of $93 in 1998 and $1,619 in
1999.
(3) Excludes stock-based compensation charges of $39 in 1998 and $1,986 in
1999.
(4) Excludes stock-based compensation charges of $261 in 1998 and $1,425 in
1999.
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
MORE.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Stockholders' Deficit
-----------------------------------------------------------------------------
Series A
Convertible
Preferred
Stock Common stock Additional Deferred Total
------------- ------------- Paid-in Stock-based Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Deficit Deficit
------ ------ ------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common stock
and Series A
convertible preferred
stock to founders upon
incorporation.......... 23 $10 2,439 $ 2 $ 40 $ -- $ -- $ 52
Issuance of Common stock
in connection with
acquisition of Acumin.. -- -- 500 1 864 -- -- 865
Issuance of Series A
convertible preferred
stock and warrants in
exchange for
cancellation of notes
payable................ 375 -- -- -- 612 -- -- 612
Deferred stock-based
compensation related to
stock options granted.. -- -- -- -- 775 (775) -- --
Amortization of deferred
stock- based
compensation........... -- -- -- -- -- 404 -- 404
Accretion of discount on
Series B and Series C
mandatorily redeemable
convertible preferred
stock.................. -- -- -- -- (101) -- -- (101)
Net loss and
comprehensive loss..... -- -- -- -- -- -- (5,169) (5,169)
--- --- ----- --- ------- ------- -------- --------
Balance at December 31,
1998................... 398 10 2,939 3 2,190 (371) (5,169) (3,337)
--- --- ----- --- ------- ------- -------- --------
Issuance of Common stock
in connection with
fulfillment agreement.. -- -- 1,170 1 4,550 -- -- 4,551
Exercise of stock
options................ -- -- 736 1 146 -- -- 147
Options issued to
consultants............ -- -- -- -- 375 -- -- 375
Deferred stock-based
compensation related to
stock options granted.. -- -- -- -- 9,314 (9,314) -- --
Amortization of deferred
stock-based
compensation........... -- -- -- -- -- 5,061 -- 5,061
Accretion of discount on
Series D mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (1,597) -- -- (1,597)
Issuance of common stock
in conjunction with
acquisition of Clearly
Contacts Lenses, Inc... -- -- 220 -- 1,720 -- -- 1,720
Net loss and
comprehensive loss..... -- -- -- -- -- -- (34,685) (34,685)
--- --- ----- --- ------- ------- -------- --------
Balance at December 31,
1999................... 398 $10 5,065 $ 5 $16,698 $(4,624) $(39,854) $(27,765)
=== === ===== === ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
MORE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
January 9, 1998
(inception) to Year ended
December 31, December 31,
1998 1999
--------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net loss.......................................... $(5,169) $(34,685)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization expense........... 129 1,682
Interest expense related to converted notes
payable........................................ 12 153
Amortization of deferred stock-based
compensation................................... 404 5,061
Compensation expense recorded for consultants... -- 282
Changes in operating assets and liabilities, net
of assets and liabilities acquired in a
purchase business combinations:
Accounts receivable........................... (23) (568)
Inventories................................... 13 (112)
Prepaid expenses and other current assets..... (172) (374)
Other assets.................................. -- (96)
Accounts payable.............................. 331 990
Accrued liabilities........................... 466 5,708
------- --------
Net cash used in operating activities....... (4,009) (21,959)
------- --------
Cash flows from investing activities
Purchases of fixed assets, net of acquired
business......................................... (341) (5,762)
Purchases of short-term investments............... (1,003) --
Sales of short-term investments................... -- 1,003
Acquisition of intangible assets.................. -- (323)
Business combinations, net of cash acquired....... (730) (414)
------- --------
Net cash used in investing activities....... (2,074) (5,496)
------- --------
Cash flows from financing activities
Borrowings under lines of credit.................. 600 1,350
Repayment of lines of credit...................... -- (769)
Proceeds from issuance of convertible notes
payable.......................................... 600 --
Proceeds from issuance of convertible subordinated
notes payable.................................... -- 12,000
Net proceeds from issuance of mandatorily
redeemable convertible
preferred stock.................................. 13,380 30,833
Net proceeds from issuance of preferred and common
stock............................................ 52 147
------- --------
Net cash provided by financing activities......... 14,632 43,561
------- --------
Net increase in cash and cash equivalents......... 8,549 16,106
Cash and cash equivalents at beginning of period.. -- 8,549
------- --------
Cash and cash equivalents at end of period........ $ 8,549 $ 24,655
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
more.com, Inc. (the "Company" or "more.com") is an Internet health
superstore. Its e-commerce Web site, www.more.com, was launched on August 17,
1999. The Company was incorporated on May 14, 1998 in Delaware. Prior to its
incorporation, the Company operated as Nutrition Direct LLC, which was formed
on January 9, 1998 by the founders who contributed a total of $52,000 in cash.
Immediately after the Company's incorporation as more.com, the founders
retained the same voting rights as they had possessed in Nutrition Direct LLC.
The Company has derived substantially all of its revenue from sales in North
America.
The Company has incurred significant operating losses since inception of
operations and has limited working capital. The Company has financed its
operations to date through the issuance of debt and equity securities. Further
development and establishment of the Company's business will require additional
equity financing. The Company believes that financing can be obtained from
existing or new investors. However, there can be no assurance that the Company
will be able to obtain such equity financing on acceptable terms, if at all.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
Business and Concentration Risks
The Company operates in the e-commerce market, which is new, rapidly
evolving and highly competitive. The Company competes with other Internet
companies, established chain drugstores, mass market retailers, supermarkets,
warehouse clubs, cosmetic departments at major department stores and mail-order
pharmacies.
The Company currently depends primarily on one vendor to provide order
fulfillment. Although the Company believes that there are alternative vendors
for order fulfillment, there can be no assurance that the Company will maintain
its relationship with this vendor.
The Company is heavily dependent upon a number of other third parties for
credit card processing. In addition, the United Parcel Service of America, Inc.
and the United States Postal Service deliver substantially all of the Company's
products. Interruption of the services of any of these third parties could have
a material adverse impact on the Company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported results of operations during the reporting period. Actual
results could differ from those estimates.
F-7
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities, approximate fair value due to their
short maturities. Based upon borrowing rates currently available to the Company
for loans with similar terms, the carrying value of capital lease obligations
approximates fair value.
Cash and Cash Equivalents
The Company considers investments in highly liquid investments purchased
with original maturities of 90 days or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value. The Company
maintains its cash in depository accounts with high credit quality financial
institutions.
Short-Term Investments
The Company has classified all short-term investments in debt securities
as available-for-sale. Available-for-sale securities are carried at cost which
approximates fair market value. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in interest income. Interest earned on securities classified as available-for-
sale is also included in interest income.
Concentrations of Credit Risk and Credit Evaluations
The Company is subject to concentrations of credit risk from its holdings
of cash, cash equivalents and short-term investments, which are held
principally with two domestic financial institutions. The Company conducts
business with individuals over the Internet. Sales to individuals are
principally paid for via credit cards and the Company's accounts receivable are
not significant.
Inventories
Inventories are carried at the lower of cost (determined on the specific
identification basis) or market. Inventories consist of raw materials, work in
process and nutritional products available for sale.
Fixed Assets
Fixed assets, including leasehold improvements, are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from two to five years. Leasehold improvements are amortized over the term of
the lease or estimated useful lives, whichever is shorter. Maintenance and
repair expenditures are charged to operations as incurred.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued 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, the Company has capitalized certain purchased
software costs and Web site development costs. SOP 98-1 requires the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use.
F-8
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible Assets
Intangible assets relate to the Company's acquisition of certain
intellectual property rights, and goodwill related to business acquisitions
accounted for under the purchase method of accounting, and deferred fulfillment
costs. Intellectual property rights and goodwill are amortized using the
straight-line method over their estimated useful lives, ranging from 12 to 36
months. Deferred fulfillment costs are being amortized using the straight-line
method over the term of the fulfillment arrangement, which is ten years.
Long-Lived Assets
Long-lived assets and intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Impairment is measured by comparing the carrying value
of the long-lived assets to the estimated undiscounted future cash flows
expected to result from use of the assets and their ultimate disposition. In
circumstances where impairment is determined to exist, the Company will write
down the asset to its fair value based on the present value of estimated
expected future cash flows. To date, no such impairment has been indicated.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method of accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
Pro Forma Stockholders' Equity
Effective upon the closing of the initial public offering of the
Company's common stock, the outstanding shares of Series A convertible
preferred stock and Series B, Series C and Series D mandatorily redeemable
convertible preferred stock will automatically convert into 597,000, 2,292,000,
6,611,000 and 9,234,000 shares, respectively, of common stock. The Company has
also issued Series A warrants and Series C warrants which will automatically
convert into 31,097 and 48,192 shares, respectively, of common stock. The pro
forma effects of these transactions are unaudited and have been reflected in
the accompanying pro forma consolidated balance sheet at December 31, 1999.
Net Loss Per Common Share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS No. 128")
and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of
FAS No. 128 and SAB 98, basic net loss per share is computed by dividing the
net loss available to common stockholders for the period by the weighted
average number of shares of common stock outstanding during the period. The
calculation of diluted net loss per share gives effect to common stock
equivalents; however, potential common shares are excluded if their effect is
antidilutive. Potential common shares are composed of common stock subject to
repurchase rights and incremental shares of common stock issuable upon the
exercise of stock options and warrants and upon conversion of Series A
convertible preferred stock and Series B, Series C and Series D mandatorily
redeemable convertible preferred stock.
Pro forma basic and diluted net loss per share is computed on the basis
that all of the Series A convertible preferred stock and the Series B, Series C
and Series D manditorily redeemable convertible preferred stock convert into
common stock in accordance with their terms upon the closing of a "Qualified
Offering" as described in Note 6.
F-9
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net
loss per share and pro forma basic and diluted net loss per share for the
periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Period from
January 9, 1998 Year ended
(inception) to December 31,
December 31, 1998 1999
----------------- ------------
(in thousands)
<S> <C> <C>
Numerator:
Net loss available to common
shareholders........................... $(5,270) $(36,282)
======= ========
Denominator:
Weighted average common shares
outstanding............................ 2,518 3,573
Less weighted average common shares
issued subject to repurchase
agreements............................. (1,625) (1,268)
------- --------
Denominator for basic and diluted
calculation............................ 893 2,305
-------
Weighted average effect of pro forma
conversion of securities:
Series A preferred stock.............. 597
Series B preferred stock.............. 2,292
Series C preferred stock.............. 6,611
Series D preferred stock.............. 1,751
--------
Denominator for pro forma basic and
diluted calculation (unaudited)...... 13,556
========
Net loss per share:
Basic and diluted....................... $ (5.90) $ (15.74)
======= ========
Pro forma basic and diluted
(unaudited)............................ $ (2.68)
========
</TABLE>
The following table sets forth common stock equivalents (potential common
stock) that are not included in the diluted net loss per share calculation
above because their effect would be antidilutive for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Period from
January 9,
1998
(inception)
to Year ended
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Weighted average effect of common stock
equivalents:
Series A preferred stock..................... 379 597
Series B preferred stock..................... 1,455 2,292
Series C preferred stock..................... 1,162 6,611
Series D preferred stock..................... -- 1,751
Preferred stock warrants..................... 19 63
Unvested shares of common stock subject to
repurchase.................................. 1,625 1,268
Stock options................................ 211 1,920
----- ------
4,851 14,502
===== ======
</TABLE>
F-10
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
The Company accounts for stock-based awards to employees under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted
the disclosure-only alternative of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). APB 25 provides
that the compensation expense relative to the Company's employee stock options
is measured based on the intrinsic value of the stock option. FAS 123 requires
companies that continue to follow APB 25 to provide a pro forma disclosure of
the impact of applying the fair value method of FAS 123. The Company accounts
for stock issued to nonemployees in accordance with the provisions of FAS 123
and the Emerging Issues Task Force consensus in Issue No. 96-18, "Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or in Conjunction with Selling, Goods or Services".
Advertising Expenses
The Company recognizes advertising expenses in accordance with Statement
of Position 93-7, "Reporting on Advertising Costs." As such, the Company
expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used. Advertising production costs are expensed
as incurred. Advertising expenses totaled $2.0 million for the period from
January 9, 1998 (inception) to December 31, 1998, and $13.4 million for the
year ended December 31, 1999.
Revenue Recognition
Net revenues include product sales net of returns and allowances, and
advertising sales and gross outbound standard shipping charges. The Company
recognizes revenue from product sales, net of discounts, coupon redemption and
estimated sales returns, when the products are shipped to customers. Gross
outbound standard shipping and handling charges are included in net sales. The
Company provides an allowance for sales returns, which is based on historical
experience. For all product sales transactions with its customers, the Company
acts as a principal, takes title to all products sold upon shipment, bears
credit risk, and bears inventory risk of loss for returned products that are
not eligible to be returned to suppliers, although these risks are mitigated
through arrangements with credit card issuers and shippers. The Company
recognizes revenue from advertising sales ratably over the term of the
advertising campaigns. To the extent that advertising customers have paid the
Company for advertisements that have yet to be published on the Company's Web
site, the Company defers revenue recognition until such advertisements are
delivered.
In September 1999, the Company entered into an agreement with Bergen
Brunswig Drug Company ("BBDC") for BBDC to become the Company's advertising
agent. Under the terms of the agency agreement, BBDC will act as the Company's
agent for finding third parties to place ads on the Company's Web site. BBDC
will earn a commission based upon the advertising revenues that the Company
earns. Under the terms of the contract, BBDC guaranteed minimum monthly
advertising revenue to the Company in the first year of the contract, with the
aggregate of the monthly minimums totaling $5.0 million by August 1, 2000. For
the year ended December 31, 1999, the Company recognized $400,000, all of which
related to the BBDC minimum monthly guarantee. The Company did not recognize
any advertising revenue for the period from January 9, 1998 (inception) to
December 31, 1998.
Comprehensive Income
The Company complies with the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS
130 establishes standards for reporting comprehensive
F-11
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. There is no difference between comprehensive loss and net loss
for all periods presented.
Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use"
("SOP 98-1"). SOP 98-1 requires all costs related to the development of
internal use software other than those incurred during the application
development stage to be expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and amortized over
the estimated useful life of the software. SOP 98-1 was adopted by the Company
on January 1, 1999.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 was adopted by the
Company on January 1, 1999 and requires costs of start-up activities and
organization costs to be expensed as incurred.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133, as amended by FAS
137, is effective for fiscal years beginning after June 15, 2000. FAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income (loss) depending on
whether a derivative is designed as part of a hedge transaction and, if so, the
type of hedge transaction involved. The Company does not expect that adoption
of FAS 133 will have a material impact on its consolidated financial position
or results of operations as the Company does not currently hold any derivative
financial instruments.
NOTE 2--BALANCE SHEET COMPONENTS (IN THOUSANDS):
Inventories
Inventories are carried at the lower of cost (determined on the specific
identification basis) or market. Inventories consist of raw materials, work in
process and nutritional products available for sale as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Raw Materials.................................... $-- $ 27
Work in Process.................................. -- 90
Finished Goods................................... 22 58
--- ----
Total.......................................... $22 $175
=== ====
</TABLE>
F-12
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fixed Assets
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Computers and equipment........................ $298 $1,698
Purchased software............................. -- 1,646
Web site development costs..................... -- 3,456
Furniture, fixtures and leasehold
improvements.................................. 43 394
---- ------
341 7,194
Less: accumulated depreciation and
amortization.................................. (41) (742)
---- ------
$300 $6,452
==== ======
</TABLE>
Intangible Assets
The components of intangible assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred fulfillment costs....................... $ -- $ 4,551
Goodwill......................................... 1,510 3,324
Customer base.................................... -- 243
Assembled workforce.............................. 50 304
Other............................................ -- 198
------ -------
$1,560 $ 8,620
Less: Accumulated amortization................... (88) (1,069)
------ -------
$1,472 $ 7,551
====== =======
</TABLE>
Accrued Liabilities
The components of accrued liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Accrued vacation................................. $ 12 $ 218
Loss on promotional program...................... -- 1,700
Advertising...................................... 219 1,455
Equipment purchase............................... -- 1,150
Other............................................ 235 1,651
---- ------
$466 $6,174
==== ======
</TABLE>
F-13
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3--FINANCING ARRANGEMENTS
In June 1998, the Company entered into a line of credit agreement with a
bank that provides for borrowings of up to $600,000. The agreement provides for
two lines of credit: an Equipment Line of Credit and a Revolving Line of
Credit. The maximum available to borrow under each line of credit is $300,000.
The outstanding borrowings of $300,000 under the Revolving Line of Credit at
December 31, 1998, which bore interest at the bank's prime rate plus 1.50%,
were fully repaid in June 1999. In accordance with the terms of the agreement,
the outstanding borrowings of $300,000 under the Equipment Line of Credit at
December 31, 1998 were converted into a term note in June 1999. Under the term
note, the unpaid principal will be repaid in 24 equal monthly installments
commencing in July 1999 and will bear interest at the bank's prime rate (8.50%
at December 31, 1999) plus 2.00%. At December 31, 1999, $225,000 was
outstanding under this term note. Outstanding borrowings under this agreement
are collateralized by substantially all of the Company's assets. This agreement
prohibits cash dividends being paid by the Company without the bank's prior
written consent.
In May 1999, the Company entered into a $1.1 million financing agreement
with a vendor for the purchase of the Company's enterprise resource planning
system. The arrangement is composed of four financing contracts for $144,000,
payable over 30 months, $212,000, payable over 30 months, $362,000, payable
over 36 months, and $368,000, payable over 12 months. All four contracts are
payable on a quarterly basis. Prepayment of any outstanding amounts is
allowable, subject to certain penalties. At December 31, 1999, the Company had
approximately $805,000 outstanding under these notes bearing interest at a rate
of approximately 14.50% per annum.
In July 1999, the Company entered into an equipment line of credit
arrangement under a Senior Loan and Security Agreement with a financing
institution, which provides for borrowings of up to $2.0 million. Under the
terms of the agreement, the Company will enter into promissory notes for
borrowings made to purchase certain equipment, machinery, fixtures and
intangibles. Each note requires minimum payments of principal and interest over
42 months. Equipment, intangibles, and other assets of the Company are pledged
as collateral for this agreement. Prepayments are subject to certain penalties.
At December 31, 1999, the Company had approximately $1.2 million outstanding
under this line of credit with an effective interest rate of approximately
15.00% per annum. In connection with the line of credit arrangement, the
Company issued warrants to purchase 48,192 shares of Series C mandatorily
redeemable convertible preferred stock at $1.66 per share. The warrants expire
upon the earlier of 10 years or upon a merger or a sale of substantially all of
the Company's assets. The fair value attributable to these warrants, calculated
using the Black-Scholes option pricing model, was $76,000, which is being
charged to interest expense over the term of the agreement.
Future minimum payments under these financing arrangements are as follows
(in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000.............................................................. $ 891
2001.............................................................. 673
2002.............................................................. 451
2003.............................................................. 252
------
Total Payments...................................................... $2,267
======
</TABLE>
F-14
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4--CONVERTIBLE SUBORDINATED PROMISSORY NOTES
In February and March 1998, the Company issued convertible subordinated
promissory notes to certain investors in exchange for $600,000 in cash. The
notes bore interest at 10% per annum and were convertible into shares of
capital stock sold in the next financing round with proceeds to the Company of
at least $1.0 million. In May 1998, all promissory notes and accrued interest
were converted into 375,133 shares of Series A convertible preferred stock. In
connection with the issuance of the promissory notes, the Company issued
warrants to purchase 20,731 shares of Series A convertible preferred stock at
an exercise price of $1.64 per share. These warrants expire upon a liquidation,
dissolution, sale, lease or disposition of substantially all of the assets of
the Company, a merger, or five years from the issuance of the warrants. The
fair value attributable to these warrants was not material.
In July 1999, the Company issued convertible subordinated promissory
notes to certain Series C convertible preferred stockholders for $7.0 million
in cash. The notes bore interest at 10.00% per annum and all principal and
accrued interest were due on January 29, 2000 for all but one note. Principal
and accrued interest on the one note were due on February 18, 2000. The notes
were subordinated to the June 1999 term note and to the July 1999 equipment
line of credit. Upon a sale by the Company of the Company's preferred
securities with proceeds to the Company of at least $15.0 million, outstanding
principal and accrued interest under these convertible subordinated promissory
notes automatically convert into such preferred securities at the preferred
stock sale price per share. In October 1999, all outstanding principal and
accrued interest was converted into 1,481,227 shares of Series D mandatorily
redeemable convertible preferred stock.
In October 1999, the Company issued additional convertible subordinated
promissory notes to certain Series C convertible preferred stockholders for
$5.0 million in cash. The notes bore interest at 10.00% per annum and all
principal and accrued interest were due on April 8, 2000. The notes were
subordinated to the June 1999 term note and to the July 1999 equipment line of
credit. Upon a sale by the Company of its preferred securities with proceeds to
the Company of at least $25.0 million, outstanding principal and accrued
interest under these convertible subordinated promissory notes automatically
convert into such preferred securities at the preferred stock sale price per
share. In November 1999, all outstanding principal and accrued interest was
converted into 1,040,044 shares of Series D mandatorily redeemable convertible
preferred stock.
NOTE 5--RELATED PARTY TRANSACTIONS
Fulfillment Arrangement
In April 1999, the Company entered into a letter of understanding with a
vendor, which established the vendor as the Company's primary wholesale
supplier of non-prescription products at specified fulfillment charges.
In August 1999, the Company entered into a letter of intent to execute
formal over-the-counter and prescription fulfillment agreements with the
vendor. These agreements were executed in December 1999. In exchange for
entering into the letter of intent, the Company issued 1,169,922 shares of its
common stock to the vendor. These shares were deemed to have a fair value of
$4.6 million, which has been recorded as an intangible asset that is being
amortized as an operating expense over the term of the fulfillment agreement,
which is ten years.
F-15
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6--STOCKHOLDERS' EQUITY
The Company is authorized to issue 30,000,000 shares of common stock and
19,706,478 shares of preferred stock each with a par value of $0.001 per share.
Common Stock Issued to Founders
In May 1998, the Company incorporated in Delaware and acquired all of the
outstanding equity interests of its predecessor, Nutrition Direct, LLC, a
California limited liability company (the "LLC") in exchange for the issuance
of 2,439,360 shares of common stock and 22,976 shares of Series A convertible
preferred stock of the Company. Approximately one-third of the common shares
and all of the preferred shares were immediately vested. The remaining common
shares are subject to a repurchase right which expires ratably over a 34-month
period which began in May 1998. The repurchase right allows the Company to
repurchase unvested shares at a repurchase price of $0.11 per share, determined
to be the value of the stock on the date of purchase, in the event of
termination of employment, death or disability. Upon a change in control, an
additional six months of unvested shares become immediately vested. Upon a
change in control plus termination, an additional twelve months of unvested
shares become immediately vested. At December 31, 1999, 721,539 shares were
subject to the repurchase right.
Preferred Stock
Preferred stock at December 31, 1999 consists of the following (in
thousands):
<TABLE>
<CAPTION>
Shares Shares Issuance Liquidation Redemption
Series Authorized Outstanding Price Amount Amount
- ------ ---------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
A....................... 419 398 $1.64 $ 653 $ 653
B....................... 1,528 1,528 1.64 10,024 2,506
C....................... 6,660 6,611 1.66 43,900 10,975
D....................... 11,100 9,234 4.82 178,032 44,507
------ ------ -------- -------
Total................. 19,707 17,771 $232,609 $58,641
====== ====== ======== =======
</TABLE>
The holders of Series A convertible preferred stock and Series B, Series
C and Series D manditorily redeemable convertible preferred stock ("preferred
stock") have various rights and preferences as follows:
Conversion
Each share of convertible preferred stock is convertible, at the option
of the holder, into fully paid and nonassessable shares of common stock at the
conversion rate. The conversion rate of the Series A convertible preferred
stock and Series B mandatorily redeemable convertible preferred stock is 3:2.
The conversion rate of the Series C and Series D mandatorily redeemable
convertible preferred stock is 1:1. The conversion rates are subject to
adjustment from time to time. The number of shares of common stock into which a
share of a series of preferred stock is convertible is referred to as the
conversion rate of such series.
Each share of preferred stock will automatically be converted into shares
of common stock, based on the then effective conversion rate, at any time upon
the affirmative vote of the holders of at least a two-thirds majority of the
outstanding shares of the Series A convertible preferred stock and the Series B
mandatorily redeemable convertible preferred stock voting together as one class
for those series or immediately upon a firmly underwritten public offering, as
defined in the Company's Articles of Incorporation ("Qualified
F-16
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Offering") at a price not less than $4.92 per share and not less than $20.0
million in the aggregate. Each share of the Series C and Series D mandatorily
redeemable convertible preferred stock will be converted upon the affirmative
vote of the holders of at least a two-thirds majority of the then outstanding
shares of that series, or immediately upon the closing of a Qualified Offering
at a price of not less than $4.98 per share and not less than $20.0 million in
the aggregate and at a price not less than $12.05 per share and not less than
$30.0 million in the aggregate, respectively.
Dividends
The holders of shares of Series A convertible preferred stock, in
preference to the holders of common stock but only after dividends have been
paid to the Series B, Series C and Series D mandatorily redeemable convertible
preferred stock, are entitled to receive dividends at the rate of $0.1312 per
annum on each outstanding share of Series A convertible preferred stock (as
adjusted for any stock dividends, combinations or splits with respect to such
shares).
The holders of shares of Series B, Series C and Series D mandatorily
redeemable convertible preferred stock, in preference to the holders of any
other stock of the Company, are entitled to receive dividends at the rates of
$0.1312, $0.1328, and $0.3856 per annum on each outstanding share of Series B,
Series C and Series D mandatorily redeemable convertible preferred stock,
respectively (as adjusted for any stock dividends, combinations or splits with
respect to such shares).
Such dividends are payable only when, as and if declared by the Board of
Directors, but only out of funds that are legally available, and are
noncumulative.
Redemption
Series A convertible preferred stock is not redeemable.
Upon affirmative vote or written consent, the holders of not less than a
majority of the outstanding shares of Series B, Series C and Series D
mandatorily redeemable convertible preferred stock, voting together as a single
class on an as-converted basis, may require the Company to redeem for cash all
shares of Series B, Series C and Series D mandatorily redeemable convertible
preferred stock outstanding on October 22, 2004. Redemption will be in two
equal annual installments on the dates that are three months and fifteen months
after the Company's receipt of a Redemption Election, as defined. The
redemption price is the original issue price plus all declared but unpaid
dividends. If the Company does not have sufficient funds legally available to
redeem all the shares to be redeemed at the redemption date, then the Company
will redeem such shares pro rata to the extent possible and will redeem the
remaining shares to be redeemed as soon as sufficient funds are legally
available.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company
(which includes any transaction in which more than 50% of the Company's voting
power is transferred, or the Company sells substantially all of its assets),
whether voluntary or involuntary, the holders of convertible preferred stock
are entitled to receive, prior and in preference to any distribution of the
assets of the Company to the holders of common stock, by reason of their
ownership, an amount equal to the sum of $1.64 for each share of Series A
convertible preferred stock and Series B mandatorily redeemable convertible
preferred stock, $1.66 for each share of Series C mandatorily redeemable
convertible preferred stock, and $4.82 for each share of Series D
F-17
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
mandatorily redeemable convertible preferred stock, plus any declared but
unpaid dividends with respect to such shares. The remaining assets, if any, are
to be distributed ratably to the holders of common and preferred stock on an
as-if-converted to common stock basis until the holders of Series B, Series C
and Series D mandatorily redeemable convertible preferred stock have received
an aggregate of $6.56, $6.64 and $19.28 per share, respectively, at which time
the remaining assets legally available for distribution will be paid on a pro
rata basis to the holders of common stock. If, upon the occurrence of a
liquidation event, the assets and funds distributed among the holders of the
preferred stock are insufficient to permit the payment to holders of the full
preferential amount, then all assets and funds of the Company legally available
for distribution are to be distributed ratably among the holders of preferred
stock, in proportion to the preferential amount each such holder is otherwise
entitled to receive.
Voting
The holders of preferred stock are entitled to the number of votes equal
to the number of shares of common stock into which each share of preferred
stock could be converted.
Antidilution Provisions
The conversion price of the Company's preferred stock is subject to
adjustment to prevent dilution in the event that the Company issues additional
shares of preferred stock, common stock or common stock equivalents at a
purchase price less than the then-effective conversion price, provided,
however, that without triggering antidilution adjustments, the Company may
issue to directors, officers, employees, or consultants shares of common stock
that are reserved for issuance under the Company's stock option plan or in
connection with financing or other transactions which involve consideration and
which are approved by the Board of Directors.
Convertible Preferred Stock and Mandatorily Redeemable Convertible Preferred
Stock Warrants
In connection with the issuance of promissory notes, the Company issued
warrants to Series A convertible preferred stock investors to purchase shares
of the Company's Series A convertible preferred stock. In connection with an
equipment financing arrangement, the Company issued warrants to purchase shares
of the Company's Series C mandatorily redeemable convertible preferred stock to
a capital lessor. All warrants were immediately exercisable after issuance. The
Series A warrants expire in May 2003, or immediately upon the occurrence of:
(a) a liquidation, dissolution or winding up of the Company's business; (b) a
sale, lease or other disposition of all or substantially all of the Company's
assets; or, (c) a merger or consolidation where more than 50% of the voting
interests are not retained by the Company. The Series C warrants expire on the
later of ten years from issuance, or five years from the closing of an initial
public offering by the Company. The Company estimated the fair value of the
warrants using the Black-Scholes option pricing model. The fair value of the
Series A preferred stock warrants was de minimus. The fair value of the Series
C warrants was estimated to be $76,000. The Company records the expense related
to these warrants over the life of the associated financing instrument as
additional interest expense. The following table summarizes the outstanding
warrants (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Date Exercise Fiscal Year Unamortized
of Grant Shares Price of Expiration Amounts
--------- ------ -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Series A preferred stock
warrants................. May 1998 21 $1.64 2003 $ --
Series C preferred stock
warrants................. July 1999 48 1.66 2009 76
</TABLE>
F-18
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, pursuant to the Company's issuances of convertible
preferred and mandatorily redeemable convertible preferred stock and preferred
stock warrants, the Company had reserved shares of common stock for future
issuance as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Conversion of Series A mandatorily redeemable convertible
preferred stock and warrants.................................... 628
Conversion of Series B mandatorily redeemable convertible
preferred stock................................................. 2,292
Conversion of Series C mandatorily redeemable convertible
preferred stock and warrants.................................... 6,660
Conversion of Series D mandatorily redeemable convertible
preferred stock................................................. 9,234
</TABLE>
NOTE 7--EMPLOYEE BENEFIT PLAN
401(k) Savings Plan
The company has a savings plan (the "Savings Plan") which qualifies as a
defined contribution arrangement under Section 401(a), 401(k) and 501(a) of the
Internal Revenue Code. Under the Savings Plan, participating employees may
defer a percentage (not to exceed 25%) of their eligible pretax earnings up to
the Internal Revenue Service's annual contribution limit. All employees on the
United States payroll of the Company are eligible to participate in the Plan.
The Company will determine its contributions, if any, based on its
current profits and/or retained earnings. No contributions have been made since
the inception of the Savings Plan.
Stock Option Plan
The Company has reserved 4,117,500 shares of common stock under the
Company's 1998 Stock Option Plan (the "Plan"). The Plan provides for incentive
stock options, as defined by the Internal Revenue Code, to be granted to
employees, at an exercise price not less than 100% of the fair value at the
grant date as determined by the Board of Directors, unless the optionee is a
10% shareholder, in which case the option price will not be less than 110% of
such fair market value. The Plan also provides for nonqualified stock options
to be issued to nonemployee directors and consultants at an exercise price of
not less than 85% of the fair value at the grant date. Option vesting schedules
are determined by the Board of Directors at the time of issuance. Stock options
generally vest 25% at the end of the first anniversary date and monthly
thereafter up to a maximum of four years. Options granted under the Plan are
exercisable over a maximum term of ten years from the date of grant. Upon a
change of control, as defined in the Plan, 12.5% of outstanding options as of
the date of the change in control become immediately exercisable, the
percentage of which may increase to 25% if the option holder is employed
immediately prior to the change in control and is terminated at time of change
in control. As of December 31, 1999, 119,740 options to purchase shares of
common stock were available for future grant under the Plan.
F-19
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the stock option activity is as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Weighted-
Number Average
of Exercise
Shares Price
------ ---------
<S> <C> <C>
Granted.................................................. 1,083 $ 0.14
Canceled................................................. (257) 0.11
-----
Outstanding at December 31, 1998......................... 826 0.15
Granted.................................................. 3,393 1.36
Exercised................................................ (736) 0.20
Canceled................................................. (222) 0.17
-----
Outstanding at December 31, 1999......................... 3,261 1.40
=====
</TABLE>
The weighted-average fair value of options granted to employees during
the period from January 9, 1998 (inception) to December 31, 1998 and the year
ended December 31, 1999 were $1.18 and $3.07 per share, respectively.
The following table summarizes information about stock options
outstanding and exercisable as of December 31, 1999 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- -------------------------------
Weighted-
Range of Weighted-Average Average
Exercise Number Remaining Exercise Number Weighted-Average
Price Outstanding Contractual Life Price Outstanding Exercise Price
-------- -------------- ---------------- --------- -------------- ----------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$ 0.11 20 8.58 years $ 0.11 7 $ 0.11
$ 0.17 1,370 9.44 years $ 0.17 84 $ 0.17
$ 0.33 744 9.74 years $ 0.33 -- $ 0.33
$ 3.62 1,127 9.90 years $ 3.62 -- $ 3.62
----- ---
3,261 91
===== ===
</TABLE>
The Company recorded deferred stock-based compensation of $775,000
during the period from January 9, 1998 (inception) to December 31, 1998 and
$9.3 million during the year ended December 31, 1999, representing the
difference between the exercise price and the deemed fair market value for
financial accounting purposes of the Company's common stock on the grant date
for certain of the Company's stock options granted to employees. These amounts
are being amortized by charges to operations over the vesting periods of the
individual stock options. Such amortization amounted to $404,000 for the
period from January 9, 1998 (inception) to December 31, 1998 and $5.1 million
for the year ended December 31, 1999.
Options Issued to Consultants
Included in the tables above are options granted to consultants to
purchase 49,632 and 211,390 shares of common stock during the period from
January 9, 1998 (inception) to December 31, 1998 and during the year ended
December 31, 1999, respectively. These options were granted in exchange for
consulting services. Amounts allocated to consulting expense during the period
from January 9, 1998 (inception) to December 31, 1998 were not material.
Amounts charged to consulting expense under the consulting arrangements is
$282,000 during the year ended December 31, 1999. The value attributable to
options granted to consultants during the
F-20
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
period from January 9, 1998 (inception) to December 31, 1998 and during the
year ended December 31, 1999 were de minimis and $375,000, respectively.
Pro Forma Disclosure of the Effect of Stock-Based Compensation
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Pro forma information regarding net loss is required by FAS 123.
This information is required to be determined as if the Company has accounted
for its employee stock options under the fair value method of FAS 123. Under
this method, the estimated fair value of the options is amortized to expense
over the options' vesting period. The fair value for these options was
estimated at the date of grant using the minimum value method with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
Period from
January 9, 1998
(inception) to Year Ended
December 31, December 31,
1998 1999
--------------- ------------
<S> <C> <C>
Risk-free interest rate....................... 4.81% 5.91%
Expected life of the option................... 5 years 5 years
Expected dividend yield....................... 0% 0%
</TABLE>
The option valuation models used under FAS 123 were developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility and 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 estimates, in management's opinion, the existing models
do not necessarily provide a reliable single measure of the fair value of its
employee stock options.
The effect of applying the FAS 123 fair value method to the Company's
stock-based awards results in net loss as follows (in thousands):
<TABLE>
<CAPTION>
Period from
January 9, 1998
(inception) to Year ended
December 31, December 31,
1998 1999
--------------- ------------
<S> <C> <C>
Net loss, as reported........................ $(5,169) $(34,685)
Net loss, pro forma.......................... $(5,170) $(34,726)
</TABLE>
F-21
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8--COMMITMENTS AND CONTINGENCIES
Leases
The Company leases facilities and equipment under noncancelable operating
leases with various expiration dates through 2002. The following are the
minimum lease obligations under these leases at December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
2000.......................................................... $398
2001.......................................................... 188
2002.......................................................... 133
----
Total minimum lease payments.............................. $719
====
</TABLE>
Rent expense under operating lease arrangements for the period from
January 9, 1998 (inception) to December 31, 1998 totaled $84,000 and the year
ended December 31, 1999 totaled $281,000.
Advertising Contracts
The Company has entered into various online advertising and promotional
program agreements. The following are the future minimum commitments owed by
the Company under the non-cancelable agreements at December 31, 1999 (in
thousands):
<TABLE>
<S> <C>
2000................................................................ $ 597
2001................................................................ 250
-----
Total minimum payments.......................................... $ 847
=====
</TABLE>
Charter Customer Promotion
The Company established a charter customer promotion beginning with the
launch of its Web site, August 17, 1999, through January 26, 2000 (the
"Promotion Period"). The purpose of the promotion was to attract and retain
customers. At the end of the promotion, approximately 85,000 customers were
charter customers. The program allows a charter customer to purchase those
products that they purchased during the Promotion Period, for the life of the
charter member, at the prices that prevailed during the Promotion Period. The
program applies only to products which the charter customer purchased during
the Promotion Period. The program also allows a charter customer to receive
free shipping with future purchases, as long as the purchase includes at least
one charter customer product. For all but seven $1 promotion items, all
products sold under the charter customer program were sold at a gross profit.
Terms and conditions of the promotion require the charter customer to
purchase each product on the customer's list at least once annually and to
purchase the products only for personal use. The Company reserves the right to
establish a minimum order requirement for charter customers to qualify for free
shipping, to limit quantities, and to disqualify any individual who tampers,
disrupts, or interferes with the promotion. If the manufacturer stops making a
specific charter customer product or the Company discontinues selling the
charter customer product, no substitutions are permitted. The Company reserves
the right to modify or terminate the charter customer promotion if the
promotion cannot run as planned due to computer bugs, viruses, tampering,
unauthorized intervention, fraud, technical failures, or any other causes
beyond its control, or if the Company undergoes a change in ownership, or if
the promotion violates applicable law in any jurisdiction.
F-22
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has recorded a liability of $1.7 million for estimated
future losses attributable to the charter customer promotion through December
31, 1999. The expense was recorded in marketing and sales. The Company has
also deferred revenue of $120,000 in 1999 which represents the estimated value
of this promotion to charter customers. The deferred revenue will be amortized
into revenue over an estimated life of the benefit to the customer of five
years. These amounts were determined based on the Company's historical records
of charter customer transactions, third party industry data on comparable
product life cycles, third party industry data on consumer purchasing patterns
for products sold by the Company, estimated inflation rates and terms and
conditions of the charter customer promotion. The Company will continue to
assess its exposure to loss for these products and adjust such reserves as
necessary. A significant change in actual consumer purchasing patterns,
inflation, or product life cycles, could have a material effect on the
required reserve and results of operations.
Contingencies
From time to time, the Company may have certain contingent liabilities
that arise in the ordinary course of its business activities. The Company
accrues contingent liabilities when it is probable that future expenditures
will be made and such expenditures can be reasonably estimated. In the opinion
of management, there are no pending claims of which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations or cash flows of the Company.
NOTE 9--INCOME TAXES
The Company was formed as a limited liability company ("LLC") in January
1998, and converted to a C corporation in May 1998. Net operating losses and
tax credits generated prior to the Company's incorporation as a C Corporation
were passed through to the owners of the LLC. At December 31, 1999, the
Company had net operating loss carryforwards of approximately $32.0 million
and $31.4 million for both federal and state income tax purposes,
respectively, which begin to expire in the years 2018 and 2006. At December
31, 1999, the Company had research credit carryforwards of approximately
$39,000 and $33,000 for federal and state income tax purposes, respectively.
The federal credit, if not utilized, will expire in the year 2018. Pursuant to
Section 382 of the Internal Revenue Code, due to changes in the Company's
ownership, future utilization of a portion of these net operating loss and
credit carryforwards will be subject to a limitation of approximately $250,000
per year.
The components of the net deferred tax assets and liabilities are
presented below (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Net operating loss carryforwards........................ $ 1,893 $ 12,701
Tax credit carryforwards................................ 0 61
Accruals and reserves................................... 0 979
Fixed assets............................................ 0 (15)
------- --------
1,893 13,726
Less: Valuation allowance............................... (1,893) (13,726)
------- --------
Net deferred tax asset.................................. $ 0 $ 0
======= ========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax asset. The valuation allowance recorded for the
period ended December 31, 1998 and the year December 31, 1999 increased by
$1.9 million and $11.8 million, respectively.
F-23
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The difference between the income tax benefit at the statutory rate of
34% and the Company's effective tax rate is due primarily to the valuation
allowance established to offset the net deferred tax asset. The provision for
income taxes is different than the amount computed using the applicable
statutory federal income tax rate with the difference for each year summarized
below:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Federal tax benefit at statutory rate.......................... (34) (34)
State taxes, net of federal benefit............................ (6) (6)
Adjustment due to the increase in valuation allowance.......... 40 35
Other.......................................................... 0 5
--- ---
Provision for income taxes..................................... 0 0
=== ===
</TABLE>
NOTE 10--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and non-cash activities for 1998 and
1999 (in thousands):
<TABLE>
<CAPTION>
Period from
January 9, 1998
(inception) to Year ended
December 31, December 31,
1998 1999
--------------- ------------
<S> <C> <C>
Supplemental cash flow disclosure
Cash paid for interest........................... $ 20 $ 142
Supplemental disclosure of noncash investing and
financing activities
Common stock issued in connection with
acquisitions.................................... $ 865 $ 1,720
Series A convertible preferred stock and warrants
issued in exchange for cancellation of notes
payable and related accrued interest............ $ 612 $ --
Note payable assumed from software vendor........ $ 1,086
Series D mandatory redeemable convertible
preferred stock issued in exchange for
cancellation of convertible notes payable and
related accrued interest........................ $12,153
Common stock issued in connection with
fulfillment and advertising arrangement......... $ -- $ 4,551
Accretion of discount on mandatorily redeemable
convertible preferred stock..................... $ 101 $ 1,597
Deferred stock-based compensation related to
options granted................................. $ 775 $ 9,314
Deferred consulting related to options granted to
consultants..................................... $ -- $ 375
Fixed assets acquired and included in accounts
payable......................................... $ -- $ 375
<CAPTION>
Period from
January 9, 1998
(inception) to Year ended
December 31, December 31,
1998 1999
--------------- ------------
<S> <C> <C>
Acquired net assets associated with acquisitions:
Fair value of net tangible assets.............. $ 35 $ (19)
Fair value of assembled workforce.............. 50 254
Fair value of customer base.................... -- 118
Goodwill....................................... 1,510 1,814
------- -------
$ 1,595 $ 2,167
======= =======
</TABLE>
F-24
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--BUSINESS COMBINATIONS AND ASSET PURCHASES
In November 1998, the Company acquired all of the outstanding capital
stock of Acumin Corporation ("Acumin") in a transaction which was accounted
for under the purchase method of accounting. Acumin is a producer of custom
blended vitamins that are personalized to the individual health needs of its
customers. The purchase consideration was $1.6 million, consisting of $730,000
in cash and 500,000 shares of the Company's common stock with a fair value of
$1.73 per share based upon the fair value of the Company's common stock as
determined based upon concurrent equity transactions with unrelated parties.
The Company also entered into an escrow agreement with the seller of Acumin
whereby the seller would be paid $100,000 subject to the seller's continuing
employment with the Company for twelve months following the closing date of
the purchase transaction. This amount has been recognized as compensation
expense over the twelve month period (i.e., $17,000 and $83,000 recognized in
the period ended December 31, 1998 and the year ended December 31, 1999,
respectively) and was fully paid in November 1998.
The purchase consideration was allocated to the acquired assets based on
fair values as follows (in thousands):
<TABLE>
<S> <C>
Net tangible assets................................................ $ 35
Assembled workforce................................................ 50
Goodwill........................................................... 1,510
------
Total purchase consideration..................................... $1,595
======
</TABLE>
In January 1999, the Company acquired customer lists from Vitasave, Inc.
for $125,000 in cash. The intangible assets acquired are being amortized over
three years.
In June 1999, the Company paid $130,000 for ownership rights to the
more.com domain name.
In December, 1999, the Company acquired all of the outstanding capital
stock of Clearly Contacts Lenses, Inc. ("Clearly Contacts"). Clearly Contacts
sells contact lenses to customers worldwide through their Internet Web site.
The aggregate purchase price of the acquisition was $2.2 million. The
consideration for the acquisition consisted of $350,000 of cash, 220,000
shares of the Company's common stock, with an estimated value of $7.82 per
share based upon the fair value of the Company's common stock as determined
based upon concurrent equity transactions with unrelated parties.
Additionally, the Company incurred approximately $97,000 of transaction costs,
including legal and other advisory services. The Clearly Contacts acquisition
was accounted for under the purchase method of accounting, and its results of
operations are included in the Company's consolidated financial statements
from the date of acquisition.
The purchase consideration was allocated to the acquired assets based on
fair values as follows (in thousands):
<TABLE>
<S> <C>
Assembled workforce................................................ $ 254
Customer base...................................................... 118
Goodwill........................................................... 1,814
Net tangible liabilities........................................... (19)
------
Total purchase consideration..................................... $2,167
======
</TABLE>
F-25
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma consolidated financial information reflect the
results that would have occurred had the acquisitions occurred at the beginning
of each of the periods presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Period from
January 9, 1998
(inception) to Year ended
December 31, December 31,
1998 1999
--------------- ------------
<S> <C> <C>
Net revenues................................ $ 300 $ 3,205
Net loss.................................... $(6,871) $(35,706)
Basic and diluted weighted-average net loss
per share.................................. $ (5.16) $ (14.88)
</TABLE>
The pro forma net losses include additional amortization of goodwill and
purchased intangibles of approximately $1.6 million and $1.0 million for the
period ended December 31, 1998 and the year ended December 31, 1999. This
unaudited pro forma combined consolidated financial information is presented
for illustrative purposes only and is not necessarily indicative of the
consolidated results of operations in future periods or the results that
actually would have been realized.
NOTE 12--SUBSEQUENT EVENTS
Initial public offering
The Company's Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit
the Company to sell shares of its common stock to the public.
Pending Comfort Living Acquisition
In January 2000, the Company signed a letter of intent to acquire all of
the outstanding capital stock of Comfort Living, Inc. ("Comfort Living"). The
acquisition is subject to the approval of Comfort Living's stockholders. The
Company's management believes the acquisition is probable. The acquisition will
be accounted for using the purchase method of accounting and, accordingly, the
net assets and results of operations of Comfort Living will be included in the
Company's consolidated financial statements subsequent to the acquisition date.
Comfort Living reported net revenues and a net loss for the year ended December
31, 1999 of $4.6 million and $543,000, respectively.
The purchase consideration includes $2.5 million of cash and 1,500,000
shares of the Company's common stock, valued at $14.9 million based on the
deemed per share value of the Company's common stock. The Company also expects
to incur approximately $500,000 in acquisition related expenses, including
legal and other advisory related services.
Additionally, the Company's Board of Directors has approved 357,000 stock
option grants to employees of Comfort Living to be issued subsequent to the
closing of the acquisition. The options have an exercise price of $4.82 per
share and the Company will record additional deferred stock-based compensation
of approximately $1.8 million.
F-26
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The total purchase price of $17.9 million will be allocated to net assets
acquired, including tangible and intangible assets, and liabilities assumed,
based on their respective estimated fair values at the acquisition date. The
estimate of fair value of the net assets acquired is expected to be allocated
as follows (in thousands):
<TABLE>
<S> <C>
Fair value of net tangible liabilities.......................... $ (195)
Fair value of assembled workforce (to be amortized over 2
years)......................................................... 1,516
Fair value of customer base (to be amortized over 2 years)...... 812
Goodwill (to be amortized over 2 years)......................... 15,717
-------
$17,850
=======
</TABLE>
The acquisition has been structured as a tax-free exchange of stock. The
differences between the recognized fair values of acquired net assets,
including tangible and intangible net assets, and their historical tax bases
are not deductible for tax purposes.
Retailer Arrangement
On January 20, 2000, the Company entered into a five year agreement with
Phar-Mor.com, Inc. ("Phar-Mor.com"), a chain of discount retail drugstores, to
become an exclusive online provider of health, beauty and wellness products. As
part of the agreement, Phar-Mor.com will prominently promote the Company's Web
site via a unique URL on its own Web sites, and will promote the Company in all
of its marketing and promotional materials, including prescription bags,
shopping bags, circulars, print advertising, Internet and other online
advertising, newsletters, and placement of signs at physical locations. In
addition, Phar-Mor.com has committed to purchase between $1.0 million and $2.0
million of third party advertising during each year of the agreement based on a
percentage of revenues generated from its unique URL, and has agreed not to
sell on any of its sites any products of the types currently offered on the
Company's Web site.
Included as part of the agreement is an arrangement by which the Company
has agreed to pay to Phar-Mor.com a referral fee equal to 49% of the Company's
gross profit from each product (excluding prescription drugs) sold on the
Company's site to customers who reached the site using Phar-Mor.com's unique
URL.
Phar-Mor.com also purchased 1,037,345 shares of the Company's Series D
mandatorily redeemable convertible preferred stock at $4.82 per share, totaling
$5.0 million. Given the timing between this issuance and the Company's public
offering, the difference between the value of the Company's common stock and
the issuance price of $4.82 per share represents a deemed discount on the
mandatorily redeemable convertible preferred stock which will be accounted for
as deferred marketing costs and amortized to marketing and sales over the five
year term of the arrangement.
In association with this transaction, an outside consultant earned a
placement fee of $150,000 and vested 125,000 common stock options which had a
deemed fair value of $1.2 million, determined using the Black-Scholes option
pricing model, which will be expensed in the first quarter of 2000.
2000 Non-Employee Director Option Program
In January 2000 the Board of Directors adopted and in February 2000 the
stockholders approved the 2000 Non-Employee Director Option Program ("Director
Program") under the provisions of the 2000 Plan, which will become effective
upon the effective date of the initial public offering. Members of the Board
who
F-27
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
are not employees of the Company are eligible to participate in the Director
Program. The option grants under the Director Program are automatic and
nondiscretionary, and the exercise price of the options must be 100% of the
fair market value of the common stock on the date of grant. Each eligible
director who first becomes a member of the Board will initially be granted an
option to purchase 25,000 shares on the date such director first becomes a
director. Those directors who are members of the Board upon the effective date
of the initial public offering will initially be granted an option to purchase
25,000 shares on such date. Immediately following each annual meeting of the
Company, beginning in 2001, each eligible director will automatically be
granted an additional option to purchase 5,000 shares if such director has
served continuously as a member of the board for at least eleven months. The
options have a term of ten years, provided that they will terminate three
months following the date the director ceases to be a director or other service
provider of the Company (twelve months if the termination is due to death or
disability). The initial options for 25,000 shares will vest 25% at the first
anniversary date and monthly thereafter, such that the Option will be fully
exercisable four years after its date of grant. The subsequent options for
5,000 shares will vest monthly commencing on the first month after the grant
date, such that the Option will be fully exercisable four years after the grant
date.
2000 Stock Incentive Plan
In January 2000 the Board of Directors adopted and in February 2000 the
stockholders approved the 2000 Stock Incentive Plan (the "2000 Plan"). Under
the 2000 Plan, 4,000,000 shares are reserved of the Company's common stock,
plus the aggregate number of remaining shares available under the 1998 Plan on
the effective date of the initial public offering. In January 2001 and every
year thereafter until the year 2009, shares reserved for issuance will
automatically increase by a number equal to 5% of the total number of shares of
common stock outstanding or a lesser number of shares determined by the 2000
Plan administrator. The 2000 Plan provides for the award of options, stock
appreciation rights, sales or bonuses of restricted stock, dividend equivalent
rights, performance units or performance shares (the "Awards"). Options granted
under the 2000 Plan may be either incentive stock options ("ISO") or
nonqualified stock options ("NSO"). ISOs may be granted only to Company
employees (including officers and directors who are also employees and
employees of any subsidiaries and parent companies). NSOs may be granted to
employees, outside directors, and consultants of the Company or any related
entity. Options under the 2000 Plan may be granted for periods of up to ten
years and at prices no less than 85% of the estimated fair value of the shares
on the date of grant as determined by the Board of Directors unless otherwise
determined by the 2000 Plan administrator, provided, however, that (i) the
exercise price of an ISO may not be less than 100% of the fair market value of
the shares on the date of grant, and (ii) the exercise price of an ISO granted
to a 10% shareholder may not be less than 110% of the fair value of the shares
on the date of grant. Each initial grant will vest 25% at the first anniversary
date and monthly thereafter, such that the Option will be fully exercisable
four years after its date of grant. Subsequent options will vest monthly
commencing on the first month after the grant date, such that the Option will
be fully exercisable four years after the grant date.
In the event of a change of control where the acquiror assumes options
granted under the 2000 Plan, none of these options are subject to accelerated
vesting. However, assumed options will automatically become fully vested if the
grantee is terminated by the acquiror within six months of a change of control.
In the event of a change of control where the acquiror does not assume options
granted under the 2000 Plan, all of these options become fully vested upon the
closing of the acquisition.
Employee Stock Purchase Plan
In January 2000 the Board of Directors adopted and in February 2000 the
stockholders approved the Employee Stock Purchase Plan (the "ESPP"), which will
become effective upon the effective date of the initial
F-28
<PAGE>
MORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
public offering. Under the ESPP 2,000,000 shares of common stock are reserved
for issuance thereunder. On each January and every year thereafter beginning in
2001, the aggregate number of shares reserved for issuance under the ESPP will
be increased automatically to the lesser of 1.75% of the total number of common
shares outstanding and 2,000,000 shares or a lesser number of shares determined
by the ESPP Administrator. Employees generally will be eligible to participate
in the ESPP if they are customarily employed by the Company for more than 20
hours per week and more than five months in a calendar year and are not (and
would not become as a result of being granted an option under the ESPP) 5%
stockholders of the Company. Under the ESPP, eligible employees may select a
rate of payroll deduction up to 10% of their W-2 cash compensation subject to
certain maximum purchase limitations. The first offering period is expected to
begin on the effective date of the initial public offering. Depending on the
effective date, the first Purchase Period within the first offering period may
be more or less than six months long. Offering periods thereafter will begin on
February 15 and August 15. Purchases will occur on each February 14 and August
14. The price at which the common stock is purchased under the ESPP is 85% of
the lesser of the fair market value of the Company's common stock on the date
before the first day of the applicable offering period or on the date before
the stock is purchased.
Stock Option Grants
On January 27, 2000, the Company approved an additional 4,000,000 shares
for issuance under the 1998 Stock Option Plan. During the period from January
1, 2000 through February 2, 2000 the Company granted stock options to employees
and consultants to purchase an aggregate of 196,900 shares of common stock for
$4.82 per share. The Company has recorded $1.2 million of deferred stock-based
compensation related to these grants.
Authorization of Shares
In connection with the approval of the various plans, the Board approved
an amendment to the certificate of incorporation on January 27, 2000 to
increase the total authorized number of preferred and common stock to
62,000,000 shares.
Compensation Protection Agreements
The Company will enter into compensation protection agreements with each
of our executive officers. These agreements are for a term of three years
commencing in January 2000 and are subject to automatic annual extensions. If
within 12 months of a change of control of our company, an executive officer's
employment with us is terminated by us other than for cause or by the officer
personally for good reason, excluding by reason of the officer's disability,
death or retirement, then we must pay that officer: (a) his or her accrued
compensation, including unpaid base salary, pro rata bonus, and vacation pay;
and (b) an amount equal to two times the sum of the officer's highest annual
base salary and annual bonus in effect immediately prior to the change of
control. In addition, until the third anniversary of the officer's termination
we will provide the officer with the maximum benefits provided to that officer
between the effective date of the agreement and 90 days preceding the date of
the change of control. The officer will also receive immediate vesting and
removal of all restrictions on any outstanding incentive awards granted under
our stock option and other stock incentive plans, excluding our employee stock
purchase plan, or any other arrangement, unless the accelerated vesting would
cause pooling of interest accounting to be unavailable and the Board would
determine that such change in control would be accounted for as a pooling of
interest. However, such acceleration shall occur regardless of whether it would
render pooling of interest accounting unavailable if that officer entered into
any employment agreement, offer letter, stock option or other equity-based
compensation protection agreement providing for acceleration prior to the
effective date of entering into the compensation protection agreement
F-29
<PAGE>
with us. The compensation protection agreements further provide that the
executive officers will not be required to mitigate the amounts due to them as
a result of their termination.
Subsequent Events
Issuance of Series E Mandatorily Redeemable Convertible Preferred Stock
In January 2000, the Company authorized the sale of up to 4,000,000
shares of Series E mandatorily redeemable convertible preferred stock
("preferred stock") at a price of $7.50 per share. In February 2000, the
Company issued 3,399,991 shares raising approximately $25.5 million from
various new and existing investors. The Series E preferred stock carries
substantially the same terms as the Series B, Series C and Series D mandatorily
redeemable convertible preferred stock and is convertible into common stock at
a one-to-one ratio upon an initial public offering subject to certain
conditions ("Qualified IPO").
If the Company consummates a Qualified IPO on or before January 31, 2001
at a price less than $10.125 then the conversion price for each share of Series
E Stock shall be adjusted to a price equal to 74.074% of the IPO Price,
provided however, that in no event shall the Conversion Price be adjusted below
$4.82. Dividends are payable when and as declared on Series E preferred stock
at the rate of $0.60 per share per annum.
F-30
<PAGE>
MORE.COM, INC.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Overview
In January, 2000, the Company signed a merger agreement to acquire all of
the outstanding capital stock of Comfort Living, Inc. ("Comfort Living").
Although the acquisition is subject to the approval of Comfort Living's
stockholders, the Company's management believes the acquisition is probable.
The acquisition will be accounted for using the purchase method of accounting
and, accordingly, the net assets and results of operations of Comfort Living
will be included in the Company's consolidated financial statements subsequent
to the acquisition date.
The purchase consideration includes $2.5 million of cash and 1,500,000
shares of the Company's common stock, valued at $14.9 mllion based on the
deemed per share value of the Company's common stock. The Company also expects
to incur approximately $500,000 in acquisition related expenses, including
legal and other advisory related services.
The total purchase price of $17.9 million will be allocated to net assets
acquired, including tangible and intangible assets, and liabilities assumed,
based on their respective estimated fair values at the acquisition date. The
estimate of fair value of the net assets acquired is based on management
estimates.
The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of net tangible liabilities........................... $ (195)
Fair value of assembled workforce................................ 1,516
Fair value of customer base...................................... 812
Goodwill......................................................... 15,717
-------
$17,850
=======
</TABLE>
The acquisition has been structured as a tax-free exchange of stock. The
differences between the recognized fair values of acquired net assets,
including tangible and intangible net assets, and their historical tax bases
are not deductible for tax purposes.
The following unaudited pro forma combined consolidated statement of
operations gives effect to this acquisition as if it had occurred as of January
1, 1999, by consolidating the results of operations of Comfort Living with the
results operations of the Company for the twelve months ended December 31,
1999.
The unaudited pro forma consolidated statement of operations 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 a representation of future operating
results.
The historical consolidated financial statements for the Company and
Comfort Living are included elsewhere in this offering memorandum and the
unaudited pro forma consolidated financial information presented herein should
be read in conjunction with those consolidated financial statements and related
notes.
The accompanying notes are an integral part of these financial statements
F-31
<PAGE>
MORE.COM, INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------
Comfort
more.com, Living, Pro
Inc. Inc. Adjustments Forma
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 24,655 $ 80 $(3,000)(A) $ 21,735
Accounts receivable, net..... 591 -- -- 591
Inventories.................. 175 468 -- 643
Prepaid expenses and other
current assets.............. 641 30 -- 671
-------- ------ ------- --------
Total current assets....... 26,062 578 (3,000) 23,640
Fixed assets, net.............. 6,452 333 -- 6,785
Intangible assets, net......... 7,551 -- 18,045 (B) 25,596
Other assets................... 96 11 -- 107
-------- ------ ------- --------
Total assets................... $ 40,161 $ 922 $15,045 $ 56,128
======== ====== ======= ========
LIABILITIES, MANDATORILY
REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............. $ 1,421 $ 410 $ -- $ 1,831
Accounts payable to related
party....................... -- 49 -- 49
Deferred revenue............. -- 109 -- 109
Accrued liabilities.......... 6,174 376 -- 6,550
Current portion of borrowings
under lines of credit....... 891 150 -- 1,041
Capital lease obligations,
current..................... -- 6 -- 6
-------- ------ ------- --------
Total current liabilities.. 8,486 1,100 -- 9,586
-------- ------ ------- --------
Borrowings under lines of
credit, less current portion.. 1,376 -- -- 1,376
Capital lease obligations,
long-term..................... -- 17 -- 17
Mandatorily redeemable
convertible preferred stock
(Note 6)...................... 58,064 -- -- 58,064
Commitments and contingencies
(Note 8)
Stockholders' equity (deficit):
Preferred stock.............. 10 -- -- 10
Common stock................. 5 -- 2 (A) 7
Additional paid-in capital... 16,698 615 14,233 (A)(C) 31,546
Deferred stock-based
compensation................ (4,624) -- -- (4,624)
Accumulated deficit (39,854) (810) 810 (C) (39,854)
-------- ------ ------- --------
Total stockholders' equity
(deficit)................. (27,765) (195) 15,045 (12,915)
-------- ------ ------- --------
$ 40,161 $ 922 $15,045 $ 56,128
======== ====== ======= ========
</TABLE>
See accompanying notes to Pro Forma Combined Consolidated Financial Information
F-32
<PAGE>
MORE.COM, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year ended December 31, 1999
-----------------------------------------------
more.com, Comfort
Inc. Living, Inc. Adjustments Pro Forma
--------- ------------ ----------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Net revenues: $ 2,923 $4,628 -- $ 7,551
Cost of net revenues..... 3,753 3,551 -- 7,304
-------- ------ ------- --------
Gross profit (loss).... (830) 1,077 -- 247
-------- ------ ------- --------
Operating expenses:
Marketing and sales...... 20,480 254 -- 20,734
Product development...... 3,254 -- -- 3,254
General and
administrative.......... 5,187 1,336 9,023 (D) 15,546
Amortization of stock-
based compensation...... 5,061 -- -- 5,061
-------- ------ ------- --------
Total operating
expenses.............. 33,982 1,590 9,023 44,595
-------- ------ ------- --------
Operating loss............. (34,812) (513) (9,023) (44,348)
Other income (expense):
Other.................... -- (13) -- (13)
Interest income.......... 482 -- -- 482
Interest expense......... (355) (17) -- (372)
-------- ------ ------- --------
Net loss................... $(34,685) $ (543) $(9,023) $(44,251)
======== ====== ======= ========
Accretion of discount on
mandatorily redeemable
convertible preferred
stock..................... (1,597) -- -- (1,597)
-------- ------ ------- --------
Net loss available to
common stockholders....... $(36,282) $ (543) $(9,023) $(45,848)
======== ====== ======= ========
Basic and diluted net loss
per share................. $ (15.74) $ (12.05)
Pro forma basic and diluted
net loss per share........ $ (2.68) $ (3.05)
Weighted average shares
outstanding used to
compute basic and diluted
net loss per share........ 2,305 1,500 3,805 (E)
Weighted average shares
outstanding used to
compute pro forma basic
and diluted net loss per
share..................... 13,556 1,500 15,056 (E)
</TABLE>
See accompanying notes to Pro Forma Combined Consolidated Financial Information
F-33
<PAGE>
MORE.COM, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(unaudited)
NOTE 1--BASIS OF PRESENTATION
The unaudited pro forma combined consolidated statement of operations has
been prepared to reflect the probable acquisition of Comfort Living Inc. by the
Company as if the acquisition had occurred as of January 1, 1999 by combining
the separate historical statement of operations of more.com, Inc. and Comfort
Living Inc. for the year ended December 31, 1999. The unaudited pro forma
combined consolidated balance sheet has been prepared to reflect the probable
acquisition of Comfort Living Inc. by the Company as if the acquisition had
occurred on December 31, 1999 by combining the historical balance sheets of the
Company and Comfort Living Inc. as of December 31, 1999.
NOTE 2--PRO FORMA ADJUSTMENTS
The following adjustments were applied to the historical statement of
operations and balance sheet to arrive at the pro forma combined consolidated
statement of operations and balance sheet:
(A) Reflects the cash and equity consideration for the acquisition of
Comfort Living.
(B) To record the intangible assets acquired pursuant to the
acquisition.
(C) Reflects the elimination of Comfort Living's stockholders' deficit.
(D) Reflects the amortization expense related to assembled workforce and
customer base and goodwill to be acquired in the acquisition for the
period January 1, 1999 through December 31, 1999.
(E) For the year ended December 31, 1999, basic and diluted net loss per
share includes the common shares to be issued as consideration for
the acquisition. These shares are assumed to be outstanding as of
January 1, 1999. Pro forma basic and diluted net loss per share for
the year ended December 31, 1999 is computed using the weighted
average number of common shares outstanding, including the pro forma
effects of the automatic conversion of the Company's Series A,
Series B, Series C and Series D preferred stock and preferred stock
warrants into shares of the Company's common stock effective upon
the closing of the Company's initial public offering as if such
conversion occurred on January 1, 1999, or at date of original
issuance, if later.
Pro forma diluted net loss per share excludes potential shares of
common stock, consisting of options, as their effect would be
antidilutive.
F-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Comfort Living, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity (net capital deficiency) and cash flows
present fairly, in all material respects, the financial position of Comfort
Living, Inc. (the "Company") at December 31, 1998 and 1999 and the results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
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 experienced a net loss of approximately
$543,000 and net cash outflows from operations of approximately $151,000 for
the year ended December 31, 1999. The Company also has an accumulated deficit
of approximately $195,000 and a working capital deficit of approximately
$178,000 at December 31, 1999. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are partially 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.
In January 2000, the Company entered into a letter of intent to be acquired by
more.com, Inc. in a purchase transaction.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
January 27, 2000
F-35
<PAGE>
COMFORT LIVING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 98,316 $ 79,954
Inventories............................................. 85,531 467,769
Prepaid expenses........................................ 3,094 29,949
--------- ----------
Total current assets.................................. 186,941 577,672
Furniture and equipment, net.............................. 30,202 332,542
Other assets.............................................. 1,352 11,663
--------- ----------
Total assets.......................................... $ 218,495 $ 921,877
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable........................................ $ 80,411 $ 410,217
Accounts payable to related party....................... -- 49,242
Accrued payroll......................................... 10,364 181,194
Accrued liabilities..................................... 45,775 194,933
Deferred revenue........................................ 48,576 109,367
Current portion of borrowings under line of credit ..... -- 150,000
Capital lease obligations, current...................... 4,161 5,399
--------- ----------
Total current liabilities............................. 189,287 1,100,352
Capital lease obligations, long-term...................... 11,392 16,135
--------- ----------
Total liabilities..................................... 200,679 1,116,487
--------- ----------
Commitments (Note 7)
Stockholders' equity (net capital deficiency):
Common Stock: no par value;
Authorized shares--1,000 at December 31, 1998 and 1,500
at December 31, 1999; issued and outstanding 1,000 at
December 31, 1998 and 1,078.125 at December 31, 1999... -- 615,225
Accumulated earnings (deficit).......................... 17,816 (809,835)
--------- ----------
Total stockholders' equity (net capital deficiency)... 17,816 (194,610)
--------- ----------
Total liabilities and stockholders' equity (net
capital deficiency)................................ $ 218,495 $ 921,877
========= ==========
</TABLE>
F-36
<PAGE>
COMFORT LIVING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Net revenues............................................ $1,520,072 $4,627,942
Costs of goods sold..................................... 1,038,258 3,550,564
---------- ----------
Gross profit............................................ 481,814 1,077,378
---------- ----------
Operating expenses:
Sales and marketing..................................... 57,710 253,571
General and administrative.............................. 220,531 1,297,910
Depreciation and amortization........................... 3,802 38,716
---------- ----------
Total operating expenses............................ 282,043 1,590,197
---------- ----------
Operating income (loss)................................. 199,771 (512,819)
Other expense:
Interest expense...................................... 4,782 17,228
Other................................................. -- 12,848
---------- ----------
Total other expense................................. 4,782 30,076
---------- ----------
Net income (loss)....................................... $ 194,989 $ (542,895)
========== ==========
Net income (loss) per share:
Basic and dilutive.................................... $ 194.99 $ (540.19)
Weighted average number of shares outstanding........... 1,000 1,005
</TABLE>
F-37
<PAGE>
COMFORT LIVING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Total
Stockholders
Common Stock Accumulated Equity (Net
------------------ Earnings Capital
Shares Amount (Deficit) Deficiency)
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998........... 1,000 $ -- $ (24,519) $ (24,519)
Distributions...................... -- -- (152,654) (152,654)
Net income......................... -- -- 194,989 194,989
--------- -------- --------- ---------
Balance at December 31, 1998....... 1,000 -- 17,816 17,816
Issuance of common stock for $8,000
per share (net of issuance costs
of $9,775)........................ 78,125 615,225 -- 615,225
Distributions...................... -- -- (284,756) (284,756)
Net loss........................... -- -- (542,895) (542,895)
--------- -------- --------- ---------
Balance at December 31, 1999....... 1,078,125 $615,225 $(809,835) $(194,610)
========= ======== ========= =========
</TABLE>
F-38
<PAGE>
COMFORT LIVING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years
Ended December 31,
-------------------
1998 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $194,989 $(542,895)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 3,802 38,716
Loss on sale of furniture and equipment ............... -- 12,848
Provision for obsolete inventory....................... 32,268 110,344
Changes in current assets and liabilities:
Accounts receivable.................................. 1,567 --
Inventories.......................................... (91,465) (492,582)
Prepaid expenses..................................... (3,094) (26,855)
Other assets......................................... (1,352) (10,311)
Accounts payable..................................... 37,410 329,806
Accounts payable to related party.................... -- 49,242
Accrued payroll...................................... 7,495 170,830
Accrued liabilities.................................. 40,799 149,158
Deferred revenues.................................... 48,576 60,791
-------- ---------
Net cash provided by (used in) operating
activities........................................ 270,995 (150,908)
-------- ---------
Cash flows from investing activities:
Purchases of furniture and equipment..................... (9,531) (344,950)
-------- ---------
Net cash used in investing activities.............. (9,531) (344,950)
-------- ---------
Cash flows from financing activities:
Proceeds from issuance of stock, net..................... -- 615,225
Principal payments on line of credit..................... (7,871) --
Borrowings under line of credit.......................... -- 150,000
Principal payments on capital leases..................... (7,923) (2,973)
Distribution to stockholders............................. (152,654) (284,756)
-------- ---------
Net cash provided by (used in) financing
activities........................................ (168,448) 477,496
-------- ---------
Net increase (decrease) in cash and cash equivalents..... 93,016 (18,362)
Cash and cash equivalents, beginning of period........... 5,300 98,316
-------- ---------
Cash and cash equivalents, end of period................. $ 98,316 $ 79,954
======== =========
Supplemental cash flow information:
Cash paid during the year for interest................... $ 4,782 $ 16,506
======== =========
Noncash investing and financing activities:
Furniture and equipment acquired under capital leases.... $ 14,412 $ 8,954
======== =========
</TABLE>
F-39
<PAGE>
COMFORT LIVING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Comfort Living, Inc. (the "Company") is an online retailer of health and
comfort products, offering many brand name products. Its eCommerce web site,
www.ComfortLiving.com, was launched in January 1996. The Company's product line
includes personal comfort products, back pain products, baby products,
maternity products, and allergy control products. The Company was incorporated
in Maryland on March 25, 1988 as Allergy Home Care Products, Inc. The Company's
name was changed to Comfort Living, Inc, on November 12, 1999. The Company has
derived substantially all of its revenue from sales in the United States.
The Company experienced a net loss of approximately $543,000 and net cash
outflows from operations of approximately $151,000 for the year ended December
31, 1999. The Company also had an accumulated deficit of approximately $195,000
and a working capital deficit of approximately $178,000 at December 31, 1999.
The Company's near and long-term operating strategies focus on exploiting
existing and potential competitive advantages while concentrating on reducing
costs, beginning with the cost of maintaining inventory by moving towards a
fully integrated drop ship system and including controlling the cost of payroll
as a percentage of sales. Management continues to focus on increasing sales by
identifying ways to increase market share and diversify its products.
In order for the Company to maintain operations into 2001, the Company
must improve its financial condition by increasing operating cash flows,
obtaining additional equity financing or consummating the sale of the Company
to more.com, Inc. or another company.
In January 2000, the Company entered into a letter of intent to be
acquired by more.com, Inc. in a purchase transaction.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported results of operations during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash equivalents, which consist of a demand deposit and money market
account, are recorded at cost, which approximate fair value. The Company
maintains its cash in depository accounts with one financial institution. At
times, such balances may be in excess of the FDIC limit. The Company considers
investments in highly liquid instruments purchased with original maturities of
90 days or less to be cash equivalents.
Concentrations of credit risk and credit evaluations
The Company is subject to concentrations of credit risk from its holdings
of cash and cash equivalents, which are held at one domestic financial
institution. The Company conducts business with individuals over the Internet.
Sales to individuals are principally paid for via credit cards and the
Company's accounts receivable are
F-40
<PAGE>
COMFORT LIVING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
not significant. In addition to the concentration disclosed in Note 4, the
Company purchased $445,000 of products from one vendor for the year ended
December 31, 1999, which represents approximately 13% of cost of goods sold.
Inventories
Inventories are carried at the lower of cost (determined on average cost,
which approximates the first-in first-out basis) or market. Inventories consist
of products purchased for resale.
Furniture and equipment
Furniture and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which range from three to seven years. Leasehold improvements are amortized
over the lesser of the estimated useful life or the life of the lease.
Long-lived assets
Long-lived assets and intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Impairment is measured by comparing the carrying value
of the long-lived assets to the estimated undiscounted future cash flows
expected to result from use of the assets and their ultimate disposition. In
circumstances where impairment is determined to exist, the Company will write
down the asset to its fair value based on the present value of estimated
expected future cash flows. To date, no such impairment has been indicated.
Income taxes
The Company has elected to be taxed as an S corporation. Accordingly,
federal and state income taxes are the personal responsibility of the
stockholders, and no provision for income taxes has been provided in the
statements of operations.
Advertising expense
The Company recognizes advertising expense in accordance with Statement
of Position 93-7, "Reporting on Advertising Costs." As such, the Company
expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used. Advertising production costs are expensed
as incurred. For the year ended December 31, 1998 and 1999, advertising expense
totaled $12,000 and $23,000, respectively.
Revenue recognition
The Company recognizes revenue when the products are shipped to customers
(FOB Shipping Point). The Company provides for potential product returns in the
period of the sale. Product returns have not been material to date. Revenues
from drop shipment sales are recorded in net sales when the products are
shipped to customers (FOB Shipping Point) as the Company retains the risk of
loss on the products. The revenue and associated cost of outbound shipping and
handling charges are included in net sales and cost of goods sold,
respectively.
F-41
<PAGE>
COMFORT LIVING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Segment reporting
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (FAS) No. 131, "Disclosures about
Segments of Enterprise and Related Information." During each of the years ended
December 31, 1998 and 1999, the Company focused its business activities on the
marketing and sale of their products over the Internet. Since management's
primary form of internal reporting is aligned with the marketing and sale of
their products, the Company believes it operates in one segment.
Fair value of financial instruments
The Company's financial instruments, including cash, cash equivalents,
accounts receivable, accounts payable, line of credit and capital lease
obligations are carried at cost, which approximates their fair value because of
the short-term maturity of these instruments.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of FAS No.
130, "Reporting Comprehensive Income." FAS 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 nonowner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income (loss) as
compared to its reported net income (loss).
NOTE 3--FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
Estimated Life
1998 1999 (in years)
------- -------- --------------
<S> <C> <C> <C>
Computers and equipment................ $19,112 $ 87,903 3
Purchased software..................... -- 197,862 3
Furniture and fixtures................. 2,849 56,071 7
Leasehold improvements................. -- 30,228 5
Auto................................... 12,920 -- 5
------- --------
34,881 372,064
Less: Accumulated depreciation and
amortization.......................... (4,679) (39,522)
------- --------
$30,202 $332,542
======= ========
</TABLE>
The cost and accumulated depreciation of items under capital lease at
December 31, 1998 is $5,000 and $1,000, respectively. The cost and accumulated
depreciation of items under capital lease at December 31, 1999 is $28,000 and
$6,000, respectively.
NOTE 4--RELATED PARTY TRANSACTIONS AND BALANCES
Under an informal agreement starting January 1999, the Company purchased
certain products through J. Inc., a company owned by a stockholder and
employee.
During the year ended December 31, 1999, the Company purchased $1.0
million of products from this related party which represents approximately 28%
of cost of goods sold. At December 31, 1999, the Company owed $49,000 to J.
Inc.
F-42
<PAGE>
COMFORT LIVING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--BORROWINGS UNDER LINES OF CREDIT
On June 14, 1999, the Company obtained a $150,000 line of credit from
Crestar Bank that expires June 14, 2004 for working capital purposes.
Borrowings under this line of credit at December 31, 1999 amounted to $150,000.
Interest is payable at prime plus two percent per annum (10.5% at December 31,
1999). The line of credit is collateralized by substantially all of assets of
the Company.
NOTE 6--STOCKHOLDERS' EQUITY
On November 12, 1999, the Board of Directors authorized an increase in
the number of authorized shares of common stock with no par value from 1,000 to
1,500 shares.
In December 1999, the Company held a private placement offering in which
78.125 shares were sold at $8,000 per share to family and friends of
stockholders and employees.
During 1999, the Company exchanged promises of equity participation for
certain consulting services. The value of the consulting services of
approximately $161,000 is reflected in 1999 results of operations and accrued
liabilities at December 31, 1999. The Company expects to settle the promises of
equity participation in connection with the acquisition of the Company.
During 1998 and 1999, the Company promised stock options to certain
employees. Because no stock option plan had been adopted, no measurement date
occurred for accounting purposes. The Company expects to settle the promises
through the issuance of equity instruments in connection with the acquisition
of the Company. At that time, a compensation charge of approximately $2.4
million is expected to result.
NOTE 7--COMMITMENTS
The Company leases its facilities under a noncancelable operating lease
that expires May 2004. The Company also leases various equipment under four
capital leases that expire from July 2000 to December 2003. The following are
the minimum lease obligations under these leases at December 31, 1999:
<TABLE>
<CAPTION>
Years Ended
December 31, Operating Capital Total
------------ --------- ------- --------
<S> <C> <C> <C>
2000........................................ $ 36,420 $ 9,221 $ 45,641
2001........................................ 37,513 8,175 45,688
2002........................................ 38,638 8,175 46,813
2003........................................ 39,798 5,589 45,387
2004........................................ 15,089 -- 15,089
-------- ------- --------
Total....................................... $167,458 31,160 $198,618
======== ========
Less: Amount attributed to interest......... (9,626)
-------
Net present value of capital lease
commitments (including $5,399 considered
current)................................... $21,534
=======
</TABLE>
Rent expense under operating leases for the years ended December 31, 1998
and 1999 totaled $23,000 and $52,000, respectively.
F-43
<PAGE>
Inside Back Cover
-----------------
[Screen shot of more.com's web page for checkout]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
----------------
PROSPECTUS
----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Shares
[more.com Logo]
Common Stock
Merrill Lynch & Co.
Lehman Brothers
U.S. Bancorp Piper Jaffray
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
Amount*
-------
<S> <C>
Securities and Exchange Commission Filing Fee........................... $
NASD Filing Fee.........................................................
Nasdaq National Market Listing Fee......................................
Accounting Fees and Expenses............................................
Blue Sky Fees and Expenses..............................................
Legal Fees and Expenses.................................................
Transfer Agent and Registrar Fees and Expenses..........................
Printing Expenses.......................................................
Miscellaneous Expenses..................................................
-----
Total................................................................. $
=====
</TABLE>
- --------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to officers,
directors and other corporate agents under certain circumstances and subject to
certain limitations. Our certificate of incorporation and bylaws provide that
we shall indemnify our directors, officers, employees and agents to the full
extent permitted by Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. In addition, we intend to enter into separate indemnification
agreements with our directors, officers and certain employees which would
require us, among other things, to indemnify them against certain liabilities
which may arise by reason of their status as directors, officers or certain
other employees. We also intend to maintain director and officer liability
insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreement to be
entered into between us and our officers and directors may be sufficiently
broad to permit indemnification of our officers and directors for liabilities,
including reimbursement of expenses incurred, arising under the Securities Act.
The underwriting agreement filed as Exhibit 1.1 to this registration
statement provides for indemnification by the underwriters of us and our
officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
Item 15. Recent Sales of Unregistered Securities
From our incorporation to December 31, 1999, we have granted or issued
and sold the following unregistered securities:
<TABLE>
<C> <S>
1. Stock options to employees, officers, directors and consultants
under our amended and restated 1998 stock option plan exercisable
for up to an aggregate of 3,997,761 shares of our common stock, at a
weighted average exercise price of $1.40 per share.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
2. On May 14, 1998, we issued to Donald M. Kendall, Jr. 1,449,834
shares of our common stock and 22,976 shares of our Series A
convertible preferred stock in exchange for his entire membership
interest in Nutrition Direct, LLC, our predecessor entity.
3. On May 14, 1998, we issued to Eric Budin 989,526 shares of our
common stock in exchange for his entire membership interest in
Nutrition Direct, LLC, our predecessor entity.
4. On August 18, 1999, we issued to Bergen Brunswig Drug Company
1,169,922 shares of our common stock in connection with transactions
relating to the Prescription Pharmaceuticals Internet Fulfillment
Services Agreement with Medi-Mail, Inc., a wholly owned subsidiary
of Bergen Brunswig.
5. On November 30, 1999, we issued to Roger Hardy 165,000 shares of our
common stock in exchange for 75 shares of common stock in Clearly
Contacts Lenses, Inc., now a division of more.com.
6. On November 30, 1999, we issued to William Wrixon 55,000 shares of
our common stock in exchange for 25 shares of common stock in
Clearly Contacts Lenses, Inc., now a division of more.com.
7. On February 5, 1998, we issued to North Hollywood Restaurants, Inc.
a warrant to purchase 3,659 shares of our Series A convertible
preferred stock at $1.64 per share for approximately $6,001.00.
8. On February 5, 1998, we issued to Donald M. Kendall, Jr., a warrant
to purchase 14,634 shares of our Series A convertible preferred
stock at $1.64 per share for approximately $24,000.00.
9. On March 2, 1998, we issued to Peter M. Flanigan a warrant to
purchase 1,219 shares of our Series A convertible preferred stock at
$1.64 per share for approximately $1,999.00.
10. On March 5, 1998, we issued to Nikolaus V. Huetz a warrant to
purchase 1,219 shares of our Series A convertible preferred stock at
$1.64 per share for approximately $1,999.00.
11. On May 14, 1998, we sold to Donald M. Kendall, Sr. 250,384 shares of
our Series A convertible preferred stock at $1.64 per share for
approximately $410,630.00.
12. On May 14, 1998, we sold to Peter M. Flanigan 31,089 shares of our
Series A convertible preferred stock at $1.64 per share for
approximately $50,986.00.
13. On May 14, 1998, we sold to North Hollywood Restaurants, Inc. 62,596
shares of our Series A convertible preferred stock at $1.64 per
share for approximately $102,657.00
14. On May 14, 1998, we sold to Nikolaus von Heutz 31,064 shares of our
Series A convertible preferred stock at $1.64 per share for
approximately $50,945.00.
15. On May 14, 1998, we sold to 21st Century Internet Fund, L.P.
1,105,000 shares of our Series B mandatorily redeemable convertible
preferred stock at $1.64 per share for approximately $1,812,200.00.
16. On May 14, 1998, we sold to GreenTree Nutrition Investors, LLC
331,000 shares of our Series B mandatorily redeemable convertible
preferred stock at $1.64 per share for approximately $542,840.00.
17. On May 27, 1998, we sold to Donald M. Kendall, Jr. 46,000 shares of
our Series B mandatorily redeemable convertible preferred stock at
$1.64 per share for approximately $75,440.00.
18. On May 27, 1998, we sold to John Sculley, III 46,000 shares of our
Series B mandatorily redeemable convertible preferred stock at $1.64
per share for approximately $75,440.00.
19. On July 14, 1999, we issued to Phoenix Leasing Incorporated a
warrant to purchase 26,506 shares of our Series C mandatorily
redeemable convertible preferred stock at $1.66 per share for
approximately $44,000.00.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
20. On July 14, 1999, we issued to Robert Kingsbook a warrant to
purchase 21,686 shares of our Series C mandatorily redeemable
convertible preferred stock at $1.66 per share for approximately
$35,999.00.
21. On October 28, 1998, we sold to RHO Management Trust I 1,987,952
shares of our Series C mandatorily redeemable convertible preferred
stock at $1.66 per share for approximately $3,300,000.00.
22. On October 28, 1998, we sold to Healthcare Ventures V, L.P.
1,325,301 shares of our Series C mandatorily redeemable convertible
preferred stock at $1.66 per share for approximately $2,200,000.00.
23. On October 28, 1998, we sold to SOFTBANK Venture Capital IV, L.P.
1,714,145 shares of our Series C mandatorily redeemable convertible
preferred stock at $1.66 per share for approximately $2,845,481.00.
24. On October 28, 1998, we sold to SOFTBANK Technology Advisors Fund,
L.P. 32,843 shares of our Series C mandatorily redeemable
convertible preferred stock at $1.66 per share for approximately
$54,519.00.
25. On October 28, 1998, we sold to 21st Century Internet Fund, L.P.
1,117,470 shares of our Series C mandatorily redeemable convertible
preferred stock at $1.66 per share for approximately $1,855,000.00.
26. On October 28, 1998, we sold to GreenTree Nutrition Investors, II,
LLC 391,566 shares of our Series C mandatorily redeemable
convertible preferred stock at $1.66 per share for approximately
$650,000.00.
27. On October 28, 1998, we sold to Donald M. Kendall Jr. 42,169 shares
of our Series C mandatorily redeemable convertible preferred stock
at $1.66 per share for approximately $70,001.00.
28. On October 22, 1999, we sold to 21st Century Internet Fund, L.P.
989,626 shares of our Series D mandatorily redeemable convertible
preferred stock at $4.82 per share for approximately $4,770,000.00.
29. On October 22, 1999, we sold to Rho Management 1,360,995 shares of
our Series D mandatorily redeemable convertible preferred stock at
$4.82 per share for approximately $6,560,000.00.
30. On October 22, 1999, we sold to SOFTBANK Venture Capital IV 814,274
shares of our Series D mandatorily redeemable convertible preferred
stock at $4.82 per share for approximately $3,924,800.00.
31. On October 22, 1999, we sold to SOFTBANK Technology Advisors 15,602
shares of our Series D mandatorily redeemable convertible preferred
stock at $4.82 per share for approximately $75,202.00.
32. On October 22, 1999, we sold to SOFTBANK Venture Capital V, L.P.
795,128 shares of our Series D mandatorily redeemable convertible
preferred stock at $4.82 per share for approximately $3,832,517.00.
33. On October 22, 1999, we sold to SOFTBANK Technology Advisors V, L.P.
21,694 shares of our Series D mandatorily redeemable convertible
preferred stock at $4.82 per share for approximately $104,565.00.
34. On October 22, 1999, we sold to SOFTBANK Technology Entrepreneurs
Fund 13,053 shares of our Series D mandatorily redeemable
convertible preferred stock at $4.82 per share for approximately
$62,915.00.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
35. On October 22, 1999, we sold to Healthcare Ventures V, L.P. 220,796
shares of our Series D mandatorily redeemable convertible preferred
stock at $4.82 per share for approximately $1,064,237.00.
36. On October 22, 1999, we sold to Boston Millennia Partners Limited
Partnership 1,293,230 shares of our Series D mandatorily redeemable
convertible preferred stock at $4.82 per share for approximately
$6,233,368.00.
37. On October 22, 1999, we sold to Boston Millennia Associates I
Partnership 21,085 shares of our Series D mandatorily redeemable
convertible preferred stock at $4.82 per share for approximately
$101,634.00.
38. On October 22, 1999, we sold to FIMA Finance Management, Inc.
207,468 shares of our Series D mandatorily redeemable convertible
preferred stock at $4.82 per share for approximately $1,000,000.00.
39. On October 22, 1999, we sold to Allyn Woodward 8,298 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $40,000.00.
40. On October 22, 1999, we sold to Josef von Rickenbach 5,186 shares of
our Series D mandatorily redeemable convertible preferred stock at
$4.82 per share for approximately $24,998.00.
41. On October 22, 1999, we sold to Leon Seynave 20,746 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $100,001.00.
42. On October 22, 1999, we sold to South Ferry #2 L.P. 103,733 shares
of our Series D mandatorily redeemable convertible preferred stock
at $4.82 per share for approximately $499,998.00.
43. On October 22, 1999, we sold to Swander Pace Capital Fund, L.P.
595,990 shares of our Series D mandatorily redeemable convertible
preferred stock at $4.82 per share for approximately $2,872,672.00.
44. On October 22, 1999, we sold to SPC GP Fund, LLC 9,913 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $47,781.00.
45. On October 22, 1999, we sold to SPC Executive Advisors Fund, LLC
9,872 shares of our Series D mandatorily redeemable convertible
preferred stock at $4.82 per share for approximately $47,583.00.
46. On October 22, 1999, we sold to SPC Associates Fund, LLC 6,632
shares of our Series D mandatorily redeemable convertible preferred
stock at $4.82 per share for approximately $31,966.00.
47. On October 22, 1999, we sold to Seligman New Technologies Fund, Inc.
672,198 shares of our Series D mandatorily redeemable convertible
preferred stock at $4.82 per share for approximately $3,239,999.00.
48. On October 22, 1999, we sold to Seligman Investment Opportunities
Fund 157,676 shares of our Series D mandatorily redeemable
convertible preferred stock at $4.82 per share for approximately
$759,998.00.
49. On October 22, 1999, we sold to Seligman Communications and
Information Fund, Inc. 207,468 shares of our Series D mandatorily
redeemable convertible preferred stock at $4.82 per share for
approximately $1,000,001,00.
50. On October 22, 1999, we sold to Bayview 99 1, LP 16,856 shares of
our Series D mandatorily redeemable convertible preferred stock at
$4.82 per share for approximately $81,246.00.
51. On October 22, 1999, we sold to Bayview 99 II, LP 14,264 shares of
our Series D mandatorily redeemable convertible preferred stock at
$4.82 per share for approximately $68,752.00.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
52. On October 22, 1999, we sold to Peter Vidmar 20,746 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $100,000.00.
53. On October 22, 1999, we sold to Donald M. Kendall, Jr. 18,520 shares
of our Series D mandatorily redeemable convertible preferred stock
at $4.82 per share for approximately $89,270.00.
54. On October 22, 1999, we sold to John Sculley, III 41,493 shares of
our Series D mandatorily redeemable convertible preferred stock at
$4.82 per share for approximately $200,000.00.
55. On October 22, 1999, we sold to Diane Woolf 2,074 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $10,000.00
56. On October 22, 1999, we sold to Yash Pal Talreja 18,672 shares of
our Series D mandatorily redeemable convertible preferred stock at
$4.82 per share for approximately $89,999.00.
57. On October 22, 1999, we sold to Steven Cash 25,933 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $124,997.00.
58. On October 22, 1999, we sold to Gordon Friedman 10,000 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $48,200.00.
59. On October 22, 1999, we sold to Clark Callander 5,186 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $24,997.00.
60. On October 22, 1999, we sold to Steve Abbott 500 shares of our
Series D mandatorily redeemable convertible preferred stock at $4.82
per share for approximately $2,410.00.
61. On November 5, 1999, we sold to GreenTree Nutrition Investors IV,
L.P. 636,203 shares of our Series D mandatorily redeemable
convertible preferred stock at $4.82 per share for approximately
$3,066,498.00.
62. On November 5, 1999, we sold to Star Growth Enterprise 394,191
shares of our Series D mandatorily redeemable convertible preferred
stock at $4.82 per share for approximately $1,900,001.00.
63. On November 5, 1999, we sold to SVM Star Ventures
Managementgesellschaft mbH Nr. 3, 20,747 shares of our Series D
mandatorily redeemable convertible preferred stock at $4.82 per
share for approximately $100,001.00.
64. On November 5, 1999, we sold to Galen Partners III, L.P. 379,073
shares of our Series D mandatorily redeemable convertible preferred
stock at $4.82 per share for approximately $1,827,132.00.
65. On November 5, 1999, we sold to Galen Partners International III,
L.P. 34,313 shares of our Series D mandatorily redeemable
convertible preferred stock at $4.82 per share for approximately
$165,389.00.
66. On November 5, 1999, we sold to Galen Employee Fund III, L.P. 1,552
shares of our Series D mandatorily redeemable convertible preferred
stock at $4.82 per share for approximately $7,481.00.
</TABLE>
The issuances of the securities in all of the above transactions were
deemed to be exempt from registration under the Securities Act in reliance on:
(a) Section 4(2) of the Securities Act by an issuer not involving a public
offering, where the purchasers represented their intention to acquire the
securities for investment only and not with a view to distribution and received
or had access to adequate information about the Registrant; (b) Registration S
promulgated under the Securities Act for sell of securities outside the United
States in offshore transactions to purchasers who are non-"U.S. Persons"; or
(c) Rule 701 promulgated under the Securities Act for transactions pursuant to
a compensatory benefit plan or written compensation contract.
II-5
<PAGE>
On November 4, 1998, we issued 500,000 shares of our common stock in
exchange for the substantial business assets of Acumin Corporation, now a
division of more.com, Inc. The issuance of such securities was exempt from the
registration requirements of the Securities Act due to the exemptions from
registration provided by Sections 3(b) and 4(2) thereof.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any
of the above transactions.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
All schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statements or
related notes.
Item 17. Undertakings
We hereby undertake to provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by one
of our directors, officers or controlling persons 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, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by us 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, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, more.com,
Inc. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San Francisco, State
of California on the 11th day of February, 2000.
MORE.COM, INC.
By: /s/ Donald M. Kendall, Jr.
-------------------------------------
Donald M. Kendall, Jr.
Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Donald Kendall, Jr. and Laureen De
Buono, and each of them, as their true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for them and in their name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
sign any registration statement for the same offering covered by the
registration statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933 and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald M. Kendall, Jr. Chief Executive Officer February 11, 2000
______________________________________ and Director (Principal
Donald M. Kendall, Jr. Executive Officer)
/s/ Laureen De Buono Chief Financial Officer February 11, 2000
______________________________________ and Secretary (Principal
Laureen De Buono Financial, Accounting
Officer)
/s/ Mark Leschly Director February 11, 2000
______________________________________
Mark Leschly
/s/ Thomas A. Penn Director February 11, 2000
______________________________________
Thomas A. Penn
Director February 11, 2000
______________________________________
Perk Perkins
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald R. Roden Director February 11, 2000
______________________________________
Donald R. Roden
/s/ E. Scott Russell Director February 11, 2000
______________________________________
E. Scott Russell
/s/ John Sculley III Director February 11, 2000
______________________________________
John Sculley III
/s/ John Neil Weintraut Director February 11, 2000
______________________________________
John Neil Weintraut
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Document Page
------- -------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*.........................
3.1 Amended and Restated Certificate of Incorporation of
more.com*...............................................
3.2 Bylaws of more.com*.....................................
4.1 Reference is made to Exhibits 3.1 and 3.2*..............
4.2 Specimen Stock Certificate of more.com*.................
4.3 Restricted Stock Purchase Agreement between Registrant
and Donald M. Kendall, dated May 14, 1998...............
4.4 Restricted Stock Purchase Agreement between Registrant
and Eric Budin, dated May 14, 1998 and an amendment
thereof, dated March 15, 1999...........................
4.5 Amended and Restated Investors' Rights Agreement between
Registrant and the holders of our Series B, Series C,
Series D and Series E convertible preferred stock dated
February 11, 2000*......................................
4.6 Form of Registration Rights Agreement between Registrant
and certain holders of common stock.....................
5.1 Opinion of Morrison & Foerster LLP as to the legality of
the common stock*.......................................
10.1 Form of Indemnification Agreement between Registrant and
each of its executive officers and directors............
10.2 Registrant's Amended and Restated 1998 Stock Option
Plan, as amended and restated, including forms of
agreements thereunder...................................
10.3 Registrant's 2000 Stock Incentive Plan, including forms
and agreements thereunder...............................
10.5 Registrant's 2000 Employee Stock Purchase Plan,
including forms and agreements thereunder...............
10.6 Form of Compensation Protection Agreements between
Registrant and each of its executive officers...........
10.7 Lease for 520 Third Street, Second Floor, San Francisco,
California 94107, dated August 1, 1999..................
10.8 Lease for 485 Third Street, San Francisco, California
94107, dated October 29, 1999...........................
10.9 Lease for 495 Third Street, San Francisco, California
94107, dated October 29, 1999...........................
10.10 Lease for 3401 Market Street, Philadelphia, Pennsylvania
19104, dated February 13, 1997 and amendments
thereunder..............................................
10.11 Internet Fulfillment Services Agreement between
Registrant and Bergen Brunswig Drug Company, dated July
1, 1999.................................................
10.12 Prescription Pharmaceuticals Internet Fulfillment
Services Agreement between Registrant and Medi-Mail,
Inc., dated August 18, 1999.............................
10.13 Service Mark License and Access Agreement between
Registrant and Bergen Brunswig Drug Company, dated
August 18, 1999.........................................
10.14 Advertising Representative Agreement between Registrant
and Bergen Brunswig Drug Company, dated September 30,
1999....................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Document Page
------- -------- ------------
<C> <S> <C>
10.15 Database License and Supply and Purchase Agreement
between Registrant and Lens Express, Inc., dated January
17, 2000................................................
23.1 Consent of Morrison & Foerster LLP. Reference is made to
Exhibit 5.1*............................................
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.............................................
24.1 Powers of Attorney. Reference is made to Page [II-4]....
27.1 Financial Data Schedule.................................
</TABLE>
- --------
* To be filed by amendment
<PAGE>
Exhibit 4.3
GREENTREE NUTRITION, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of May 14, 1998, by and between,
GreenTree Nutrition, Inc., a Delaware corporation (the "Company"), and Don
Kendall (the "Founder").
In consideration of the mutual promises and covenants set forth herein, the
parties hereto hereby agree as follows (capitalized terms are defined in the
Appendix attached hereto):
A. SALE OF STOCK
1. Sale, Payment. Founder hereby purchases from the Company,
-------------
subject to the terms hereof, 966,556 shares of Common Stock (the "Common Stock
Purchased Shares") and 22,976 shares of Series A Preferred Stock (the "Series A
Preferred Stock Purchased Shares" and, with the Common Stock Purchased Shares,
the "Purchased Shares") of the Company. In exchange for the Purchased Shares,
the Founder hereby assigns to the Company all right, title and interest in and
to the Founder's membership interest (as defined in Section 17001(z) of the
California Limited Liability Company Act) (the "Interest" or "Purchase Price")
in Nutrition Direct, LLC, a California limited liability company (the "LLC")
operating pursuant to that certain limited liability company operating agreement
among the Founder and the other members signed on or about January 9, 1998 (the
"LLC Agreement"). The Company and the Founder agree that the fair market value
of the Interest is approximately equal to the Fair Market Value of the Purchased
Shares.
2. Issuance of Certificates. Upon receipt by the Company of a duly-
------------------------
executed blank Assignment Separate from Certificate (in the form attached hereto
as Exhibit 11), the Company shall issue a duly executed certificate(s)
representing the Purchased Shares. Such certificate(s) shall be held in escrow
in accordance with the provisions of this Agreement.
3. Representations and Warranties of Founder. Founder hereby
-----------------------------------------
represents and warrants that:
(a) (i) the Interest, including, without limitation, that number
of shares appearing opposite Founder's name in Exhibit I attached hereto,
constitutes Founder's entire interest in the LLC, (ii) that this assignment of
the Interest constitutes a valid and legally binding obligation, enforceable in
accordance with its terms; (iii) the Founder has full power and authority to
assign the Interest; and (iv) as to the assignment of the Interest, the
execution and delivery of this Stock Purchase Agreement does not (A) violate any
provision of law applicable to the Founder, (B) conflict with any document,
agreement, or instrument to which the Founder is a party, other than the LLC
Agreement, or (C) other than pursuant to the terms of the LLC Agreement, require
the
1
<PAGE>
Founder to obtain any consent or approval of, or give notice to, any person
except for notices, approvals, and consents that have previously been made or
obtained.
(b) The Purchased Shares are being acquired for Founder's own account
for investment purposes only, and not as a nominee or agent, and not with a view
to the resale or distribution of all or any part of the Purchased Shares.
Founder is prepared to hold the Purchased Shares for an indefinite period and
has no present intention of selling, granting any participation in, or otherwise
distributing any of the Purchased Shares. Founder does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
a participating interest in, any of the Purchased Shares. Founder has no present
plan or intention to engage in a sale, exchange, transfer, distribution,
redemption, reduction 'in any way of its risk of ownership by short sale or
otherwise, or other disposition, directly or indirectly of the Purchased Shares.
(c) Founder has been furnished with, and has had access to, such
information as he considers necessary or appropriate for deciding whether to
invest in the Purchased Shares, and Founder has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the issuance of the Purchased Shares.
(d) Founder is able to fend for himself in the transactions
contemplated by this Agreement, can bear the economic risk of investment in the
Purchased Shares and has such knowledge and experience in financial or business
matters to be capable of evaluating the merits and risks of the investment in
the Purchased Shares.
B. SECURITIES LAW COMPLIANCE
1. Restricted Securities. The Purchased Shares have not been
---------------------
registered under the 1933 Act, on the ground that the sale provided for in this
Agreement is exempt from the requirements of the 1933 Act and the Company's
reliance on such exemptions is predicated on Founder's representations herein.
Founder hereby confirms that Founder has been informed that the Purchased Shares
are restricted securities under the 1933 Act and may not be resold or
transferred unless the Purchased Shares are first registered under the federal
securities laws or unless an exemption from such registration is available.
Accordingly, Founder hereby acknowledges that Founder is prepared to hold the
Purchased Shares for an indefinite period and that Founder is aware that SEC
Rule 144 under the 1933 Act, which exempts certain resales of unrestricted
securities, is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. Restrictions on Disposition of Purchased Shares. Founder shall
-----------------------------------------------
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all requirements of this Agreement and
any applicable laws. The Company shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this
2
<PAGE>
Agreement or (ii) to treat as the owner of the Purchased Shares, any transferee
to whom the Purchased Shares have been transferred in contravention of this
Agreement.
3. Restrictive Legends. The stock certificate(s) for the Purchased
-------------------
Shares shall be endorsed with one or more of the following restrictive legends:
(a) "The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (i) an effective registration statement for
the shares under such Act, (ii) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (iii) satisfactory
assurances to the Company that registration under such Act is not required with
respect to such sale or offer."
(b) "The shares represented by this certificate are unvested and
subject to certain repurchase rights granted to the Company and accordingly may
not be sold, assigned, transferred, encumbered, or in any manner disposed of
except in conformity with the terms of a written agreement dated May 14,1998,
between the Company and the registered holder of the shares (or the predecessor
in interest to the shares). A copy of such agreement is maintained at the
Company's principal corporate offices."
(c) "The Shares represented by this certificate are subject to a
right of first refusal option in favor of the Company, as provided by the Bylaws
of the Company. Copies of the Company's Bylaws may be obtained upon written
request to the secretary of the Company."
4. Condition to Issuance. THE SALE OF THE PURCHASED SHARES HAS NOT
---------------------
BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
AND THE ISSUANCE OF SUCH SHARES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE
OF SUCH SHARES 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 UNLESS THE SALE IS SO EXEMPT.
C. TRANSFER RESTRICTIONS
1. Restriction on Transfer. Except for any Permitted Transfer,
-----------------------
Founder shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares that are subject to the Repurchase Right.
2. Transferee Obligations. Each person (other than the Company) to
----------------------
whom the Purchased Shares are transferred by means of a Permitted Transfer must,
as a condition precedent to the validity of such transfer, acknowledge in
writing to the Company that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the Right of First Refusal,
3
<PAGE>
(iii) the Market Stand-Off, and (iv) the securities restrictions set forth in
section B above, to the same extent such shares would be so subject if retained
by Founder.
3. Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including, the Company's initial public offering,
Owner shall not sell, make any short sale of, loan, hypothecate, pledge, grant
any option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any Purchased Shares without the prior written consent of the Company or its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect for
such period of time from and after the effective date of the final prospectus
for the offering as may be requested by the Company or such underwriters. In no
event, however, shall such period exceed one hundred eighty (180) days and the
Market StandOff shall in all events terminate two (2) years after the effective
date of the Company's initial public offering.
(b) Any new, substituted or additional securities that are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(c) In order to enforce the Market Stand-Off, the Company may
impose stop-transfer instructions with respect to the Purchased Shares until the
end of the applicable standoff period.
D. REPURCHASE RIGHT
1. Grant. The Company is hereby granted the right (the "Repurchase
-----
Right"), exercisable at any time during the thirty (30) day period following the
date Founder ceases for any reason to remain in Service, to repurchase for $0.16
per share, all or any portion of the Purchased Shares in which Founder is not,
at the time of his cessation of Service, vested.
2. Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each Owner prior to the expiration of
the thirty (30) day exercise period. The notice shall indicate the number of
Unvested Shares to be repurchased and the date on which the repurchase is to be
effected, such date to be not more than thirty (30) days after the date of such
notice. The certificates representing the Unvested Shares to be repurchased
shall be delivered to the Company prior to the close of business on the date
specified for the repurchase. Concurrently with the receipt of such stock
certificates, the Company shall pay to Owner, by Company check (or cancellation
of any purchase-money indebtedness), an amount equal to $0.16 per share.
3. Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2 herein. In addition, the Repurchase Right shall
terminate and cease to be
4
<PAGE>
exercisable with respect to any and all Purchased Shares in which Founder vests
in accordance with the following vesting schedule (the "Vesting Schedule"):
Founder shall have a fully vested interest in 265,637 shares of the
Company's Common Stock Purchased Shares and 22,976 shares of Series A
Preferred Stock Purchased Shares. Founder shall acquire a vested interest
and the Company's Repurchase Right shall lapse in the remaining Purchased
Shares in 34 successive equal monthly installments upon Founder's
completion of each full month of Service, measured from and after May 1,
1998.
In the event that Founder is terminated without Cause, the Repurchase
Right shall be deemed to have lapsed with respect to fifty percent (50%) of
the shares to which the Repurchase Right applies immediately prior to the
Founder's termination of service to the Company.
4. Recapitalization/Reorganization. Any new, substituted or
-------------------------------
additional securities or other property (including cash paid other than as a
regular cash dividend), which is by reason of any Recapitalization distributed
with respect to the Purchased Shares, shall be immediately subject to the
Repurchase Right, but only to the extent the Purchased Shares are at the time
covered by such right. Appropriate adjustments to reflect such distribution
shall be made to the number and/or class of Purchased Shares subject to this
Agreement and to the price per share to be paid upon the exercise of the
Repurchase Right in order to reflect the effect of any such Recapitalization
upon the Company's capital structure, In the event of a Reorganization, other
than a Change in Control, the Repurchase Right shall remain in full force and
effect and shall apply to the new capital stock or other property received in
exchange for the Purchased Shares in consummation of the Reorganization, but
only to the extent the Purchase Shares are at the time covered by such night.
5. Change in Control.
-----------------
(a) In the event that a Change in Control occurs such Repurchase
Right will be deemed to have lapsed, and Founder will have obtained a vested
interest in a portion of the Purchased Shares, as if Founder had completed
thereafter an additional six (6) months of Service.
(b) In the event that a Change in Control occurs and Founder is
later terminated without Cause, such Repurchase Right will be deemed to have
lapsed and Founder will have obtained a vested interest in a portion of the
Purchased Shares, as if Founder had completed thereafter one (1) additional year
of Service.
(c) In addition to the foregoing, in the event that a Change of
Control occurs and after giving effect to Sections D.5(a) or D.5(b) above, some
of the Purchased Shares would remain subject to vesting pursuant to Section D.3
above, such
5
<PAGE>
remaining Purchased Shares shall also vest fully, and the Repurchase Right shall
automatically lapse in its entirety, unless (i) the Repurchase Right is
expressly assigned by the Company to the successor entity (or Parent thereof) in
such Change in Control and (ii) the consideration issued and delivered by such
successor entity (or Parent thereof) with respect to such unvested Purchased
Shares continue to vest in accordance with the remaining vesting schedule
provided for in Section D.3 above based on Founder's continued Service for the
Company or such successor entity (or Parent thereof).
(d) To the extent the Repurchase Right remains in effect following a
Change in Control, such right shall apply to the new capital stock or other
property (including any cash payment) received by Founder in exchange for the
Purchased Shares in consummation of the Change in Control, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the number and/or kind of Purchased Shares subject
to this Agreement and to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Change in Control upon the
Company's capital structure; Provided, however, that the aggregate repurchase
price shall remain the same.
E. RIGHT OF FIRST REFUSAL
The Shares purchased hereunder are subject to the Right of First Refusal
set. forth in the Company's Bylaws.
F. ESCROW
1. Deposit. Upon issuance, the certificates for the Purchased
-------
Shares that are subject to the Repurchase Right shall be deposited in escrow
with the Company to be held in accordance with the provisions of this Article F.
The deposited certificates, together with any other assets or securities from
time to time deposited with the Company pursuant to the requirements of this
Agreement, shall remain in escrow until such time or times as the certificates
(or other assets and securities) are to be released or otherwise surrendered for
cancellation in accordance with Paragraph F.3. Upon delivery of the
certificates (or other assets and securities) to the Company, Founder shall be
issued a receipt acknowledging the number of Purchased Shares (or other assets
and securities) delivered in escrow.
2. Recapitalization/Reorganization. Any new, substituted or
-------------------------------
additional securities or other property which is by reason of any
Recapitalization or Reorganization distributed with respect to the Purchased
Shares (other than regular cash dividends) shall be immediately delivered to the
Company to be held in escrow under this Article F, but only to the extent the
Purchased Shares are at the time subject to the escrow requirements hereunder.
3. Release/Surrender. The Purchased Shares, together with any other
-----------------
assets or securities held in escrow hereunder, shall be subject to the following
terms relating to their release from escrow or their surrender to the Company
for repurchase and cancellation:
6
<PAGE>
(a) Should the Company elect to exercise the Repurchase Right with
respect to any Unvested Shares, then the escrowed certificates for those
Unvested Shares (together with any other assets or securities attributable
thereto) shall be surrendered to the Company.
(b) Should the Company elect to exercise the First Refusal Right with
respect to any Target Shares held at the time in escrow hereunder, then the
escrowed certificates for those Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Company.
(c) Should the Company elect not to exercise the Repurchase Right with
respect to any Unvested Shares or the First Refusal Right with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for those shares (together with any other assets or securities
attributable thereto) shall be immediately released to Owner.
(d) As the Purchased Shares (or any other assets or securities
attributable thereto) vest in accordance with the Vesting Schedule, the
certificates for those vested shares (as well as all other vested assets and
securities) shall be released from escrow upon Owner's request, but not more
frequently than once every six (6) months.
(e) All Purchased Shares that vest (and any other vested assets and
securities attributable thereto) shall be released within thirty (30) days after
the earlier to occur of (i) Owner's cessation of Service or (ii) the lapse of
the First Refusal Right.
G. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences that may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit III. FOUNDER SHOULD CONSULT WITH HIS
-------
TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED SHARES
AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b) ELECTION.
FOUNDER ACKNOWLEDGES THAT IT IS FOUNDER'S SOLE RESPONSIBILITY, AND NOT THE
COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF FOUNDER
REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS BEHALF.
H. GENERAL PROVISIONS
1. No Employment or Service Contract. Nothing in this Agreement
---------------------------------
shall confer upon Founder any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or
7
<PAGE>
any Parent or Subsidiary employing or retaining Founder) or of Founder, which
rights are hereby expressly reserved by each, to terminate Founder's Service at
any time for any reason, with or without cause.
2. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be given in writing and shall be deemed effective upon personal
delivery, upon delivery by confirmed facsimile or electronic transmission (with
duplicate original sent by U.S. mail) or upon deposit in the U.S. mail,
registered or certified, postage prepaid and properly addressed to the party to
be notified at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by ten (10) days
advance written notice (under the terms of this paragraph) to all other parties
to this Agreement.
3. No Waiver. The failure of the Company in any instance to
---------
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently anise under the provisions of this Agreement or any other agreement
between the Company and Founder. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
4. Cancellation of Shares. If the Company shall make available, at
----------------------
the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the Company
shall be deemed the owner and holder of such shares, whether or not the
certificates therefor have been delivered as required by this Agreement.
I. MISCELLANEOUS PROVISIONS
1. Further Actions. The parties hereby agree to take whatever
---------------
additional actions and execute whatever additional documents they may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either of them or on the Purchased Shares
pursuant to the provisions of this Agreement.
2. Amendments and Waivers. This Agreement represents the entire
----------------------
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, whether written or oral
3. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
8
<PAGE>
4. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. Successors and Assigns. The terms and provisions of this
----------------------
Agreement shall inure to the benefit of, and be binding upon, the Company and
its successors and assigns and upon Founder, Founder's permitted assigns and
legal representatives, heirs and legatees of Founder's estate, whether or not
any such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof
6. 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.
7. 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.
8. Capitalized Terms. Capitalized terms used herein but not defined
-----------------
herein shall have the meanings given such terms in the Appendix attached hereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first indicated above.
GREENTREE NUTRITION, INC.
By: /s/ Eric Budin
Eric Budin, President
Address: c/o GreenTree Nutrition, Inc.
520 Third Street, Suite 245
San Francisco, CA 94107
FOUNDER:/1/
DON KENDALL
/s/ Donald M. Kendall
Address: c/o GreenTree Nutrition, Inc.
520 Third Street, Suite 245
San Francisco, CA 94107
_____________________
/1/ I have received the Section 83(b) election that was attached hereto as an
Exhibit. I understand that I, and not the Company, will be responsible for
---
completing the form and filing the election with the appropriate office of the
federal and state tax authorities and that if such filing is not completed
within thirty (30) days after the date of this Agreement, I will forfeit the
opportunity to use Section 83(b).
<PAGE>
EXHIBIT I
FOUNDER'S INTEREST
Founder LLC Shares Amount of Shares
- ------------------------------------------------------------------
Don Kendall Class A Common Stock 640,000
Class B Common Stock 320,000
<PAGE>
EXHIBIT II
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, __________ hereby sells, assigns and transfers unto
GreenTree Nutrition, Inc. (the "Company") _________________ (________) shares of
the Common Stock of the Company standing in his/her name on the books of the
Company represented by Certificate Number(s) ____________ herewith and does
hereby irrevocably constitute and appoint _____________________________ his/her
attorney-in-fact to transfer such stock on the books of the Company with full
power of substitution in the premises.
Dated: May 14, 1998
/s/Donald M Kendall
----------------------------
Signature
This Assignment Separate from Certificate was executed in conjunction with
the terms of the Stock Purchase Agreement by and between the above assignor and
GreenTree, Inc. dated May 14, 1998.
Instruction to Exhibit 11: Please do not fill in any blanks other than the
----------
signature line. Please sign exactly as you would like your name to appear on
the issued stock certificate. The purpose of this assignment is to enable the
Company to exercise the Repurchase Right without requiring additional signatures
on the part of Founder.
<PAGE>
EXHIBIT III
FEDERAL INCOME TAX CONSEQUENCES
AND SECTION 83(b) TAX ELECTION
Federal Income Tax Consequences and Section 83(b) Election. Under Section
----------------------------------------------------------
83 of the Internal Revenue Code of 1986, as amended (the "Code"), the excess of
the fair market value of the Purchased Shares, on the date any forfeiture
restrictions applicable to such shares lapse, over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the Company to
repurchase the Purchased Shares pursuant to the Repurchase Right. However,
Founder may elect under Code Section 83(b) to be taxed at the time the Purchased
Shares are acquired, rather than when and as such Purchased Shares cease to be
subject to such forfeiture restrictions. Such election must be filed with the
Internal Revenue Service within thirty (30) days after the date of the
Agreement. Even if the fair market value of the Purchased Shares on the date of
the Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. The form
for making this election is attached as an Exhibit. FAILURE TO MAKE THIS FILING
-------
WITHIN THE APPLICABLE THIRTY (30) DAY PERIOD WILL RESULT IN THE RECOGNITION OF
ORDINARY INCOME BY FOUNDER AS THE FORFEITURE RESTRICTIONS LAPSE.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
Agreement shall mean this Stock Purchase Agreement.
---------
Board shall mean the Company's Board of Directors.
-----
Cause shall mean Founder's deliberate and consistent refusal to perform
-----
Founder's duties or deliberate and consistent refusal to conform to or follow
any reasonable policy adopted by the Company's Board, Founder's unauthorized use
or disclosure of the confidential information or trade secrets of the Company,
Founder's conviction of a felony under the laws of the United States or any
state thereof, or Founder's gross misconduct.
Change in Control shall mean:
-----------------
(a) A merger or consolidation in which securities possessing more
than 50% of the total combined voting power of the Company's outstanding
securities are transferred to one or more persons who were not stockholders of
the Company immediately before such merger or consolidation;
(b) Any other transaction after which one or more persons who
were not stockholders of the Company immediately before such transaction
beneficially own more than 50% of the total combined voting power of the
Company's outstanding securities;
(c) The sale, transfer or other disposition of all or
substantially all of the Company's assets; or
(d) The complete liquidation or dissolution of the Company.
A transaction shall not constitute a Change in Control if its sole purpose
is to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Company's securities immediately before such transaction.
Code shall mean the Internal Revenue Code of 1986, as amended.
----
Common Stock shall mean the Company's common stock.
------------
Company shall mean Promatory Communications, Inc., a Delaware corporation.
-------
Market Stand-Off shall mean the market stand-off restriction specified in
----------------
Paragraph C.3.
1933 Act shall mean the Securities Act of 1933, as amended.
--------
<PAGE>
Owner shall mean Founder and all subsequent holders of the Purchased Shares
-----
who derive their chain of ownership through a Permitted Transfer from Founder.
Parent shall mean any corporation (other than the Company) in an unbroken
------
chain of corporations ending with the Company, provided each corporation in the
unbroken chain (other than the Company) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased
------------------
Shares, provided and only if Founder obtains the Company's prior written consent
to such transfer, (ii) a transfer of title to the Purchased Shares effected
pursuant to Founder's will or the laws of intestate succession following
Founder's death or (iii) a transfer to the Company in pledge as security for any
purchase-money indebtedness incurred by Founder in connection with the
acquisition of the Purchased Shares.
Purchase Price shall have the meaning assigned to such term in Paragraph
--------------
A.1.
Purchased Shares shall have the meaning assigned to such term in Paragraph
----------------
A.1.
Recapitalization shall mean any stock split, stock dividend,
----------------
recapitalization, combination of shares, exchange of shares or other change
affecting the Company's outstanding Common Stock as a class without the
Company's receipt of consideration.
Reorganization shall mean any of the following transactions:
--------------
(i) a merger or consolidation in which the Company is not the surviving
entity;
(ii) a sale, transfer or other disposition of all or substantially all of
the Company's assets;
(iii) a reverse merger in which the Company is the surviving entity but in
which the Company's outstanding voting securities are transferred in
whole or in part to a person or persons different from the persons
holding those securities immediately prior to the merger; or
(iv) any transaction effected primarily to change the state in which the
Company is incorporated or to create a holding company structure.
Repurchase Right shall mean the right granted to the Company in accordance
----------------
with Article D.
SEC shall mean the Securities and Exchange Commission.
---
Service shall mean the provision of services to the Company (or any Parent
-------
or Subsidiary) by a person in his or her capacity as (a) an employee, subject to
the control
<PAGE>
and direction of the employer entity as to both the work to be performed and the
manner and method of performance, (b) a non-employee member of the Board of
Directors or (c) as a consultant.
Subsidiary shall mean any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
Vesting Schedule shall mean the vesting schedule specified in Paragraph D-
----------------
3.
Unvested Shares shall mean Purchased Shares in which Purchaser has not vested in
- ---------------
accordance with Paragraphs D.1 and D.5.
<PAGE>
Exhibit 4.4
GREENTREE, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of May 14, 1998, by and between,
GreenTree, Inc., a Delaware corporation (the "Company"), and Eric Budin (the
"Founder").
In consideration of the mutual promises and covenants set forth herein, the
parties hereto hereby agree as follows (capitalized terms are defined in the
Appendix attached hereto):
A. SALE OF STOCK
1. Sale, Payment. Founder hereby purchases from the Company,
-------------
subject to the terms hereof, 659,684 shares of Common Stock (the "Common Stock
Purchased Shares" or the "Purchased Shares") of the Company. In exchange for
the Purchased Shares, the Founder hereby assigns to the Company all right, title
and interest and to the Founder's membership interest (as defined in Section
17001(z) of the California Limited Liability Company Act) (the "Interest" or
"Purchase Price") in Nutrition Direct, LLC, a California limited liability
company (the "LLC") operating pursuant to that certain limited liability company
operating agreement among the Founder and the other members signed on or about
January 9, 1998 (the "LLC Agreement"). The Company and the Founder agree that
the fair market value of the Interest is approximately equal to the Fair Market
Value of the Purchased Shares.
2. Issuance of Certificates. Upon receipt by the Company of a duly-
------------------------
executed blank Assignment Separate from Certificate (in the form attached hereto
as Exhibit 11), the Company shall issue a duly executed certificate(s)
representing the Purchased Shares. Such certificate(s) shall be held in escrow
in accordance with the provisions of this Agreement.
3. Representations and Warranties of Founder. Founder hereby
-----------------------------------------
represents and warrants that:
(a) (i) the Interest, including, without limitation, that number
of shares appearing opposite Founder's name in Exhibit I attached hereto,
constitutes Founder's entire interest in the LLC, (ii) that this assignment of
the Interest constitutes a valid and legally binding obligation, enforceable in
accordance with its terms; (iii) the Founder has full power and authority to
assign the Interest; and (iv) as to the assignment of the Interest, the
execution and delivery of this Stock Purchase Agreement does not (A) violate any
provision of law applicable to the Founder, (B) conflict with any document,
agreement, or instrument to which the Founder is a party, other than the LLC
Agreement, or (C) other than pursuant to the terms of the LLC Agreement, require
the Founder to obtain any consent or approval of, or give notice to, any person
except for notices, approvals, and consents that have previously been made or
obtained.
1
<PAGE>
(b) The Purchased Shares are being acquired for Founder's own
account for investment purposes only, and not as a nominee or agent, and not
with a view to the resale or distribution of all or any part of the Purchased
Shares. Founder is prepared to hold the Purchased Shares for an indefinite
period and has no present intention of selling, granting any participation in,
or otherwise distributing any of the Purchased Shares. Founder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant a participating interest in, any of the Purchased Shares.
Founder has no present plan or intention to engage in a sale, exchange,
transfer, distribution, redemption, reduction in any way of its risk of
ownership by short sale or otherwise, or other disposition, directly or
indirectly of the Purchased Shares.
(c) Founder has been furnished with, and has had access to, such
information as he considers necessary or appropriate for deciding whether to
invest in the Purchased Shares, and Founder has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the issuance of the Purchased Shares.
(d) Founder is able to fend for himself in the transactions
contemplated by this Agreement, can bear the economic risk of investment in the
Purchased Shares and has such knowledge and experience in financial or business
matters to be capable of evaluating the merits and risks of the investment in
the Purchased Shares.
B. SECURITIES LAW COMPLIANCE
1. Restricted Securities. The Purchased Shares have not been
---------------------
registered under the 1933 Act, on the ground that the sale provided for in this
Agreement is exempt from the requirements of the 1933 Act and the Company's
reliance on such exemptions is predicated on Founder's representations herein.
Founder hereby confirms that Founder has been informed that the Purchased Shares
are restricted securities under the 1933 Act and may not be resold or
transferred unless the Purchased Shares are first registered under the federal
securities laws or unless an exemption from such registration is available.
Accordingly, Founder hereby acknowledges that Founder is prepared to hold the
Purchased Shares for an indefinite period and that Founder is aware that SEC
Rule 144 under the 1933 Act, which exempts certain resales of unrestricted
securities, is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. Restrictions on Disposition of Purchased Shares. Founder shall
-----------------------------------------------
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all requirements of this Agreement and
any applicable laws. The Company shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, any transferee to whom the Purchased Shares have been transferred in
contravention of this Agreement.
2
<PAGE>
3. Restrictive Legends. The stock certificate(s) for the Purchased
-------------------
Shares shall be endorsed with one or more of the following restrictive legends:
(a) "The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (i) an effective registration statement for
the shares under such Act, (ii) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (iii) satisfactory
assurances to the Company that registration under such Act is not required with
respect to such sale or offer."
(b) "The shares represented by this certificate are unvested and
subject to certain repurchase rights granted to the Company and accordingly may
not be sold, assigned, transferred, encumbered, or in manner disposed of except
in conformity with the terms of a written agreement dated May 14, 1998, between
the Company and the registered holder of the shares (or the predecessor in
interest to the shares). A copy of such agreement is maintained at the
Company's principal corporate offices."
(c) "The Shares represented by this certificate are subject to a
right of first refusal option in favor of the Company, as provided by the Bylaws
of the Company. Copies of the Company's Bylaws may be obtained upon written
request to the secretary of the Company."
4. Condition to Issuance. THE SALE OF THE PURCHASED SHARES HAS NOT
---------------------
BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
AND THE ISSUANCE OF SUCH SHARES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE
OF SUCH SHARES IS EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UNLESS THE SALE IS SO EXEMPT.
C. TRANSFER RESTRICTIONS
1. Restriction on Transfer. Except for any Permitted Transfer,
-----------------------
Founder shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares that are subject to the Repurchase Right.
2. Transferee Obligations. Each person (other than the Company) to
----------------------
whom the Purchased Shares are transferred by means of a Permitted Transfer must,
as a condition precedent to the validity of such transfer, acknowledge in
writing to the Company that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the Right of First Refusal, (iii) the Market Stand-Off, and (iv) the
securities restrictions set forth in Section B above, to the same extent such
shares would be so subject if retained by Founder.
3
<PAGE>
3. Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including, the Company's initial public offering,
Owner shall not sell, make any short sale of, loan, hypothecate, pledge, grant
any option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any Purchased Shares without the prior written consent of the Company or its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect for
such period of time from and after the effective date of the final prospectus
for the offering as may be requested by the Company or such underwriters. In no
event, however, shall such period exceed one hundred eighty (180) days and the
Market Stand-Off shall in all events terminate two (2) years after the effective
date of the Company's initial public offering.
(b) Any new, substituted or additional securities that are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(c) In order to enforce the Market Stand-Off, the Company may
impose stop-transfer instructions with respect to the Purchased Shares until the
end of the applicable standoff period.
D. REPURCHASE RIGHT
1. Grant. The Company is hereby granted the right (the "Repurchase
-----
Right"), exercisable at any time during the thirty (30) day period following the
date Founder ceases for any reason to remain in Service, to repurchase for $0.16
per share, all or any portion of the Purchased Shares in which Founder is not,
at the time of his cessation of Service, vested.
2. Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each Owner prior to the expiration of
the thirty (30) day exercise period. The notice shall indicate the number of
Unvested Shares to be repurchased and the date on which the repurchase is to be
effected, such date to be not more than thirty (30) days after the date of such
notice. The certificates representing the Unvested Shares to be repurchased
shall be delivered to the Company prior to the close of business on the date
specified for the repurchase. Concurrently with the receipt of such stock
certificates, the Company shall pay to Owner, by Company check (or cancellation
of any purchase-money indebtedness), an amount equal to $0.16 per share.
3. Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2 herein. In addition, the Repurchase Right shall
terminate and cease to be exercisable with respect to any and all Purchased
Shares in which Founder vests in accordance with the following vesting schedule
(the "Vesting Schedule"):
4
<PAGE>
Founder shall have a fully vested interest in 192,407 shares of
the Company's Common Stock Purchased Shares. Founder shall acquire a
vested interest and the Company's Repurchase Right shall lapse in the
remaining Purchased Shares in 34 successive equal monthly installments
upon Founder's completion of each full month of Service, measured from
and after May 1, 1998.
In the event that Founder is terminated without Cause, the
Repurchase Right shall be deemed to have lapsed with respect to fifty
percent (50%) of the shares to which the Repurchase Right applies
immediately prior to the Founder's termination of service to the
Company.
4. Recapitalization/Reorganization. Any new, substituted or
-------------------------------
additional securities or other property (including cash paid other than as a
regular cash dividend), which is by reason of any Recapitalization distributed
with respect to the Purchased Shares, shall be immediately subject to the
Repurchase Right, but only to the extent the Purchased Shares are at the time
covered by such right. Appropriate adjustments to reflect such distribution
shall be made to the number and/or class of Purchased Shares subject to this
Agreement and to the price per share to be paid upon the exercise of the
Repurchase Right in order to reflect the effect of any such Recapitalization
upon the Company's capital structure. In the event of a Reorganization, other
than a Change in Control, the Repurchase Right shall remain in full force and
effect and shall apply to the new capital stock or other property received in
exchange for the Purchased Shares in consummation of the Reorganization, but
only to the extent the Purchase Shares are at the time covered by such right.
5. Change in Control.
-----------------
(a) In the event that a Change in Control occurs such Repurchase
Right will be deemed to have lapsed, and Founder will have obtained a vested
interest in a portion of the Purchased Shares, as if Founder had completed
thereafter an additional six (6) months of Service.
(b) In the event that a Change in Control occurs and Founder is
later terminated without Cause, such Repurchase Right will be deemed to have
lapsed and Founder will have obtained a vested interest in a portion of the
Purchased Shares, as if Founder had completed thereafter one (1) additional year
of Service.
(c) In addition to the foregoing, in the event that a Change of
Control occurs and after giving effect to Sections D.5(a) or D.5(b) above, some
of the Purchased Shares would remain subject to vesting pursuant to Section D.3
above, such remaining Purchased Shares shall also vest fully, and the Repurchase
Right shall automatically lapse in its entirety, unless (i) the Repurchase Right
is expressly assigned by the Company to the successor entity (or Parent thereof)
in such Change in Control and (ii) the consideration issued and delivered by
such successor entity (or Parent thereof)
5
<PAGE>
with respect to such unvested Purchased Shares continue to vest in accordance
with the remaining vesting schedule provided for in Section D.3 above based on
Founder's continued Service for the Company or such successor entity (or Parent
thereof).
(d) To the extent the Repurchase Right remains in effect following a
Change in Control, such right shall apply to the new capital stock or other
property (including any cash payment) received by Founder in exchange for the
Purchased Shares in consummation of the Change in Control, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the number and/or kind of Purchased Shares subject
to this Agreement and to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Change in Control upon the
Company's capital structure; provided, however, that the aggregate repurchase
price shall remain the same.
E. RIGHT OF FIRST REFUSAL
The Shares purchased hereunder are subject to the Right of First Refusal
set forth in the Company's Bylaws.
F. ESCROW
1. Deposit. Upon issuance, the certificates for the Purchased
-------
Shares that are subject to the Repurchase Right shall be deposited in escrow
with the Company to be held in accordance with the provisions of this Article F.
The deposited certificates, together with any other assets or securities from
time to time deposited with the Company pursuant to the requirements of this
Agreement, shall remain in escrow until such time or times as the certificates
(or other assets and securities) are to be released or otherwise surrendered for
cancellation in accordance with Paragraph F.3. Upon delivery of the
certificates (or other assets and securities) to the Company, Founder shall be
issued a receipt acknowledging the number of Purchased Shares (or other assets
and securities) delivered in escrow.
2. Recapitalization/Reorganization. Any new, substituted or
-------------------------------
additional securities or other property which is by reason of any
Recapitalization or Reorganization distributed with respect to the Purchased
Shares (other than regular cash dividends) shall be immediately delivered to the
Company to be held in escrow under this Article F, but only to the extent the
Purchased Shares are at the time subject to the escrow requirements hereunder.
3. Release/Surrender. The Purchased Shares, together with any other
-----------------
assets or securities held in escrow hereunder, shall be subject to the following
terms relating to their release from escrow or their surrender to the Company
for repurchase and cancellation:
(a) Should the Company elect to exercise the Repurchase Right
with respect to any Unvested Shares, then the escrowed certificates for those
Unvested Shares (together with any other assets or securities attributable
thereto) shall be surrendered to the Company.
6
<PAGE>
(b) Should the Company elect to exercise the First Refusal Right with
respect to any Target Shares held at the time in escrow hereunder, then the
escrowed certificates for those Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Company.
(c) Should the Company elect not to exercise the Repurchase Right with
respect to any Unvested Shares or the First Refusal Right with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for those shares (together with any other assets or securities
attributable thereto) shall be immediately released to Owner.
(d) As the Purchased Shares (or any other assets or securities
attributable thereto) vest in accordance with the Vesting Schedule, the
certificates for those vested shares (as well as all other vested assets and
securities) shall be released from escrow upon Owner's request, but not more
frequently than once every six (6) months.
(e) All Purchased Shares that vest (and any other vested assets and
securities attributable thereto) shall be released within thirty (30) days after
the earlier to occur of (i) Owner's cessation of Service or (ii) the lapse of
the First Refusal Right.
G. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences that may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit III. FOUNDER SHOULD CONSULT WITH HIS
TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED SHARES
AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b) ELECTION.
FOUNDER ACKNOWLEDGES THAT IT IS FOUNDER'S SOLE RESPONSIBILITY, AND NOT THE
COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF FOUNDER
REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS BEHALF.
H. GENERAL PROVISIONS
1. No Employment or Service Contract. Nothing in this Agreement
---------------------------------
shall confer upon Founder any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any Parent or Subsidiary employing or retaining Founder) or
of Founder, which rights are hereby expressly reserved by each, to terminate
Founder's Service at any time for any reason, with or without cause.
7
<PAGE>
2. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be given in writing and shall be deemed effective upon personal
delivery, upon delivery by confirmed facsimile or electronic transmission (with
duplicate original sent by U.S. mail) or upon deposit in the U.S. mail,
registered or certified, postage prepaid and properly addressed to the party to
be notified at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by ten (10) days
advance written notice (under the terms of this paragraph) to all other parties
to this Agreement.
3. No Waiver. The failure of the Company in any instance to
---------
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Company and Founder. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
4. Cancellation of Shares. If the Company shall make available, at
----------------------
the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the Company
shall be deemed the owner and holder of such shares, whether or not the
certificates therefor have been delivered as required by this Agreement.
I. MISCELLANEOUS PROVISIONS
1. Further Actions. The parties hereby agree to take whatever
---------------
additional actions and execute whatever additional documents they may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either of them or on the Purchased Shares
pursuant to the provisions of this Agreement.
2. Amendments and Waivers. This Agreement represents the entire
----------------------
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, whether written or oral
3. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
8
<PAGE>
5. Successors and Assigns. The terms and provisions of this
----------------------
Agreement shall inure to the benefit of, and be binding upon, the Company and
its successors and assigns and upon Founder, Founder's permitted assigns and
legal representatives, heirs and legatees of Founder's estate, whether or not
any such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
6. 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.
7. 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.
8. Capitalized Terms. Capitalized terms used herein but not defined
-----------------
herein shall have the meanings given such terms in the Appendix attached hereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first indicated above.
GREENTREE, INC.
By: /s/ Donald M. Kendall
Don Kendall, Chief Executive Officer
Address: c/o GreenTree Nutrition, Inc.
520 Third Street, Suite 245
San Francisco, CA 94107
FOUNDER:/1/
ERIC BUDIN
/s/ Eric Budin
Address: c/o GreenTree Nutrition, Inc.
520 Third Street, Suite 245
San Francisco, CA 94107
____________________
/1/ I have received the Section 83(b) election that was attached hereto as an
Exhibit. I understand that I, and not the Company, will be responsible for
---
completing the form and filing the election with the appropriate office of the
federal and state tax authorities and that if such filing is not completed
within thirty (30) days after the date of this Agreement, I will forfeit the
opportunity to use Section 83(b).
10
<PAGE>
EXHIBIT I
FOUNDER'S INTEREST
Founder LLC Shares Amount of Shares
- -------------------------------------------------------------------------
Eric Budin Common Stock 640,000
11
<PAGE>
EXHIBIT II
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, __________ hereby sells, assigns and transfers unto
GreenTree, Inc. (the "Company") _________________ (________) shares of the
Common Stock of the Company standing in his/her name on the books of the Company
represented by Certificate Number(s) ____________ herewith and does hereby
irrevocably constitute and appoint _____________________________ his/her
attorney-in-fact to transfer such stock on the books of the Company with full
power of substitution in the premises.
Dated: May 14, 1998
/s/Eric Budin
------------------------
Signature
This Assignment Separate from Certificate was executed in conjunction with
the terms of the Stock Purchase Agreement by and between the above assignor and
GreenTree, Inc. dated May 14, 1998.
Instruction to Exhibit 11: Please do not fill in any blanks other than the
----------
signature line. Please sign exactly as you would like your name to appear on
the issued stock certificate. The purpose of this assignment is to enable the
Company to exercise the Repurchase Right without requiring additional signatures
on the part of Founder.
12
<PAGE>
EXHIBIT III
FEDERAL INCOME TAX CONSEQUENCES
AND SECTION 83(b) TAX ELECTION
Federal Income Tax Consequences and Section 83(b) Election. Under Section
----------------------------------------------------------
83 of the Internal Revenue Code of 1986, as amended (the "Code"), the excess of
the fair market value of the Purchased Shares, on the date any forfeiture
restrictions applicable to such shares lapse, over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the Company to
repurchase the Purchased Shares pursuant to the Repurchase Right. However,
Founder may elect under Code Section 83(b) to be taxed at the time the Purchased
Shares are acquired, rather than when and as such Purchased Shares cease to be
subject to such forfeiture restrictions. Such election must be filed with the
Internal Revenue Service within thirty (30) days after the date of the
Agreement. Even if the fair market value of the Purchased Shares on the date of
the Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. The form
for making this election is attached as an Exhibit. FAILURE TO MAKE THIS FILING
-------
WITHIN THE APPLICABLE THIRTY (30) DAY PERIOD WILL RESULT IN THE RECOGNITION OF
ORDINARY INCOME BY FOUNDER AS THE FORFEITURE RESTRICTIONS LAPSE.
13
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
Agreement shall mean this Stock Purchase Agreement.
---------
Board shall mean the Company's Board of Directors.
-----
Cause shall mean Founder's deliberate and consistent refusal to perform
-----
Founder's duties or deliberate and consistent refusal to conform to or follow
any reasonable policy adopted by the Company's Board, Founder's unauthorized use
or disclosure of the confidential information or trade secrets of the Company,
Founder's conviction of a felony under the laws of the United States or any
state thereof, or Founder's gross misconduct.
Change in Control shall mean:
-----------------
(a) A merger or consolidation in which securities possessing more than
50% of the total combined voting power of the Company's outstanding securities
are transferred to one or more persons who were not stockholders of the Company
immediately before such merger or consolidation;
(b) Any other transaction after which one or more persons who were not
stockholders of the Company immediately before such transaction beneficially own
more than 50% of the total combined voting power of the Company's outstanding
securities;
(c) The sale, transfer or other disposition of all or substantially
all of the Company's assets; or
(d) The complete liquidation or dissolution of the Company.
A transaction shall not constitute a Change in Control if its sole purpose
is to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Company's securities immediately before such transaction.
Code shall mean the Internal Revenue Code of 1986, as amended.
----
Common Stock shall mean the Company's common stock.
------------
Company shall mean Promatory Communications, Inc., a Delaware corporation.
-------
Market Stand-Off shall mean the market stand-off restriction specified in
----------------
Paragraph C.3.
1933 Act shall mean the Securities Act of 1933, as amended.
--------
14
<PAGE>
Owner shall mean Founder and all subsequent holders of the Purchased Shares
-----
who derive their chain of ownership through a Permitted Transfer from Founder.
Parent shall mean any corporation (other than the Company) in an unbroken
------
chain of corporations ending with the Company, provided each corporation in the
unbroken chain (other than the Company) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased
------------------
Shares, provided and only if Founder obtains the Company's prior written consent
to such transfer, (ii) a transfer of title to the Purchased Shares effected
pursuant to Founder's will or the laws of intestate succession following
Founder's death or (iii) a transfer to the Company in pledge as security for any
purchase-money indebtedness incurred by Founder in connection with the
acquisition of the Purchased Shares.
Purchase Price shall have the meaning assigned to such term in Paragraph
--------------
A.1.
Purchased Shares shall have the meaning assigned to such term in Paragraph
----------------
A.1.
Recapitalization shall mean any stock split, stock dividend,
----------------
recapitalization, combination of shares, exchange of shares or other change
affecting the Company's outstanding Common Stock as a class without the
Company's receipt of consideration.
Reorganization shall mean any of the following transactions:
--------------
(i) a merger or consolidation in which the Company is not the surviving
entity;
(ii) a sale, transfer or other disposition of all or substantially all of
the Company's assets;
(iii) a reverse merger in which the Company is the surviving entity but in
which the Company's outstanding voting securities are transferred in
whole or in part to a person or persons different from the persons
holding those securities immediately prior to the merger; or
(iv) any transaction effected primarily to change the state in which the
Company is incorporated or to create a holding company structure.
Repurchase Right shall mean the right granted to the Company in accordance
----------------
with Article D.
SEC shall mean the Securities and Exchange Commission.
---
Service shall mean the provision of services to the Company (or any Parent
-------
or Subsidiary) by a person in his or her capacity as (a) an employee, subject to
the control
15
<PAGE>
and direction of the employer entity as to both the work to be performed and the
manner and method of performance, (b) a non-employee member of the Board of
Directors or (c) as a consultant.
Subsidiary shall mean any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
Vesting Schedule shall mean the vesting schedule specified in Paragraph D-
----------------
3.
Unvested Shares shall mean Purchased Shares in which Purchaser has not
---------------
vested in accordance with Paragraphs D.1 and D.5.
16
<PAGE>
EXHIBIT 4.6
-----------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
---------
February __, 2000, by and between more.com, Inc., a Delaware corporation (the
"Company"), and the undersigned individual ("Stockholder").
------- -----------
RECITALS
A. This Agreement is entered into in connection with the Agreement
and Plan of Merger, dated as of February 7, 2000 and by and among
the Company, a wholly-owned subsidiary of the Company and Comfort
Living, Inc., a Maryland corporation ("ComfortLiving"), and which
-------------
provides for the acquisition of ComfortLiving by the Company (the
"Merger Agreement", and such acquisition, the "Merger").
---------------- ------
Capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings ascribed to them in the Merger
Agreement.
B. Stockholder is the record and beneficial owner of shares of the
capital stock of the Company and/or is the holder of Rights
pertaining to the Company Common Stock.
C. Pursuant to the Merger Agreement, at the effective time of the
Merger (the "Effective Time"), each outstanding share of the
--------------
capital stock of the Company will be converted into, and each
outstanding Right pertaining to the Company Common Stock will be
terminated in exchange for, the right to receive shares of the
common stock of Parent ("Shares") and cash.
------
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties
mutually agree as follows:
1. Piggyback Registration Rights.
-----------------------------
1.1 If, at any time after 180 days following the date of the closing
of Parent's initial public offering of shares of its common stock ("Common
------
Stock") pursuant to a registration statement on Form S-1 under the Securities
- -----
Act of 1933, as amended (the "Securities Act")(if any), the Company proposes
--------------
to register Common Stock under the Securities Act in connection with any
offering of Common Stock (other than a registration statement on Form S-8 or
Form S-4, or their successors, or any other form for a limited purpose or
which otherwise does not include at least substantially the same information
as would be required to be included in a registration statement covering the
sale of registrable securities, or any registration statement covering only
securities proposed to be issued in exchange for securities or assets of
another
1
<PAGE>
entity), whether or not for its own account, the Company shall furnish prompt
(but in no event later than fourteen (14) days prior to the filing of the
applicable registration statement) written notice to Stockholder of its
intention to effect such registration and the intended method of distribution
in connection therewith. Upon the written request of Stockholder made to the
Company within fourteen (14) days after the furnishing such notice by the
Company, the Company shall include in such registration the requested number
of Shares (the "Registrable Securities"), subject to the provisions hereof and
----------------------
other customary terms, conditions, limitations and cut-backs relating to the
registration of securities generally and any restrictions on transfer of
Shares pursuant to any agreement between Stockholder and the Company;
provided, that all rights granted to Stockholder pursuant to this Section 1
- --------
shall terminate with respect to any Registrable Securities held by Stockholder
upon the earliest to occur of (i) the time when all of the Registrable
Securities may immediately be sold pursuant to Rule 144 under the Securities
Act within any ninety (90) day period, (ii) upon any sale of the Registrable
Securities pursuant to a registration statement or Rule 144 under the
Securities Act or (iii) the date two (2) years after the date hereof.
1.2 Nothing in this Section 1 shall create any liability on the part
of the Company or any other person to Stockholder if the Company or any other
person should, for any reason, decide not to file a registration statement
proposed to be filed or to withdraw such registration statement subsequent to
its filing, regardless of any action whatsoever that Stockholder may have
taken, whether as a result of the issuance by the Company of any notice under
this Section 1 or otherwise.
1.3 It shall be a condition precedent to the obligation of the
Company to include any Registrable Securities in a registration statement
pursuant to this Section 1 that Stockholder shall furnish to the Company such
information regarding himself, the Registrable Securities held by him, and the
intended method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities held by Stockholder. Any
such information, or any comments on any such information included in a draft
of a registration statement provided to Stockholder for his comment, shall be
provided to the Company within any reasonable time period requested by the
Company.
1.4 The Company may suspend any applicable registration statement
and require that Stockholder immediately cease the sale of Shares pursuant to
the registration statement in any period during which the Company is engaged
in any activity or transaction or preparations or negotiations for any
activity or transaction (the "Company Activity") that the Company in good
----------------
faith desires to keep confidential for business reasons, if the Company
determines in good faith (and so certifies to Stockholder) that the public
disclosure requirements imposed on the Company under the Securities Act in
connection with the registration statement would require disclosure of the
Company Activity, or during which there exists any other material non-public
information relating to the Company which the Company determines in good faith
should not be disclosed; provided that (i) the Company shall use commercially
--------
reasonable efforts to minimize the length of any such period of suspension,
and (ii) any such suspension shall be applied in the same manner to any other
registration statement or proposed offering of the Company's securities
proposed or then in effect.
2
<PAGE>
1.5 Stockholder shall notify the Company, at any time when a
prospectus is required to be delivered under applicable law, of the happening
of any event as a result of which the prospectus included in the applicable
registration statement, as then in effect, with respect to information
provided or confirmed by Stockholder, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing. Stockholder shall immediately upon the occurrence
of any such event cease using such prospectus. If so requested by the Company,
Stockholder promptly shall return to the Company any copies of any prospectus
in its possession (other than permanent file copies) that contains an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
1.6 The Company shall bear and pay all reasonable expenses incurred
by it in connection with any registration, filing or qualification of the
Registrable Securities pursuant to this Section 1, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company, but
excluding underwriting discounts and commissions relating to the Registrable
Securities. The Company shall not be responsible for any costs, fees or
expenses of any counsel separately retained to act on behalf of Stockholder in
connection with any registration, filing or qualification hereunder.
1.7 In connection with any underwritten offering of securities, the
Company shall not be required under this Section 1 to register any of the
Registrable Securities in connection with such underwritten offering unless
Stockholder accepts the underwriters selected by the Company and executes an
underwriting agreement with such underwriters containing such provisions as
are customary in an underwritten offering that includes shares held by a
stockholder. Registrable Securities shall be sold in such offering only in
such quantity as the lead managing underwriter determines, in its sole
discretion, will not jeopardize the success of the offering by the Company. To
the extent that the lead managing underwriter determines that attempting to
sell all of the securities sought to be registered may jeopardize the success
of the offering, the securities to be included shall be apportioned as
follows: (i) first, the Company and any holders of securities of the Company
exercising any demand registration rights granted to such holders shall be
entitled to register all securities that the Company or such other holders
propose to sell for their own accounts, in such proportion as they shall agree
upon; (ii) second, any holders of the Company securities exercising piggyback
registration rights as and to the extent that such registration rights have
priority over the registration rights granted to Stockholder hereunder; and
(iii) lastly, Stockholder, together with any holders of other the Company
securities exercising piggyback registration rights as and to the extent that
such registration rights rank pari passu with the piggyback registration
---- -----
rights hereunder, shall be entitled to register, on a pro rata basis, up to
--- ----
that number of Registrable Securities and other shares of Common Stock that is
equal to the remaining shares of Common Stock that the lead managing
underwriter will permit to be registered after giving effect to the
apportionment set forth in clauses (i) and (ii) above, in connection with such
offering.
1.8 The Company shall use its best efforts to register or qualify
the Registrable Securities under the securities laws of such states as
Stockholder shall reasonably
3
<PAGE>
request in writing; provided that the Company shall not be required in
--------
connection with this Section 1.8 to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
1.9 Stockholder shall not have any right to obtain or seek an
injunction restraining or otherwise delaying any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
2. Indemnification.
---------------
2.1 To the extent permitted by law, the Company will indemnify and
hold harmless Stockholder against any losses, claims, damages, or liabilities
to which he may become subject under the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or other federal or
------------
state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by the
---------
Company: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any state securities
law or any rule or regulation promulgated under the Securities Act, the
Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse
Stockholder for any legal or other expenses reasonably incurred by him in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, that the indemnity agreement contained in this
--------
Section 2.1 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld, nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by Stockholder.
2.2 To the extent permitted by law, Stockholder will, if Shares held
by Stockholder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers, its legal counsel, each Person,
if any, who controls the Company within the meaning of the Securities Act,
each underwriter and each other shareholder selling securities under such
registration statement against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
counsel, controlling Person, underwriter or other shareholders may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by Stockholder; and
Stockholder will reimburse any legal or other
4
<PAGE>
expenses reasonably incurred by the Company or any such director, officer,
counsel, controlling Person, underwriter or other shareholders in connection
with investigating or defending any such loss, claim, damage, liability or
action if it is judicially determined that there was such a Violation;
provided that the indemnity agreement contained in this Section 2.2 shall not
- --------
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of Stockholder,
which consent shall not be unreasonably withheld.
3. Miscellaneous.
-------------
3.1 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 but one and the same instrument.
3.2 Successors and Assigns. This Agreement shall be enforceable by
----------------------
and shall inure to the benefit of and be binding upon the parties hereto and
their respective successors and assigns, provided that Stockholder's right to
--------
register the Registrable Securities pursuant to Section 1 may be assigned (but
only with all related obligations) by Stockholder to a permitted transferee or
assignee of such securities who, after such assignment or transfer, holds at
least a majority of the shares of Registrable Securities initially held by
Stockholder pursuant to the Acquisition Agreements (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations); and provided, further, that: (a) Company is, within a
-------- -------
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement; and (c) such assignment shall be effective only
if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities
Act. As used herein, the terms "successors and assigns" shall mean, where the
context so permits, heirs, executors, administrators, trustees and successor
trustees, and personal and other representatives.
3.3 Governing Law. This Agreement shall be governed by and construed,
-------------
interpreted and enforced in accordance with the laws of the State of California,
without regard to the principles of conflicts of laws. Each of the parties
irrevocably waives the right to a jury trial in connection with any legal
proceeding relating to this Agreement and the other Transaction Agreements or
the enforcement of any provision of this Agreement or the other Transaction
Agreements.
3.4 Notices. Any notice or other communication required or permitted
-------
to be delivered to any party under this Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
telecopier during business hours) to the address or telecopier number set
forth beneath the name of such party on the signature page of this Agreement
(or to such other address or telecopier number as such party shall have
specified in a written notice given to the other party hereto).
5
<PAGE>
3.5 Severability. If any provision of this Agreement is held to be
------------
unenforceable for any reason, such provision and all other related provisions
shall be modified rather than voided, if possible, in order to achieve the
intent of the parties to this Agreement to the extent possible. In any event,
all other unrelated provisions of this Agreement shall be deemed valid and
enforceable to the full extent.
3.6 Gender and Number. Whenever the context of this Agreement
-----------------
requires, the gender of all words herein shall include the masculine, feminine
and neuter, and the number of all words herein shall include the singular and
plural.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
MORE.COM, INC.
By: _________________________________________
Name:
Title:
520 Third St., Suite 245
San Francisco, CA 94107
Attention: Chief Executive Officer
Telecopier: (415) 979-9598
STOCKHOLDER:
______________________________________________
Name:
Address: _____________________________________
______________________________________________
______________________________________________
Facsimile: ___________________________________
______________________________________________
(Print Taxpayer Identification Number)
[THIS SIGNATURE PAGE TO BE DUPLICATED FOR EACH STOCKHOLDER]
7
<PAGE>
Exhibit 10.1
MORE.COM, INC.
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of ____________, 2000 by and
between more.com, Inc., a Delaware corporation (the "Company"), and
___________________ ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued and
effective service to the Company, and in order to induce Indemnitee to provide
services to the Company as a director and/or officer, the Company wishes to
provide in this Agreement for the indemnification of and the advancing of
expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted by Delaware law and as set forth in this Agreement, and, to the extent
insurance is maintained, for the coverage of Indemnitee under the Company's
directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the above premises and of Indemnitee's
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties agree as
follows:
1. Certain Definitions.
-------------------
(a) Board: the Board of Directors of the Company.
(b) Change In Control: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company
(collectively "excluded persons"), is or becomes the "Beneficial Owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 30% or more of the total voting power represented by
the Company's then outstanding Voting Securities, or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board and any new director whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board, or (iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation that would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to
1
<PAGE>
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets.
(c) Expenses: any expense, liability, or loss, including attorneys' fees,
judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid
in settlement, any interest, assessments, or other charges imposed thereon, and
any federal, state, local, or foreign taxes imposes as a result of the actual or
deemed receipt of any payments under this Agreement, paid or incurred in
connection with investigating, defending, being a witness in, or participating
in (including on appeal), or preparing for any of the foregoing in, any
Proceeding relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence that takes place either
prior to or after the effective date of this Agreement, related to the fact that
Indemnitee is or was a director or an officer of the Company, or while a
director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise, or was a director, officer, employee, or agent of a foreign
or domestic corporation that was a predecessor corporation of the Company or of
another enterprise at the request of such predecessor corporation, or related to
anything done or not done by Indemnitee in any such capacity.
(e) Independent Counsel: the person or body appointed in connection with
Section 3.
(f) Potential Change In Control: shall be deemed to have occurred if (i)
the Company enters into an agreement or arrangement, the consummation of which
would result in the occurrence of a Change in Control, (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions that, if consummated, would constitute a Change in Control, (iii)
any person (other than an Excluded Person) who is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company representing 10% or
more of the combined voting power of the Company's then outstanding Voting
Securities, increases his beneficial ownership of such securities by 5% or more
over the percentage so owned by such person on the date hereof, or (iv) the
Board adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(g) Proceeding: (i) any threatened, pending, or complete action, suit, or
proceeding, whether civil, criminal, administrative, investigative, or other, or
(ii) any inquiry, hearing, or investigation, whether conducted by the Company or
any other party, that Indemnitee in good faith believes might lead to the
institution of any such action, or proceeding.
2
<PAGE>
(h) Reviewing Party: the person or body appointed in accordance with
Section 3.
(i) Voting Securities: any securities of the Company that vote
generally in the election of directors.
2. Agreement To Indemnify.
----------------------
(a) General Agreement. In the event Indemnitee was, is, or become a
-----------------
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Proceeding by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from
and against any and all Expenses to the fullest extent permitted by law, as the
same exists or may hereafter be amended or interpreted (but in the case of any
such amendment or interpretation, only to the extent that such amendment or
interpretation permits the Company to provide broader indemnification rights
than were permitted prior thereto). The parties hereto intend that this
Agreement shall provide for indemnification in excess of that expressly
permitted by statute, including, without limitation, any indemnification
provided by the Company's Amended and Restated Certificate of Incorporation, its
bylaws, vote of its stockholders or disinterested directors, or applicable law.
(b) Initiation Of Proceeding. Notwithstanding anything in this
------------------------
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Proceeding initiated by
Indemnitee against the Company or any director or officer of the Company unless
(i) the Company has joined in or the Board has consented to the initiation of
such Proceeding, (ii) the Proceeding is one to enforce indemnification rights
under Section 5, or (iii) the Proceeding is instituted after a Change in Control
and Independent Counsel has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the Company
----------------
shall advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"); provided that such request shall be
accompanied by reasonable evidence of the expenses incurred by Indemnitee and
that, if and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid. If Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee should be indemnified under applicable law, as provided in
Section 4, any determination made by the Reviewing Party that Indemnitee would
not be permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or have lapsed).
(d) Mandatory Indemnification. Notwithstanding any other provision of
-------------------------
this Agreement (other than Section 2(f) below), to the extent that Indemnitee
has been successful on the merits in defense of any Proceeding relating in whole
or in part to an Indemnifiable Event or in defense of any issue or matter
therein, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.
3
<PAGE>
Exhibit 10.2
MORE.COM, INC.
1998 STOCK OPTION PLAN
Amended and Restated January __, 2000
1. Adoption and Purpose of the Plan. This stock option plan, to be
--------------------------------
known as the "More.com 1998 Stock Option Plan" (the "Plan") has been adopted by
the board of directors (the "Board") of More.com, Inc. (the "Company"), and is
subject to the approval of its shareholders pursuant to section 7 below. The
purpose of this Plan is to advance the interests of the Company and its
shareholders by enabling the Company to attract and retain qualified directors,
officers, employees, independent contractors, consultants and advisers by
providing them with an opportunity for investment in the Company. The options
that may be granted hereunder ("Options") represent the right by the grantee
thereof ("Optionee") to acquire shares of the Company's common stock ("Shares"
which if acquired pursuant to the exercise of an Option will be referred to as
"Option Shares") subject to the terms and conditions of this Plan and a written
agreement between the Company and the Optionee to evidence each such Option (an
"Option Agreement").
2. Certain Definitions. The defined terms set forth in Exhibit A
------------------- ---------
attached hereto and incorporated herein (together with other capitalized terms
defined elsewhere in this Plan) will govern the interpretation of this Plan.
3. Eligibility. The Company may grant Options under this Plan only to
-----------
(i) persons who, at the time of such grant, are directors, officers and/or
employees of the Company and/or any of its Subsidiaries, and (ii) persons who,
and entities which, at the time of such grant, are independent contractors,
consultants or advisers of the Company and/or any of its Subsidiaries ("Eligible
Participants"). Subject to the provisions of section 4 of this Plan, there is
no limitation on the number of Options that may be granted to an Eligible
Participant.
4. Option Pool; Shares Reserved for Options. In no event will the
----------------------------------------
Company issue, in the aggregate, more than 12,117,500 Shares (the "Option Pool")
pursuant to the exercise of all Options granted under this Plan, exclusive of
those Option Shares that may be reacquired by the Company by repurchase or
otherwise; provided that in order to comply with the requirements of Section
260.140.45 of Title 10 of the California Code of Regulations (the "30% Rule"),
at no time will the total number of Shares that either (x) may be acquired
pursuant to the exercise of all outstanding Options granted hereunder or under
any other outstanding options or warrants issued by the Company (exclusive of
certain excluded rights and warrants described in the 30% Rule), or (y) are
provided for under any stock bonus or similar plan of the Company, in the
aggregate exceed 30% of the total number of then issued and outstanding Shares
of the Company (including shares of convertible preferred stock or convertible
senior common stock on an as converted basis), unless a percentage higher than
30% has been approved by at least two-thirds of the outstanding Shares of the
Company entitled to vote. At all times while Options granted under this Plan
are outstanding, the Company will reserve for issuance for the purposes hereof a
sufficient number of authorized and unissued Shares to fully satisfy the
Company's obligations under all such outstanding Options.
<PAGE>
5. Administration. This Plan will be administered and interpreted by
--------------
the Board, or by a committee consisting of two or more members of the Board,
appointed by the Board for such purpose (the Board, or such committee, referred
to herein as the "Administrator"). Subject to the express terms and conditions
hereof, the Administrator is authorized to prescribe, amend and rescind rules
and regulations relating to this Plan, and to make all other determinations
necessary or advisable for its administration and interpretation. Specifically,
the Administrator will have full and final authority in its discretion, subject
to the specific limitations on that discretion as are set forth herein and in
the Articles of Incorporation or Bylaws of the Company at any time:
(a) to select and approve the Eligible Participants to whom Options
will be granted; provided that no Option may be granted to any person
after he or she ceases, or to any entity after it ceases, for any
reason, to be an Eligible Participant (a "Loss of Eligibility Status");
(b) to determine the Fair Market Value of the Shares as of the Grant
Date for any Option;
(c) with respect to each Option, to determine the terms and
conditions of the Option, to be set forth in the Option Agreement
evidencing the Option (the form of which also being subject to approval
by the Administrator), which may vary from the "default" terms and
conditions set forth in section 6 below, except to the extent otherwise
provided, including, without limitation, as follows:
(i) the total number of Option Shares that may be acquired by the
Optionee pursuant to the Option;
(ii) whether the Option granted to an employee of the Company or its
Subsidiary will be designated an ISO; if an Option does not
expressly so indicate, the Option will not be deemed designated
an ISO;
(iii) the per share purchase price to be paid to the Company by the
Optionee to acquire the Option Shares issuable upon exercise of
the Option (the "Option Price"); provided that the Option Price
will not be less than 85% of the Fair Market Value of the Shares
as of the Grant Date, unless the Optionee is a 10% shareholder,
in which case the Option Price will not be less than 110% of such
Fair Market Value;
(iv) the maximum period or term during which the Option will be
exercisable (the "Option Term"), provided that in no event may
the Option Term be longer than 10 years from the Grant Date;
(v) the maximum period following any Loss of Eligibility Status with
respect to the Optionee, whether resulting from his or her death,
disability or any other reason, during which period (the "Grace
Period") the Option will be exercisable and to the expiration of
the Option Term, provided that in no event may the Administrator
designate a Grace Period that is shorter than six months after
such Loss of Eligibility Status by reason of the Optionee's death
or disability, or 30 days after such Loss of Eligibility Status
for any other reason,
2
<PAGE>
except in the event of a Just Cause Termination, in which case no
Grace Period will be required (i.e., the Option will terminate
immediately);
(vi) whether to accept a promissory note or other form of payment as a
form of legal consideration in addition to cash as payment of all
or a portion of the Option Price and/or Tax Withholding Liability
to be paid by the Optionee upon the exercise of an Option granted
hereunder;
(vii) the conditions (e.g., the passage of time or the occurrence of
events), if any, that must be satisfied prior to the vesting of
the right to exercise all or specified portions of an Option
(such portions being described as a percentage of the total
number of Option Shares that may be acquired by the Optionee
pursuant to the Option; the vested portion being referred to as a
"Vested Option" and the unvested portion being referred to as an
"Unvested Option"); provided that no such conditions (except the
Loss of Eligibility Status of the Optionee, after which no
Unvested Option will become a Vested Option) may be imposed which
prevents an Optionee who is an employee, but who is neither an
officer or director, of the Company or any of its Subsidiaries,
from purchasing at least 20% of the Option Shares initially
subject to the Option as of the first anniversary of the Grant
Date, and as of each anniversary thereafter, such that by the
fifth anniversary of the Grant Date (assuming no such Loss of
Eligibility Status) the entire Option would be deemed a Vested
Option; and
(viii) in addition, or as an alternative, to imposing conditions on the
right to exercise an Option as provided in section 5(c)(vii)
above, whether any portion of the Option Shares acquired by an
Optionee upon exercise of an Option will be subject to repurchase
by the Company or its assigns pursuant to section 6.8(c) below at
the Option Price paid for such Shares (such Shares, if subject to
repurchase at less than Fair Market Value, being referred to as
"Unvested Shares") following a Termination of Eligibility Status
or other designated event, and the conditions (e.g., the passage
of time or the occurrence of events), if any, that must be
satisfied for such Shares to be no longer subject to such right
of repurchase at such Option Price (such Shares being referred to
as "Vested Shares"); provided that no such conditions (except an
Optionee's Termination of Eligibility Status, after which no
Unvested Shares will become Vested Shares) may be imposed which
prevent Unvested Shares held by an employee, who is neither an
officer or director, of the Company and/or any of its
Subsidiaries, from becoming Vested Shares at the rate of at least
twenty percent (20%) per year following the Grant Date, such that
by the fifth anniversary of the Grant Date (assuming no earlier
Termination of Eligibility Status) all of the Shares would be
deemed Vested Shares;
(d) to delegate all or a portion of the Administrator's authority under
sections 5(a), (b) and (c) above to one or more members of the Board who
also are executive officers of the Company, and subject to such
restrictions and limitations as the Administrator may decide to impose
on such delegation.
6. Default Terms and Conditions of Option Agreements. Unless otherwise
-------------------------------------------------
3
<PAGE>
expressly provided in an Option Agreement based on the Administrator's
determination pursuant to section 5(c) above, the following terms and conditions
will be deemed to apply to each Option as if expressly set forth in the Option
Agreement, provided that in no event may an Option Agreement modify the
provisions of section 6.7(a):
6.1 ISO. If an Option is granted to an Eligible Participant who, as of
---
the Grant Date, is an employee of the Company or any Subsidiary (as determined
under Section 3401(c) of the Code), and the Option is designated by the
Administrator as an ISO and the Option Agreement so states, then the Option will
be subject to the following additional terms and conditions:
(a) To the extent that the Fair Market Value of Option Shares
(determined as of the Grant Date) with respect to which all ISOs are
exercisable for the first time by any individual during any calendar
year (pursuant to this Plan and all other plans of the Company and/or
its Subsidiaries) exceeds $100,000, the Option will not be treated as an
ISO.
(b) The Option Price will not be less than 100% of the Fair Market
Value of the Shares as of the Grant Date, except that if the Optionee is
a 10% shareholder the Option Price will not be less than 110% of the
Fair Market Value of the Shares as of the Grant Date, and the Option
Term may not be more than five (5) years.
(c) Notwithstanding any Grace Period selected by the Administrator
pursuant to section 5(c)(v) above, or the default provisions of section
6.3 below, the tax treatment available pursuant to Section 422 of the
Code upon the exercise of the ISO will not be available to an Optionee
who exercises the Option (if permitted to do so) more than (i) three
months following the Optionee's Loss of Eligibility Status other than by
reason of his or her death or disability, or (ii) 12 months following
such Optionee's Loss of Eligibility Status by reason or his or her
disability, whichever case may be applicable.
6.2 Option Term. The Option Term will be for a period of 10 years
-----------
beginning on the Grant Date (subject to section 6.1(b) above in the case of an
ISO granted to a 10% shareholder).
6.3 Grace Periods. Following a Loss of Eligibility Status:
-------------
(a) the Grace Period will be sixty days, unless the Loss of Eligibility
Status is a result of a Just Cause Termination or the death or
disability of the Optionee;
(b) the Grace Period will be six months if the Loss of Eligibility
Status is a result of the death or disability of the Optionee;
(c) the Option will terminate, and there will be no Grace Period,
effective immediately as of the date and time of a Loss of Eligibility
Status which results from a Just Cause Termination of the Optionee,
regardless of whether the Option is Vested or Unvested; and
(d) in all events following a Loss of Eligibility Status, no portion of
an Option may be exercised as would result in the purchase of Unvested
Shares.
4
<PAGE>
6.4 Vesting. Section 5(c)(viii), and not section 5(c)(vii), will apply to
-------
the Option. The shares into which the Option is exercisable initially will be
deemed entirely Unvested Shares, but portions of the shares into which the
Option is exercisable will become Vested Shares on the following schedule:
(a) twenty-five percent (25%) will become Vested Shares as of the first
anniversary of the "Vesting Start Date" specified in the Option
Agreement (which may be earlier than the Grant Date specified therein);
(b) the balance of the shares into which the Option is exercisable will
become Vested Shares pro rata monthly over the three year period
commencing with the first anniversary of such Vesting Start Date; and
(c) upon a Change of Control Transaction, an additional twelve and one-
half percent (12.5%) of the shares into which the Option is exercisable
will become Vested Shares; provided however that such percentage will
be increased to twenty-five percent (25%) if the Optionee is employed by
the Company immediately prior to the Change of Control Transaction and
is laid off, or is scheduled to be laid off, by the Successor Entity as
of the time of the Change of Control Transaction.
provided that the Optionee does not suffer a Loss of Eligibility Status
prior to each such vesting date and provided further that additional vesting
will be suspended during any period while the Optionee is on a leave of absence
from the Company, as determined by the Administrator.
6.5 Exercise of the Option; Issuance of Share Certificate.
-----------------------------------------------------
(a) Subject to section 6.5(d) below, the portion of the Option that is
a Vested Option may be exercised by giving written notice thereof to the
Company, on such form as may be specified by the Administrator, but in any event
stating: the Optionee's intention to exercise the Option; the date of exercise;
the number of full Option Shares to be purchased (which number will be no less
than 100 Shares, without regard to adjustments to the number of Shares subject
to the Option pursuant to section 8 below, or, if less, all of the remaining
Shares subject to the Option); the amount and form of payment of the Option
Price; and such assurances of the Optionee's investment intent as the Company
may require to ensure that the transaction complies in all respects with the
requirements of the 1933 Act and other applicable securities laws. The notice
of exercise will be signed by the person or persons exercising the Option. In
the event that the Option is being exercised by the representative of the
Optionee, the notice will be accompanied by proof satisfactory to the Company of
the representative's right to exercise the Option. The notice of exercise will
be accompanied by full payment of the Option Price for the number of Option
Shares to be purchased, in United States dollars, in cash, by check made payable
to the Company, or by delivery of such other form of payment (if any) as
approved by the Administrator in the particular case.
(b) To the extent required by applicable federal, state, local or
foreign law, and as a condition to the Company's obligation to issue any Shares
upon the exercise of the Option in full or in part, the Optionee will make
arrangements satisfactory to the Company for the payment of any applicable Tax
Withholding Liability that may arise by reason of or in
5
<PAGE>
connection with such exercise. Such arrangements may include, in the Company's
sole discretion, that the Optionee tender to the Company the amount of such Tax
Withholding Liability, in cash, by check made payable to the Company, or in the
form of such other payment as may be approved by the Administrator, in its
discretion pursuant to section 5(c)(vi) above.
(c) After receiving a proper notice of exercise and payment of the
applicable Option Price and Tax Withholding Liability, the Company will cause to
be issued a certificate or certificates for the Option Shares as to which the
Option has been exercised, registered in the name of the person rightfully
exercising the Option and the Company will cause such certificate or
certificates to be delivered to such person.
6.6 Compliance with Law. Notwithstanding any other provision of this
-------------------
Plan, Options may be granted pursuant to this Plan, and Option Shares may be
issued pursuant to the exercise thereof by an Optionee, only after and on the
condition that there has been compliance with all applicable federal and state
securities laws. The Company will not be required to list, register or qualify
any Option Shares upon any securities exchange, under any applicable state,
federal or foreign law or regulation, or with the Securities and Exchange
Commission or any state agency, or secure the consent or approval of any
governmental regulatory authority, except that if at any time the Board
determines, in its discretion, that such listing, registration or qualification
of the Option Shares, or any such consent or approval, is necessary or desirable
as a condition of or in connection with the exercise of an Option and the
purchase of Option Shares thereunder, that Option may not be exercised, in whole
or in part, unless and until such listing, registration, qualification, consent
or approval is effected or obtained free of any conditions that are not
acceptable to the Board, in its discretion. However, the Company will seek to
register or qualify with, or as may be provided by applicable local law, file
for and secure an exemption from such registration or qualification requirements
from, the applicable securities administrator and other officials of each
jurisdiction in which an Eligible Participant would be granted an Option
hereunder prior to such grant.
6.7 Restrictions on Transfer.
------------------------
(a) Options Nontransferable. No Option will be transferable by an
-----------------------
Optionee otherwise than by will or the laws of descent and distribution. During
the lifetime of a natural person who is granted an Option under this Plan, the
Option will be exercisable only by him or her.
(b) Prohibited Transfers. Prior to the Initial Public Offering, no
--------------------
Holder of any Option Shares may Transfer such Shares, or any interest therein:
(i) except as expressly provided in this Plan; and (ii) in full compliance with
all applicable securities laws. All Transfers of Option Shares not complying
with the specific limitations and conditions set forth in this section 6.7 and
section 6.8 below are expressly prohibited. Any prohibited Transfer is void and
of no effect, and no purported transferee in connection therewith will be
recognized as a Holder of Option Shares for any purpose whatsoever. Should such
a Transfer purport to occur, the Company may refuse to carry out the Transfer on
its books, attempt to set aside the Transfer, enforce any undertakings or rights
under this Plan, or exercise any other legal or equitable remedy.
6
<PAGE>
(c) Conditions to Transfer. It will be a condition to any Transfer of
----------------------
any Option Shares that:
(i) the transferee of the Shares will execute such documents as the
Company may reasonably require to ensure that the Company's rights under
this Plan, and any applicable Option Agreement, are adequately protected
with respect to such Shares, including, without limitation, the
transferee's agreement to be bound by all of the terms and conditions of
this Plan and such Agreement, as if he or she were the original Holder of
such Shares; and
(ii) the Company is satisfied that such Transfer complies in all
respects with the requirements imposed by applicable state and federal
securities laws and regulations.
(d) Market Standoff. If in connection with any public offering of
---------------
securities of the Company (or any Successor Entity), the underwriter or
underwriters managing such offering so requests, then each Optionee and each
Holder of Option Shares will agree to not sell or otherwise Transfer any such
Shares (other than Shares included in such underwriting) without the prior
written consent of such underwriter, for such period of time as may be requested
by the underwriter (not to exceed 210 days) commencing on the effective date of
the registration statement filed with the Securities and Exchange Commission in
connection with such offering.
6.8 Rights of Purchase and First Refusal. The Company will have the
------------------------------------
following rights of purchase and first refusal with respect to Option Shares,
provided that the rights set forth in sections (a) and (b) will terminate upon
the closing of the Initial Public Offering:
(a) Right of First Refusal. If any Holder proposes to Transfer any
----------------------
Option Shares, other than in the case of an Involuntary or Donative Transfer
subject to section 6.8(b) below, the Company will have an assignable right of
first refusal to purchase such Shares on the terms and conditions set out in
this section 6.8(a). If the Company (or its assignee) elects to exercise such
right, it will do so on an all-or-nothing basis with respect to any particular
Transfer of Shares in the following manner:
(i) Before any such Transfer, the Holder proposing to Transfer such
Shares will deliver a notice of proposed Transfer (a "Proposed Transfer
Notice") to the Company stating: the number of Option Shares that the
Holder proposes to Transfer and the Holder's bona fide intention to
Transfer such Shares; the names and addresses of the Holder, the proposed
transferee and subsequently such other information regarding such
transferee as the Company reasonably requests; the manner and date of such
proposed Transfer; and the bona fide cash price and/or other consideration
(and the fair market value thereof) per share, if any, that such Transferee
has offered to pay Holder for such Shares (the "Offered Price") as well as
such other terms, including payment terms, and conditions, if any, as were
included in such offer (the "Offered Terms").
(ii) The Company (or its assignee) may exercise its right of first
refusal under this section 6.8(a) at any time not more than thirty (30)
days after the Company has received the Proposed Transfer Notice with
respect to such Shares. If the Company (or its assignee) elects to
exercise such purchase rights it will do so by delivering to the Holder of
such Shares a notice of such election and a closing date that is no more
than
7
<PAGE>
sixty (60) days after receipt of the Proposed Transfer Notice (or such
later date as the transferee may have offered or on which the Transfer is
otherwise scheduled to occur).
(iii) At the closing of the sale of the Shares to the Company (or its
assignee), to be held at its principal executive offices, the Company (or
its assignee) will pay the Holder of the Shares, in cash, the purchase
price equal to the Offered Price, subject to an appropriate adjustment to
take into account any deferred payment terms that were included in the
Offered Terms, except in the case of a Transfer of Option Shares without
consideration; provided that if the Offered Price includes any non-cash
consideration, the value thereof for purposes of this section 6.8(a) will
be determined in good faith by the Board.
(iv) If the Company (including its assignees) fails or refuses to
exercise its rights under this section 6.8(a) with respect to any Shares
that are the subject of any Proposed Transfer Notice, then the Holder will
have the right to Transfer such Shares to the transferee named in such
Notice at the Offered Price and upon such Offered Terms as were set forth
in such Notice; provided that such Transfer must be completed within ninety
(90) days after the Company has received the Proposed Transfer Notice with
respect to such Shares.
(b) Following an Involuntary or Donative Transfer. Following any
---------------------------------------------
Involuntary Transfer or Donative Transfer of Option Shares (the "Transferred
Shares"), the Company will have the assignable right to purchase from the
transferee of the Transferred Shares ("Transferee") all or a portion of such
Shares for a purchase price that is equal to the Fair Market Value of those
Shares as of the date of such Transfer. If the Company (or its assignee) elects
to exercise such right, it will do so in the following manner:
(i) Promptly after such Transfer, the transferor of the Transferred
Shares will deliver, or will cause the Transferee to deliver, a notice (a
"Completed Transfer Notice") to the Company stating: the number of
Transferred Shares; the names and addresses of the transferor and the
Transferee, and subsequently such other information regarding the
Transferee as the Company reasonably requests; and the manner,
circumstances and date of such Transfer.
(ii) The Company (or its assignee) may exercise its purchase rights
under this section 6.8(b) at any time not more than ninety (90) days after
the Company has received the Completed Transfer Notice with respect to the
Transferred Shares. If the Company (or its assignee) elects to exercise
such purchase rights it will do so by delivering to the Transferee a notice
of such election, specifying the number of Transferred Shares to be
purchased and a closing date that is no more than sixty (60) days after the
giving of such notice.
(iii) At such closing, to be held at the Company's principal executive
offices, the Company (or its assignee) will pay the Transferee the purchase
price specified in this section 6.8(b).
(c) Following a Loss of Eligibility Status. Following any Loss of
--------------------------------------
Eligibility Status by the Original Holder of an Option, the Company will have
the assignable right (but not the obligation) to purchase from the Holder of
Shares acquired pursuant to the exercise of
8
<PAGE>
the Option (except to the extent that such Shares previously were transferred in
a transaction as to which section 6.8(a) or (b) applied), all or a portion of
such Shares that are Unvested Shares as of the date of Loss of Eligibility
Status for a purchase price that is equal to the Option Price per Share paid
upon the exercise of the Option. Such right will be exercisable in the following
manner:
(i) The Company (or its assignee) may exercise its right of repurchase
under this section 6.8(c) at any time not more than ninety (90) days after
the effective date of the Loss of Eligibility Status of the Original Holder
of the Option (or in the case of Shares issued upon the exercise of Options
after such Loss of Eligibility Status, a period of ninety (90) days after
the date of the exercise). If the Company (or its assignee) elects to
exercise such purchase rights it will do so by delivering to the Holder of
such Shares a notice of such election, specifying the number of Shares to
be purchased and a closing date that is within such ninety (90) day period.
(ii) At such closing, to be held at the Company's principal executive
offices, the Company (or its assignee) will pay the Holder of the Shares,
the purchase price, as specified in this section 6.8(c), in cash, or by
cancellation of indebtedness to the Company, if any, incurred by the
original purchaser of the Option Shares to purchase the same, or both, at a
closing to be held at the Company's principal executive offices on the date
specified in such notice.
(d) Escrow. For purposes of facilitating the enforcement of the
------
restrictions on Transfer set forth in this Plan or in any Option Agreement, the
Administrator may, at its discretion, require the Holder of Option Shares to
deliver the certificate(s) for such Shares with a stock power executed by him or
her and by his or her spouse (if required for Transfer), in blank, to the
Secretary of the Company or his or her designee, to hold said certificate(s) and
stock power(s) in escrow and to take all such actions and to effectuate all such
Transfers and/or releases as are in accordance with the terms of this Plan. The
certificates may be held in escrow so long as the Option Shares whose ownership
they evidence are subject to any right of repurchase or first refusal under this
Plan or under an Option Agreement, and shall be released by the escrow holder to
an Optionee (or to any permitted transferee of the Optionee) when they are no
longer subject to any right of repurchase or first refusal under this Plan or
under the Option Agreement. Each Optionee, by exercising an Option, thereby
acknowledges that the Secretary of the Company (or his or her designee) is so
appointed as the escrow holder with the foregoing authorities as a material
inducement to the grant of an Option under this Plan, that the appointment is
coupled with an interest, and that it accordingly will be irrevocable. The
escrow holder will not be liable to any party to an Option Agreement (or to any
other party) for any actions or omissions unless the escrow holder is grossly
negligent relative thereto. The escrow holder may rely upon any letter, notice
or other document executed by any signature purported to be genuine.
6.9 Change of Control Transactions. Notwithstanding any other
------------------------------
provision of this Plan, in the event of a Change of Control Transaction (as
defined herein):
(a) with respect to all Options that have been granted hereunder and
that are outstanding as of the consummation of such Change of Control
Transaction, the Board, in its sole discretion, may determine that it is in the
best interests of the Company, and if so may take all appropriate action either
to:
9
<PAGE>
(i) cancel all such Options effective as of the consummation of the
Change of Control Transaction and, in connection with each Option, any portion
of which is a Vested Option, notify the Optionee of the proposed Change of
Control Transaction reasonably prior to its consummation so that the Optionee
will have an opportunity to exercise the Vested Option immediately prior to such
consummation; or
(ii) require the Successor Entity in such Change of Control
Transaction to assume the outstanding Options or substitute therefor comparable
options of such Successor Entity (or of its parent or its Subsidiary); and
(b) with respect to all Option Shares that have been issued and that are
outstanding as of the consummation of such Change of Control Transaction, the
Company will have the right (but not the obligation) to repurchase all (but not
less than all) of such Shares by paying each Holder thereof cash, or cancelling
any indebtedness of such Holder to the Company, or both, at a closing to be held
contemporaneously with the consummation of the Change of Control Transaction,
provided that the repurchase price for such Shares will be an amount per Share
that is equal to the Fair Market Value of the relevant Class of Shares based on
the Board's good faith estimate of the valuation of the Company implied by the
estimated fair market value of the total consideration to be paid in connection
with the Change of Control Transaction.
For purposes of this section 6.9, the term "Change of Control Transaction" means
a Business Combination in which less than 50% of the outstanding voting
securities of the Successor Entity immediately following the Closing of the
Business Combination transaction are beneficially held by those persons and
entities in the same proportion as such persons and entities beneficially held
the voting securities of the Company immediately prior to such transaction; the
term "Business Combination" means a transaction or series of transactions
consummated within any period of 90 days resulting in (A) the sale of all or
substantially all of the assets of the Company, (B) a merger or consolidation or
other reorganization of which the Company or a Subsidiary is a merging party, or
(C) the sale or other change of beneficial ownership of at least 33-1/3% of the
outstanding voting securities of the Company.
6.10 Additional Restrictions on Transfer; Investment Intent. By accepting
------------------------------------------------------
an Option and/or Option Shares under this Plan, the Optionee will be deemed to
represent, warrant and agree that, unless a registration statement is in effect
with respect to the offer and sale of Option Shares: (i) neither the Option nor
any such Shares will be freely tradeable and must be held indefinitely unless
such Option and such Shares are either registered under the 1933 Act or an
exemption from such registration is available; (ii) the Company is under no
obligation to register the Option or any such Shares; (iii) upon exercise of the
Option, the Optionee will purchase the Option Shares for his or her own account
and not with a view to distribution within the meaning of the 1933 Act, other
than as may be effected in compliance with the 1933 Act and the rules and
regulations promulgated thereunder; (iv) no one else will have any beneficial
interest in the Option Shares; (v) the Optionee has no present intention of
disposing of the Option Shares at any particular time; and (vi) neither the
Option nor the Shares have been qualified under the securities laws of any state
and may only be offered and sold pursuant to an exception from qualification
under applicable state securities laws.
6.11 Stock Certificates; Legends. Certificates representing Option Shares
---------------------------
will bear all legends required by law and necessary or appropriate in the
Administrator's discretion to
10
<PAGE>
effectuate the provisions of this Plan and of the applicable Option Agreement.
The Company may place a "stop transfer" order against Option Shares until full
compliance with all restrictions and conditions set forth in this Plan, in any
applicable Option Agreement and in the legends referred to in this section 6.11.
6.12 Notices. Any notice to be given to the Company under the terms of an
-------
Option Agreement will be addressed to the Company at its principal executive
office, Attention: President, or at such other address as the Company may
designate in writing. Any notice to be given to an Optionee will be addressed
to him or her at the address provided to the Company by the Optionee. Any such
notice will be deemed to have been duly given if and when enclosed in a properly
sealed envelope, addressed as aforesaid, deposited, postage prepaid, in a post
office or branch post office regularly maintained by the local postal authority.
7. Term of the Plan. This Plan will become effective on the date of
----------------
its adoption by the Board, provided this Plan is approved by the shareholders of
the Company (excluding Option Shares issued by the Company pursuant to the
exercise of Options granted under this Plan) within 12 months before or after
that date. If this Plan is not so approved by the shareholders of the Company
within that 12-month period of time, any Options granted under this Plan will be
rescinded and will be void. This Plan will expire on the tenth (10th)
anniversary of the date of its adoption by the Board or its approval by the
shareholders of the Company, whichever is earlier, unless it is terminated
earlier pursuant to section 11 of this Plan, after which no more Options may be
granted under this Plan, although all outstanding Options granted prior to such
expiration or termination will remain subject to the provisions of this Plan,
and no such expiration or termination of this Plan will result in the expiration
or termination of any such Option prior to the expiration or early termination
of the applicable Option Term.
8. Adjustments Upon Changes in Stock; Rights Offering. In the event
--------------------------------------------------
of any change in the outstanding Shares of the Company as a result of a stock
split, reverse stock split, stock bonus or distribution, recapitalization,
combination or reclassification, appropriate proportionate adjustments will be
made in: (i) the aggregate number of Shares that are reserved for issuance in
the Option Pool pursuant to section 4 above, under outstanding Options or future
Options granted hereunder; (ii) the Option Price and the number of Option Shares
that may be acquired under each outstanding Option granted hereunder; and (iii)
other rights and matters determined on a per share basis under this Plan or any
Option Agreement evidencing an outstanding Option granted hereunder. Any such
adjustments will be made only by the Board, and when so made will be effective,
conclusive and binding for all purposes with respect to this Plan and all
Options then outstanding. No such adjustments will be required by reason of the
issuance or sale by the Company for cash or other consideration of additional
Shares or securities convertible into or exchangeable for Shares. In the event
that the Company participates in any transaction incident to which the business
of the Company is transferred to a corporation or other entity, whether by
merger, transfer of assets or otherwise, and incident to which not less than
sixty-six and two-thirds percent (66.67%) of the outstanding voting securities
of the Successor Entity are beneficially held by those persons and entities who
held a majority of the voting securities of the Company immediately prior to
such transaction and whose ownership in the Successor Entity is in the same
relative proportion as their ownership in the Company, then the Company will
require the Successor Entity to substitute for Options hereunder comparable
options in such Successor Entity, in which event this Plan and all Option
Agreements hereunder shall terminate.
11
<PAGE>
9. Modification, Extension and Renewal of Options; Governing Law.
-------------------------------------------------------------
Subject to the terms and conditions and within the limitations of this Plan, the
Administrator may modify, extend or renew outstanding Options granted under this
Plan, or accept the surrender of outstanding Options (to the extent not
theretofore exercised) and authorize the granting of new Options in substitution
therefor (to the extent not theretofore exercised). Notwithstanding the
foregoing, however, no modification of any Option will, without the consent of
the Optionee, alter or impair any rights or obligations under any outstanding
Option. This Plan will be governed by, and construed in accordance with, the
substantive laws of the State of California.
10. Amendment and Discontinuance. The Board may amend, suspend or
----------------------------
discontinue this Plan at any time or from time to time; provided that no action
of the Board will cause ISOs granted under this Plan not to comply with Section
422 of the Code unless the Board specifically declares such action to be made
for that purpose and provided further that no such action may, without the
approval of the shareholders of the Company, materially increase (other than by
reason of an adjustment pursuant to section 8 hereof) the maximum aggregate
number of Option Shares in the Option Pool, materially increase the benefits
accruing to Eligible Participants, or materially modify the category of, or
eligibility requirements for persons who are Eligible Participants. However, no
such action may alter or impair any Option previously granted under this Plan
without the consent of the Optionee, nor may the number of Option Shares in the
Option Pool be reduced to a number that is less than the aggregate number of
Option Shares (i) that may be issued pursuant to the exercise of all outstanding
and unexpired Options granted hereunder, and (ii) that have been issued and are
outstanding pursuant to the exercise of Options granted hereunder.
11. Information Provided by Company. Prior to the date on which the
-------------------------------
Company is required to file its annual financial statements with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, the Company
annually will make available to each Optionee the Company's financial statements
(which statements need not be audited), and each Optionee will, by virtue of
entering into an Option Agreement, be deemed to have agreed (and to cause any
investment advisers to whom the Optionee proposes to make such information
available to agree) to keep such information confidential and not to use,
disclose or copy such information for any purpose whatsoever other than
determining whether to exercise an Option. The Company deems such financial
statements to be the valuable trade secrets of the Company, and in the event of
any wrongful use, disclosure or other breach of the obligation to maintain the
confidentiality of such financial information, the Company may seek to enforce
all of its available legal and equitable rights and remedies, and may notify
local law enforcement officials that a criminal misappropriation of the
Company's trade secrets has taken place.
12. No Shareholder Rights. No rights or privileges of a shareholder
---------------------
in the Company are conferred by reason of the granting of an Option. No Optionee
will become a shareholder in the Company with respect to any Option Shares
unless and until the Option has been properly exercised and the Option Price
fully paid as to the portion of the Option exercised.
13. Copies of Plan. A copy of this Plan will be delivered to each
--------------
Optionee at or before the time he or she executes an Option Agreement.
12
<PAGE>
More.com, Inc.
1998 Stock Option Plan
Exhibit A
Definitions
-----------
1. "10% shareholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth in
Section 424(d) of the Code at the time he or she is granted an Option, stock
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Company and/or of its Subsidiaries.
2. "1933 Act" means the Securities Act of 1933, as amended.
3. "Administrator" has the meaning set forth in section 5 of the
Plan.
4. "Board" has the meaning set forth in section 1 of the Plan.
5. "Business Combination" has the meaning set forth in section 6.9
of the Plan.
6. "Change of Control Transaction" has the meaning set forth in
section 6.9 of the Plan .
7. "Closing" has the meaning set forth in section 6.9 of the Plan.
8. "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to Sections of
the Code as enacted at the time of the Plan's adoption by the Board and as
subsequently amended, or to any substantially similar successor provisions of
the Code resulting from recodification, renumbering or otherwise).
9. "Company" has the meaning set forth in section 1 of the Plan.
10. "Completed Transfer Notice" has the meaning set forth in section
6.8(b) of the Plan.
11. "disability" means permanent and total disability within the
meaning of Section 22(e)(3) of the Code.
12. "Donative Transfer" with respect to Option Shares means any
voluntary Transfer by a transferor other than for value or the payment of
consideration to the transferor. A Donative Transfer will include, without
limitation: (i) a Transfer by will or under the laws of descent and
distribution; or (ii) a Transfer by a Holder of Option Shares to his or her
ancestors, descendants or spouse (other than pursuant to a decree of divorce,
dissolution or separate maintenance, a property settlement, or a separation
agreement or any similar agreement or arrangement with a spouse, except for bona
fide estate planning
13
<PAGE>
purposes), or to a trust, partnership, limited liability company, custodianship
or other fiduciary account for the benefit of the Holder and/or such ancestors,
descendants or spouse, including any Transfer in the form of a distribution from
any such trust, partnership, limited liability company, custodianship or other
fiduciary account to any of the foregoing permitted beneficial owners or
beneficiaries thereof.
13. "Eligible Participants" has the meaning set forth in section 3 of
the Plan.
14. "Fair Market Value" means, with respect to the Shares and as of
the date that is relevant to such a determination (e.g., on the Grant Date), the
market price per share of such Shares determined by the Administrator,
consistent with the requirements of Section 422 of the Code and to the extent
consistent therewith, as follows: (a) if the Shares are traded on a stock
exchange on the date in question, then the Fair Market Value will be equal to
the closing price reported by the applicable composite-transactions report for
such date; (b) if the Shares are traded over-the-counter on the date in question
and are classified as a national market issue, then the Fair Market Value will
be equal to the last-transaction price quoted by the NASDAQ system for such
date; (c) if the Shares are traded over-the-counter on the date in question but
are not classified as a national market issue, then the Fair Market Value will
be equal to the mean between the last reported representative bid and asked
prices quoted by the NASDAQ system for such date; and (d) if none of the
foregoing provisions is applicable, then the Fair Market Value will be
determined by the Administrator in good faith on such basis as it deems
appropriate, taking into consideration the provisions of Section 260.140.50 of
Title 10 of the California Code of Regulations.
15. "Grace Period" has the meaning set forth in section 5(c)(v) of
the Plan.
16. "Grant Date" means, with respect to an Option, the date on which
the Option Agreement evidencing that Option is entered into between the Company
and the Optionee, or such other date as may be set forth in that Option
Agreement as the "Grant Date" which will be the effective date of that Option
Agreement.
17. "Holder" means the holder of any Option Shares.
18. "Initial Public Offering" means the closing of the first sale of
securities of the Company, or of any Successor Entity, to the public, through a
firm commitment underwriting, for an aggregate price (exclusive of underwriters'
discounts and commissions and expenses of the offering) of at least fifteen
million dollars ($15,000,000), pursuant to an effective registration statement
filed with the Securities and Exchange Commission under the 1933 Act.
19. "Involuntary Transfer" with respect to Option Shares includes,
without limitation, any of the following: (A) an assignment of the Shares for
the benefit of creditors of the transferor; (B) a Transfer by operation of law;
(C) an execution of judgment against the Shares or the acquisition of record or
beneficial ownership of Shares by a lender or creditor; (D) a Transfer pursuant
to any decree of divorce, dissolution or separate maintenance, any property
settlement, any separation agreement or any other agreement with a spouse
(except for bona fide estate planning purposes) under which any
14
<PAGE>
Shares are Transferred or awarded to the spouse of the transferor or are
required to be sold; or (E) a Transfer resulting from the filing by the
transferor of a petition for relief, or the filing of an involuntary petition
against the transferor, under the bankruptcy laws of the United States or of any
other nation.
20. "ISO" means an "incentive stock option" as defined in Section 422
of the Code.
21. "Just Cause Termination" means a termination by the Company
and/or any of its Subsidiaries of the Optionee's employment or services (or if
the Optionee is a director, removal of him or her from the Board by action of
the shareholders or, if permitted by applicable law and the Bylaws of the
Company, the other directors), in connection with the good faith determination
of the Board (or of the Company's shareholders if the Optionee is a director and
the removal of him or her from the Board is by action of the shareholders, but
in either case excluding the vote of the subject individual if he or she is a
director or a shareholder) that the Optionee has engaged in any acts involving
dishonesty or moral turpitude or in any acts that materially and adversely
affect the business, affairs or reputation of the Company or any of its
Subsidiaries.
22. "Loss of Eligibility Status" has the meaning set forth in section
5(a) of the Plan.
23. "Offered Price" has the meaning set forth in section 6.8(a) of
the Plan.
24. "Offered Terms" has the meaning set forth in section 6.8(a) of
the Plan.
25. "Option Agreement" has the meaning set forth in section 1 of the
Plan.
26. "Option Pool" has the meaning set forth in section 4 of the Plan.
27. "Option Price" has the meaning set forth in section 5(c)(iii) of
the Plan.
28. "Option Shares" has the meaning set forth in section 1 of the
Plan, provided that for purposes of section 6.7 and section 6.8 of the Plan, the
term "Option Shares" includes all Shares issued by the Company to a Holder (or
his, her or its predecessor) by reason of such holdings, including any
securities which may be acquired as a result of a stock split, stock dividend,
and other distributions of Shares in the Company made upon, or in exchange for,
other securities of the Company.
29. "Option Term" has the meaning set forth in section 5(c)(iv) of
the Plan.
30. "Optionee" has the meaning set forth in section 1 of the Plan.
31. "Options" has the meaning set forth in section 1 of the Plan.
32. "Original Holder" means the original Eligible Participant to whom
an Option is granted under the Plan, even if such Option is transferred pursuant
to section 6.7(a) of the Plan.
15
<PAGE>
33. "Plan" has the meaning set forth in section 1 of the Plan.
34. "Proposed Transfer Notice" has the meaning set forth in section
6.8(a) of the Plan.
35. "Shares" has the meaning set forth in section 1 of the Plan.
36. "Subsidiary" has the same meaning as "subsidiary corporation" as
defined in Section 424(f) of the Code.
37. "Successor Entity" means a corporation or other entity that
acquires all or substantially all of the assets of the Company, or which is the
surviving or parent entity resulting from a Business Combination, as that term
is defined in section 6.9(b) of the Plan.
38. "Tax Withholding Liability" in connection with the exercise of
any Option means all federal and state income taxes, social security tax, and
any other taxes applicable to the compensation income arising from the
transaction required by applicable law to be withheld by the Company.
39. "Transfer" with respect to Option Shares, includes, without
limitation, a voluntary or involuntary sale, assignment, transfer, conveyance,
pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy of
those Shares, including, without limitation, any Involuntary Transfer or any
Donative Transfer.
40. "Transferee" has the meaning set forth in section 6.8(b) of the
Plan.
41. "Transferred Shares" has the meaning set forth in section 6.8(b)
of the Plan.
42. "Unvested Option" has the meaning set forth in section 5(c)(vii)
of the Plan.
43. "Vested Option" has the meaning set forth in section 5(c)(vii) of
the Plan.
16
<PAGE>
Option Agreement
Under the More.com, Inc. 1998 Option Plan
This Agreement is made effective as of ________ ___, 199__ (the "Grant
Date"), between More.com, Inc., a Delaware corporation (the "Company"), and the
undersigned Optionee.
The Parties Agree as Follows:
1. Option Grant. Subject to all of the terms and conditions of this
------------
Agreement and of the Company's 1998 Option Plan (the "Option Plan"), a copy of
which is attached hereto and incorporated by reference, the Company hereby
grants to Optionee an option (the "Option") to purchase the number of shares of
Common Stock of (the "Shares"), for an exercise price per Share (the "Option
Price"), and based upon a Grant Date set forth above and an Expiration Date
(subject to earlier termination as provided in the Option Plan), all as set
forth below:
Number of Shares
subject to the Option: _____________________________
Option Price per Share: $________________________________
Vesting Start Date: _____________________________________
Expiration Date: ________________________________________
2. Vesting. The Shares purchasable upon exercise of the Option will
-------
become Vested Shares on the schedule set forth in Section 6.4 of the Option
Plan; provided that in each case the Original Holder of the Option does not
suffer a Loss of Eligibility Status prior to each such vesting date.
3. Representations and Warranties of Optionee. Optionee represents
------------------------------------------
and warrants that he or she is acquiring the Option, and will acquire any Shares
obtained upon exercise of the Option, for investment purposes only, for
Optionee's own account, and with no view to the distribution thereof.
4. No Employment Rights. This Agreement gives Optionee no right to
--------------------
retained as an employee of the Company and/or its Subsidiaries.
5. Terms of the Option Plan. Optionee understands that the Option
------------------------
Plan includes important terms and conditions that apply to the Option. Those
terms include: important conditions to the right of Optionee to exercise the
Option; important restrictions on the ability of Optionee to transfer the Option
or to Transfer any of the Shares received upon exercise of the Option; Company
rights of repurchase related to Option Shares; and early termination of the
Option following the occurrence of certain events. Optionee has read the Option
Plan, agrees to be bound by its terms, and makes each of the representations
required to be made by Optionee under it. Optionee further acknowledges that
the Company has given no tax advice concerning the Option and has advised
Optionee to consult with his or her own tax or financial advisor
17
<PAGE>
about the tax treatment of the Option and its exercise.
6. Miscellaneous. Capitalized terms not otherwise defined herein
-------------
will have the meaning set forth in the Option Plan. Neither this Agreement nor
the Option is assignable by either party, except as expressly provided herein.
All of the covenants and provisions of this Agreement by or for the benefit of
the Company or Optionee shall bind and inure to the benefit of their respective
successors. This Agreement (including the Option Plan) constitutes the final and
complete expression of all of the terms of the understanding and agreement
between the parties hereto concerning the subject matter hereof. This Agreement
may not be modified, amended, altered or supplemented except by means of the
execution and delivery of a written instrument mutually executed by the Company
and Optionee. This Agreement shall be construed and governed by the substantive
laws of the State of California.
The parties hereby have entered into this Agreement as of the Grant Date.
More.com, Inc.
By:_______________________________
Title:____________________________
"Optionee"
__________________________________
Address:
__________________________________
__________________________________
Social Security No.: ________
Attachments: (1) Spousal Consent
(2) 1998 Option Plan
18
<PAGE>
CONSENT OF SPOUSE
-----------------
I am the spouse of _________________, who together with More.com, Inc.
(the "Company"), has entered into the Option Agreement, to which this Consent is
attached. Capitalized terms not defined herein will have the meaning set forth
in such agreement.
I have read and understand the Option Agreement, and the Company's
1998 Option Plan (the "Option Plan"). I acknowledge that, by execution hereof, I
am bound by the Option Agreement, and the Option Plan, as to any and all
interests I may have in the Option and Option Shares. In particular, I
understand and agree that the Option Shares (including any interest that I may
have therein) are subject to certain repurchase rights in the Company and
certain restrictions on transfer.
I also agree with my spouse and the Company that if my spouse and I
ever get divorced or enter into any marital property settlement agreement, or if
my spouse or I ever seek a decree of separate maintenance, to the extent my
spouse has or can obtain assets other than the Option Shares in amounts and of
value sufficient to settle or satisfy any marital property claims I may have in
the value of the Option Shares, I will accept such other assets in settlement of
those claims.
I agree that I will not do anything to try to prevent the operation of
any part of the Option Agreement or the Option Plan. I acknowledge that I have
had an opportunity to obtain independent counsel to advise me concerning the
matters contained herein.
Signature
---------
Name:________________________________
Date:________________________________
19
<PAGE>
Exhibit 10.3
MORE.COM, INC.
2000 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
--------------------
to attract and retain the best available personnel, to provide additional
incentive to Employees, Directors and Consultants and to promote the success of
the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of the Committees
-------------
appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective meanings
--------- ---------
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend Equivalent
-----
Right, Restricted Stock, Performance Unit, Performance Share, or other right or
benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the
---------------
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(f) "Board" means the Board of Directors of the Company.
-----
(g) "Cause" means, with respect to the termination by the Company or a
-----
Related Entity of the Grantee's Continuous Service, that such termination is for
"Cause" as such term is expressly defined in a then-effective written agreement
between the Grantee and the Company or such Related Entity, or in the absence of
such then-effective written agreement and definition, is based on, in the
determination of the Administrator, the Grantee's: (i) refusal or failure to
act in accordance with any specific, lawful direction or order of the Company or
a Related Entity; (ii) unfitness or unavailability for service or unsatisfactory
performance (other than as a result of Disability); (iii) performance of any act
or failure to perform any act in bad faith and to the detriment of the Company
or a Related Entity; (iv) dishonesty, intentional misconduct or material breach
of any agreement with the Company or a Related Entity; or (v) commission of a
crime involving dishonesty, breach of trust, or physical or emotional harm to
any person. At least 30 days prior to the termination of the Grantee's
Continuous Service pursuant to (i) or (ii) above, the Administrator shall
provide the Grantee with notice of the Company's or such Related Entity's intent
to terminate, the reason therefor, and an opportunity for the Grantee to cure
such defects in his or her service to the Company's or such Related
1
<PAGE>
Entity's satisfaction. During this 30 day (or longer) period, no Award issued to
the Grantee under the Plan may be exercised or purchased.
(h) "Change in Control" means a change in ownership or control of the
-----------------
Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or related
group of persons (other than an acquisition from or by the Company or by a
Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who are
Continuing Directors.
(i) "Code" means the Internal Revenue Code of 1986, as amended.
----
(j) "Committee" means any committee appointed by the Board to
---------
administer the Plan.
(k) "Common Stock" means the common stock of the Company.
------------
(l) "Company" means more.com, Inc., a Delaware corporation.
-------
(m) "Consultant" means any person (other than an Employee or a
----------
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(n) "Continuing Directors" means members of the Board who either (i)
--------------------
have been Board members continuously for a period of at least thirty-six (36)
months or (ii) have been Board members for less than thirty-six (36) months and
were elected or nominated for election as Board members by at least a majority
of the Board members described in clause (i) who were still in office at the
time such election or nomination was approved by the Board.
(o) "Continuous Service" means that the provision of services to the
------------------
Company or a Related Entity in any capacity of Employee, Director or Consultant,
is not interrupted or terminated. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
among the Company, any Related Entity, or any successor, in any capacity of
Employee, Director or Consultant, or (iii) any change in status as
2
<PAGE>
long as the individual remains in the service of the Company or a Related Entity
in any capacity of Employee, Director or Consultant (except as otherwise
provided in the Award Agreement). An approved leave of absence shall include
sick leave, military leave, or any other authorized personal leave. For purposes
of Incentive Stock Options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
(p) "Corporate Transaction" means any of the following transactions:
---------------------
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger; or
(iv) acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities (whether or not in a transaction
also constituting a Change in Control), but excluding any such transaction that
the Administrator determines shall not be a Corporate Transaction.
(q) "Director" means a member of the Board or the board of directors
--------
of any Related Entity.
(r) "Disability" means a Grantee would qualify for benefit payments
----------
under the long-term disability policy of the Company or the Related Entity to
which the Grantee provides services regardless of whether the Grantee is covered
by such policy. If the Company or the Related Entity to which the Grantee
provides service does not have a long-term disability plan in place,
"Disability" means that a Grantee is permanently unable to carry out the
responsibilities and functions of the position held by the Grantee by reason of
any medically determinable physical or mental impairment. A Grantee will not be
considered to have incurred a Disability unless he or she furnishes proof of
such impairment sufficient to satisfy the Administrator in its discretion.
(s) "Dividend Equivalent Right" means a right entitling the Grantee
-------------------------
to compensation measured by dividends paid with respect to Common Stock.
3
<PAGE>
(t) "Employee" means any person, including an Officer or Director,
--------
who is an employee of the Company or any Related Entity. The payment of a
director's fee by the Company or a Related Entity shall not be sufficient to
constitute "employment" by the Company.
(u) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(v) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a Share for the last
market trading day prior to the time of the determination (or, if no closing
price was reported on that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common
Stock of the type described in (i), above, the Fair Market Value thereof shall
be determined by the Administrator in good faith.
(w) "Good Reason" means the occurrence after a Corporate Transaction,
-----------
Change in Control or a Related Entity Disposition of any of the following events
or conditions unless consented to by the Grantee:
(i) (A) a change in the Grantee's status, title, position or
responsibilities which represents an adverse change from the Grantee's status,
title, position or responsibilities as in effect at any time within ninety (90)
days preceding the date of a Corporate Transaction, Change in Control or Related
Entity Disposition or at any time thereafter or (B) the assignment to the
Grantee of any duties or responsibilities which are inconsistent with the
Optionee's status, title, position or responsibilities as in effect at any time
within ninety (90) days preceding the date of a Corporate Transaction, Change in
Control or Related Entity Disposition or at any time thereafter;
(ii) reduction in the Grantee's base salary to a level below
that in effect at any time within ninety (90) days preceding the date of a
Corporate Transaction, Change in Control or Related Entity Disposition or at any
time thereafter (except to the extent such reduction is part of a comprehensive
reduction in salary applicable to Grantees generally);
(iii) requiring the Grantee to be based at any place outside a
25-mile radius from the Grantee's job location or residence prior to the
Corporate Transaction, Change in Control or Related Entity Disposition, except
for reasonably required travel on business which is
4
<PAGE>
not materially greater than such travel requirements prior to the Corporate
Transaction, Change in Control or Related Entity Disposition; or
(iv) the failure to (A) continue in effect (without reduction
in benefit level and/or reward opportunities) any material compensation or
employee benefit plan (which shall include vacation policies) in which the
Grantee was participating at any time within ninety (90) days preceding the date
of a Corporate Transaction, Change in Control or Related Entity Disposition or
at any time thereafter, unless such plan is replaced with a plan that provides
substantially equivalent compensation or benefits to the Grantee, or (B) provide
the Grantee with compensation and benefits, in the aggregate, at least equal (in
terms of benefit levels and/or reward opportunities) to those provided for under
each other employee benefit plan, program and practice in which the Grantee was
participating at any time within ninety (90) days preceding the date of a
Corporate Transaction, Change in Control or Related Entity Disposition or at any
time thereafter or which are provided to other similarly situated Grantees.
(x) "Grantee" means an Employee, Director or Consultant who receives
-------
an Award pursuant to an Award Agreement under the Plan.
(y) "Immediate Family" means any child, stepchild, grandchild,
----------------
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which these
persons have more than fifty percent (50%) of the beneficial interest, a
foundation in which these persons (or the Grantee) control the management of
assets, and any other entity in which these persons (or the Grantee) own more
than fifty percent (50%) of the voting interests.
(z) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(aa) "Non-Qualified Stock Option" means an Option not intended to
--------------------------
qualify as an Incentive Stock Option.
(bb) "Officer" means a person who is an officer of the Company or a
-------
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(cc) "Option" means an option to purchase Shares pursuant to an Award
------
Agreement granted under the Plan.
(dd) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(ee) "Performance Shares" means Shares or an Award denominated in
------------------
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.
5
<PAGE>
(ff) "Performance Units" means an Award which may be earned in whole
-----------------
or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the
Administrator.
(gg) "Plan" means this 2000 Stock Incentive Plan.
----
(hh) "Registration Date" means the first to occur of (i) the closing
-----------------
of the first sale to the general public of (A) the Common Stock or (B) the same
class of securities of a successor corporation (or its Parent) issued pursuant
to a Corporate Transaction in exchange for or in substitution of the Common
Stock, pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended; and (ii) in the event of a Corporate Transaction, the date of the
consummation of the Corporate Transaction if the same class of securities of the
successor corporation (or its Parent) issuable in such Corporate Transaction
shall have been sold to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended on or prior to the date of
consummation of such Corporate Transaction.
(ii) "Related Entity" means any Parent, Subsidiary and any business,
--------------
corporation, partnership, limited liability company or other entity in which the
Company, a Parent or a Subsidiary holds a substantial ownership interest,
directly or indirectly.
(jj) "Related Entity Disposition" means the sale, distribution or
--------------------------
other disposition by the Company, a Parent or a Subsidiary of all or
substantially all of the interests of the Company, a Parent or a Subsidiary in
any Related Entity effected by a sale, merger or consolidation or other
transaction involving that Related Entity or the sale of all or substantially
all of the assets of that Related Entity, other than any Related Entity
Disposition to the Company, a Parent or a Subsidiary.
(kk) "Restricted Stock" means Shares issued under the Plan to the
----------------
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(ll) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
----------
or any successor thereto.
(mm) "SAR" means a stock appreciation right entitling the Grantee to
---
Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(nn) "Share" means a share of the Common Stock.
-----
(oo) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
6
<PAGE>
3. Stock Subject to the Plan.
-------------------------
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to Awards initially
shall be four million (4,000,000) Shares, increased by (i) any Shares available
for future Awards under the Company's 1998 Stock Option Plan as of the
Registration Date, (ii) any Shares that are represented by Awards under the
Company's 1998 Stock Option Plan which are forfeited, expire or are cancelled
without delivery of Shares or which result in the forfeiture of Shares back to
the Company on or after the Registration Date, and (iii) an annual increase to
be added on the first day of the Company's fiscal year beginning in 2001 equal
to five percent (5%) of the number of Shares outstanding as of such date or a
lesser number of Shares determined by the Administrator. Notwithstanding the
foregoing, subject to the provisions of Section 10, below, of the number of
Shares specified above, the maximum aggregate number of Shares available for
grant of Incentive Stock Options shall be four million (4,000,000) Shares, and
such number shall not be subject to annual adjustment as described above. The
Shares to be issued pursuant to Awards may be authorized, but unissued, or
reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which is
forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. Shares that actually have been issued
under the Plan pursuant to an Award shall not be returned to the Plan and shall
not become available for future issuance under the Plan, except that if unvested
Shares are forfeited, or repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Plan Administrator.
------------------
(i) Administration with Respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Awards to Directors or Employees who are also Officers
or Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.
(ii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Awards to Employees or Consultants who are
- ---------
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Awards and may limit such authority as the Board
determines from time to time.
7
<PAGE>
(iii) Administration Errors. In the event an Award is granted in
---------------------
a manner inconsistent with the provisions of this subsection (a), such Award
shall be presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and the
---------------------------
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the
Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under
the Plan, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding Award shall not be made without the Grantee's
written consent;
(vii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan, including without limitation, any notice of Award
or Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
5. Eligibility. Awards other than Incentive Stock Options may be granted
-----------
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees,
Directors or Consultants who are residing in foreign jurisdictions as the
Administrator may determine from time to time.
8
<PAGE>
6. Terms and Conditions of Awards.
------------------------------
(a) Type of Awards. The Administrator is authorized under the Plan
--------------
to award any type of arrangement to an Employee, Director or Consultant that is
not inconsistent with the provisions of the Plan and that by its terms involves
or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar
right with a fixed or variable price related to the Fair Market Value of the
Shares and with an exercise or conversion privilege related to the passage of
time, the occurrence of one or more events, or the satisfaction of performance
criteria or other conditions, or (iii) any other security with the value derived
from the value of the Shares. Such awards include, without limitation, Options,
SARs, sales or bonuses of Restricted Stock, Dividend Equivalent Rights,
Performance Units or Performance Shares, and an Award may consist of one such
security or benefit, or two (2) or more of them in any combination or
alternative.
(b) Designation of Award. Each Award shall be designated in the
--------------------
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
-------------------
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Acquisitions and Other Transactions. The Administrator may issue
-----------------------------------
Awards under the Plan in settlement, assumption or substitution for, outstanding
awards or obligations to grant future awards in connection with the Company or a
Related Entity acquiring another entity, an interest in another entity or an
additional interest in a Related Entity whether by merger, stock purchase, asset
purchase or other form of transaction.
(e) Deferral of Award Payment. The Administrator may establish one
-------------------------
or more programs under the Plan to permit selected Grantees the opportunity to
elect to defer
9
<PAGE>
receipt of consideration upon exercise of an Award, satisfaction of performance
criteria, or other event that absent the election would entitle the Grantee to
payment or receipt of Shares or other consideration under an Award. The
Administrator may establish the election procedures, the timing of such
elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts, Shares or other consideration so deferred, and
such other terms, conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(f) Award Exchange Programs. The Administrator may establish one
-----------------------
or more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
(g) Separate Programs. The Administrator may establish one or more
-----------------
separate programs under the Plan for the purpose of issuing particular forms of
Awards to one or more classes of Grantees on such terms and conditions as
determined by the Administrator from time to time.
(h) Early Exercise. The Award Agreement may, but need not, include a
--------------
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or a Related Entity or to any
other restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term stated
-------------
in the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in the
Award Agreement.
(j) Transferability of Awards. Incentive Stock Options may not be
-------------------------
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Awards may be transferred by gift or
through a domestic relations order to members of the Grantee's Immediate Family
to the extent provided in the Award Agreement or in the manner and to the extent
determined by the Administrator.
(k) Time of Granting Awards. The date of grant of an Award shall
-----------------------
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall
10
<PAGE>
be given to each Employee, Director or Consultant to whom an Award is so granted
within a reasonable time after the date of such grant.
7. Award Exercise or Purchase Price, Consideration and Taxes.
---------------------------------------------------------
(a) Exercise or Purchase Price. The exercise or purchase price, if
--------------------------
any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than eighty-five percent (85%) of the Fair
Market Value per Share on the date of grant unless otherwise determined by the
Administrator.
(iii) In the case of other Awards, such price as is determined by
the Administrator.
(iv) Notwithstanding the foregoing provisions of this Section
7(a), in the case of an Award issued pursuant to Section 6(d), above, the
exercise or purchase price for the Award shall be determined in accordance with
the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration
-------------
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following, provided that the portion of the
consideration equal to the par value of the Shares must be paid in cash or other
legal consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;
11
<PAGE>
(iv) if the exercise or purchase occurs on or after the
Registration Date, surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised (but only to the extent that such exercise of the Award would not
result in an accounting compensation charge with respect to the Shares used to
pay the exercise price unless otherwise determined by the Administrator);
(v) with respect to Options, if the exercise occurs on or after
the Registration Date, payment through a broker-dealer sale and remittance
procedure pursuant to which the Grantee (A) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or
all of the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (B) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
-----
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award, the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
8. Exercise of Award.
-----------------
(a) Procedure for Exercise; Rights as a Stockholder.
-----------------------------------------------
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Award by the person entitled to exercise the Award and full payment for the
Shares with respect to which the Award is exercised, including, to the extent
selected, use of the broker-dealer sale and remittance procedure to pay the
purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to Shares subject to an Award, notwithstanding the exercise
of an Option or other Award. The Company shall issue (or cause to be issued)
such stock certificate promptly upon exercise of the Award. No adjustment
12
<PAGE>
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in the Award
Agreement or Section 10, below.
(b) Exercise of Award Following Termination of Continuous Service.
-------------------------------------------------------------
(i) An Award may not be exercised after the termination date of
such Award set forth in the Award Agreement and may be exercised following the
termination of a Grantee's Continuous Service only to the extent provided in the
Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an
Award following the termination of the Grantee's Continuous Service for a
specified period, the Award shall terminate to the extent not exercised on the
last day of the specified period or the last day of the original term of the
Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the
extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.
9. Conditions Upon Issuance of Shares.
----------------------------------
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required
------------------------------------------
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Options
and SARs may be granted to any Employee in any fiscal year of the Company, as
well as any other terms that the Administrator determines require adjustment
shall be proportionately adjusted for (i) any increase or decrease in the number
of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Shares, or similar event
affecting the Shares, (ii) any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company, or (iii)
as the Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies or any
similar transaction; provided, however that conversion of any
13
<PAGE>
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator and its determination shall be final, binding and conclusive.
Except as the Administrator determines, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason hereof shall be made with respect to,
the number or price of Shares subject to an Award.
11. Corporate Transactions/Changes in Control/Related Entity Dispositions.
---------------------------------------------------------------------
Except as may be provided in an Award Agreement:
(a) In the event of any Corporate Transaction, each Award which is at
the time outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any restrictions on transfer (other than
transfer restrictions applicable to Options) and repurchase or forfeiture
rights, immediately prior to the specified effective date of such Corporate
Transaction, for all of the Shares at the time represented by such Award.
Effective upon the consummation of the Corporate Transaction, all outstanding
Awards under the Plan shall terminate. However, all such Awards shall not
terminate if the Awards are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof. In addition, an
outstanding Award under the Plan shall not so fully vest and be exercisable and
released from such limitations if and to the extent: (i) such Award is, in
connection with the Corporate Transaction, either assumed by the successor
corporation or Parent thereof or replaced with a comparable Award with respect
to shares of the capital stock of the successor corporation or Parent thereof or
(ii) such Award is to be replaced with a cash incentive program of the successor
corporation which preserves the compensation element of such Award existing at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such Award; provided,
however, that such Award (if assumed), the replacement Award (if replaced), or
the cash incentive program automatically shall become fully vested, exercisable
and payable and be released from any restrictions on transfer (other than
transfer restrictions applicable to Options) and repurchase or forfeiture rights
immediately upon termination of the Grantee's Continuous Service (substituting
the successor employer corporation for "Company or Related Entity" for the
definition of "Continuous Service") if such Continuous Service is terminated by
the successor company without Cause or voluntarily by the Grantee with Good
Reason within six (6) months of the Corporate Transaction. The determination of
Award comparability above shall be made by the Administrator. Notwithstanding
the foregoing in the event of any Corporate Transaction, the number of Shares
subject to each Award which is at the time outstanding under the Plan which
would vest within six (6) months measured from the consummation of the Corporate
Transaction automatically shall become fully vested and exercisable and be
released from any restrictions on transfer (other than transfer restrictions
applicable to Options) and repurchase or forfeiture rights immediately prior to
the specified effective date of such Corporate Transaction regardless of whether
the Award is assumed or replaced under subpart (i) or (ii) of this Section
11(a).
(b) Following a Change in Control (other than a Change in Control
which also is a Corporate Transaction) and upon the termination of the
Continuous Service of a Grantee if such Continuous Service is terminated by the
Company or Related Entity without Cause or
14
<PAGE>
voluntarily by the Grantee with Good Reason within six (6) months of a Change in
Control, each Award of such Grantee which is at the time outstanding under the
Plan automatically shall become fully vested and exercisable and be released
from any restrictions on transfer (other than transfer restrictions applicable
to Options) and repurchase or forfeiture rights, immediately upon the
termination of such Continuous Service. Notwithstanding the foregoing in the
event of any Change in Control, the number of Shares subject to each Award which
is at the time outstanding under the Plan which would vest within six (6) months
measured from the consummation of the Change in Control automatically shall
become fully vested and exercisable and be released from any restrictions on
transfer (other than transfer restrictions applicable to Options) and repurchase
or forfeiture rights immediately prior to the specified effective date of such
Change in Control.
(c) Effective upon the consummation of a Related Entity Disposition,
for purposes of the Plan and all Awards, the Continuous Service of each Grantee
who is at the time engaged primarily in service to the Related Entity involved
in such Related Entity Disposition shall be deemed to terminate and each Award
of such Grantee which is at the time outstanding under the Plan automatically
shall become fully vested and exercisable and be released from any restrictions
on transfer (other than transfer restrictions applicable to Options) and
repurchase or forfeiture rights for all of the Shares at the time represented by
such Award and be exercisable in accordance with the terms of the Award
Agreement evidencing such Award. However, such Continuous Service shall be not
be deemed to terminate if such Award is, in connection with the Related Entity
Disposition, assumed by the successor entity or its Parent. In addition, such
Continuous Service shall not be deemed to terminate and an outstanding Award
under the Plan shall not so fully vest and be exercisable and released from such
limitations if and to the extent: (i) such Award is, in connection with the
Related Entity Disposition, either to be assumed by the successor entity or its
parent or to be replaced with a comparable Award with respect to interests in
the successor entity or its parent or (ii) such Award is to be replaced with a
cash incentive program of the successor entity which preserves the compensation
element of such Award existing at the time of the Related Entity Disposition and
provides for subsequent payout in accordance with the same vesting schedule
applicable to such Award; provided, however, that such Award (if assumed), the
replacement Award (if replaced), or the cash incentive program automatically
shall become fully vested, exercisable and payable and be released from any
restrictions on transfer (other than transfer restrictions applicable to
Options) and repurchase or forfeiture rights immediately upon termination of the
Grantee's Continuous Service (substituting the successor employer entity for
"Company or Related Entity" for the definition of "Continuous Service") if such
Continuous Service is terminated by the successor entity without Cause or
voluntarily by the Grantee with Good Reason within six (6) months of the Related
Entity Disposition. The determination of Award comparability above shall be made
by the Administrator. Notwithstanding the foregoing, effective upon the
consummation of a Related Entity Disposition, the number of Shares subject to
each Award which is at the time outstanding under the Plan and held by a Grantee
who is at the time engaged primarily in service to the Related Entity involved
in such Related Entity Disposition which would vest within six (6) months
measured from the consummation of the Related Entity Disposition automatically
shall become fully vested and exercisable and be released from any restrictions
on transfer (other than transfer restrictions applicable to Options) and
repurchase or forfeiture rights regardless of whether the Award is assumed or
replaced under subpart (i) or (ii) of this Section 11(c).
15
<PAGE>
12. Effective Date and Term of Plan. The Plan shall become effective upon
-------------------------------
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 17, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
13. Amendment, Suspension or Termination of the Plan.
------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan.
To the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Awards already
granted, and such Awards shall remain in full force and effect as if the Plan
had not been amended, suspended or terminated, unless mutually agreed otherwise
between the Grantee and the Administrator, which agreement must be in writing
and signed by the Grantee and the Company.
14. Reservation of Shares.
---------------------
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
--------------------------------------------------------
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.
16. No Effect on Retirement and Other Benefit Plans. Except as
-----------------------------------------------
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
16
<PAGE>
17. Stockholder Approval. The grant of Incentive Stock Options under the
--------------------
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
17
<PAGE>
MORE.COM, INC. 2000 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION AWARD
----------------------------
Grantee's Name and Address: ____________________________
____________________________
____________________________
You have been granted an option to purchase shares of Common Stock, subject
to the terms and conditions of this Notice of Stock Option Award (the "Notice"),
the More.com, Inc. 2000 Stock Incentive Plan, as amended from time to time (the
"Plan") and the Stock Option Award Agreement (the "Option Agreement") attached
hereto, as follows. Unless otherwise defined herein, the terms defined in the
Plan shall have the same defined meanings in this Notice.
Award Number ______________________________________
Date of Award ______________________________________
Vesting Commencement Date ______________________________________
Exercise Price per Share $ ______________________________________
Total Number of Shares subject
to the Option ______________________________________
Total Exercise Price $ ______________________________________
Type of Option: _______ Incentive Stock Option
_______ Non-Qualified Stock Option
Expiration Date: ________________________________________
Post-Termination Exercise Period: Three (3) Months
Vesting Schedule:
- ----------------
Subject to Grantee's Continuous Service and other limitations set forth in
this Notice, the Plan and the Option Agreement, the Option may be exercised, in
whole or in part, in accordance with the following schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest on each monthly anniversary of the Vesting Commencement Date thereafter.
During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.
<PAGE>
In the event of the Grantee's change in status from Employee to Consultant
or from an Employee whose customary employment is 20 hours or more per week to
an Employee whose customary employment is fewer than 20 hours per week, vesting
of the Option shall continue only to the extent determined by the Administrator
as of such change in status.
IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice
and agree that the Option is to be governed by the terms and conditions of this
Notice, the Plan, and the Option Agreement.
More.com, Inc.,
a Delaware corporation
By: __________________________________
Title:________________________________
THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.
The Grantee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts the Option subject to all of the terms
and provisions hereof and thereof. The Grantee has reviewed this Notice, the
Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Notice, and fully
understands all provisions of this Notice, the Plan and the Option Agreement.
The Grantee hereby agrees that all disputes arising out of or relating to this
Notice, the Plan and the Option Agreement shall be resolved in accordance with
Section 13 of the Option Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Notice.
Dated: ______________________ Signed:_____________________________
Grantee
2
<PAGE>
Award Number: ___________
MORE.COM, INC. 2000 STOCK INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
----------------------------
1. Grant of Option. More.com, Inc., a Delaware corporation (the
---------------
"Company"), hereby grants to the Grantee (the "Grantee") named in the Notice of
Stock Option Award (the "Notice"), an option (the "Option") to purchase the
Total Number of Shares of Common Stock subject to the Option (the "Shares") set
forth in the Notice, at the Exercise Price per Share set forth in the Notice
(the "Exercise Price") subject to the terms and provisions of the Notice, this
Stock Option Award Agreement (the "Option Agreement") and the Company's 2000
Stock Incentive Plan, as amended from time to time (the "Plan"), which are
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.
2. Exercise of Option.
------------------
(a) Right to Exercise. The Option shall be exercisable during its term
-----------------
in accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option shall be
subject to the provisions of Section 11 of the Plan relating to the
exercisability or termination of the Option in the event of a Corporate
Transaction, Change in Control or Related Entity Disposition. No partial
exercise of the Option may be for less than the lesser of five percent (5%) of
the total number of Shares subject to the Option or the remaining number of
Shares subject to the Option. In no event shall the Company issue fractional
Shares.
(b) Method of Exercise. The Option shall be exercisable only by
------------------
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, such other representations and agreements as to
the holder's investment intent with respect to such Shares and such other
provisions as may be required by the Administrator. The Exercise Notice shall be
signed by the Grantee and shall be delivered in person, by certified mail, or by
such other method as determined from time to time by the Administrator to the
Company accompanied by payment
1
<PAGE>
of the Exercise Price. The Option shall be deemed to be exercised upon receipt
by the Company of such written notice accompanied by the Exercise Price, which,
to the extent selected, shall be deemed to be satisfied by use of the broker-
dealer sale and remittance procedure to pay the Exercise Price provided in
Section 3(d), below.
(c) Taxes. No Shares will be delivered to the Grantee or other
-----
person pursuant to the exercise of the Option until the Grantee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax, employment tax, and social security tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of the Option, the Company or the
Grantee's employer may offset or withhold (from any amount owed by the Company
or the Grantee's employer to the Grantee) or collect from the Grantee or other
person an amount sufficient to satisfy such tax obligations and/or the
employer's withholding obligations.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law and, provided further, that the portion of the Exercise Price
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:
(a) cash;
(b) check;
(c) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require (including
withholding of Shares otherwise deliverable upon exercise of the Option) which
have a Fair Market Value on the date of surrender or attestation equal to the
aggregate Exercise Price of the Shares as to which the Option is being exercised
(but only to the extent that such exercise of the Option would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price); or
(d) payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction.
4. Restrictions on Exercise. The Option may not be exercised if the
------------------------
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. In addition, the Option, if an Incentive
Stock Option, may not be exercised until such time as the Plan has been approved
by the stockholders of the Company.
2
<PAGE>
5. Termination or Change of Continuous Service. In the event the Grantee's
-------------------------------------------
Continuous Service terminates, the Grantee may, to the extent otherwise so
entitled at the date of such termination (the "Termination Date"), exercise the
Option during the Post-Termination Exercise Period. In no event shall the Option
be exercised later than the Expiration Date set forth in the Notice. In the
event of the Grantee's change in status from Employee, Director or Consultant to
any other status of Employee, Director or Consultant, the Option shall remain in
effect and, except to the extent otherwise determined by the Administrator,
continue to vest; provided, however, that with respect to any Incentive Stock
Option that shall remain in effect after a change in status from Employee to
Director or Consultant, such Incentive Stock Option shall cease to be treated as
an Incentive Stock Option and shall be treated as a Non-Qualified Stock Option
on the day three (3) months and one (1) day following such change in status.
Except as provided in Sections 6 and 7 below, to the extent that the Grantee is
not entitled to exercise the Option on the Termination Date, or if the Grantee
does not exercise the Option within the Post-Termination Exercise Period, the
Option shall terminate.
6. Disability of Grantee. In the event the Grantee's Continuous Service
---------------------
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.
7. Death of Grantee. In the event of the termination of the Grantee's
----------------
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date). To the extent that the Grantee is not
entitled to exercise the Option on the date of death, or if the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.
8. Transferability of Option. The Option, if an Incentive Stock Option,
-------------------------
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Incentive Stock Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.
The Option, if a Non-Qualified Stock Option may be transferred to any person by
will and by the laws of descent and distribution. Non-Qualified Stock Options
also may be transferred during the lifetime of the Grantee by gift and pursuant
to a domestic relations order to members of the
3
<PAGE>
Grantee's Immediate Family to the extent and in the manner determined by the
Administrator. The terms of the Option shall be binding upon the executors,
administrators, heirs, successors and transferees of the Grantee.
9. Term of Option. The Option may be exercised no later than the
--------------
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.
10. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option Agreement of some of the federal tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
(a) Exercise of Incentive Stock Option. If the Option qualifies as an
----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as income for purposes of the alternative minimum tax for federal tax
purposes and may subject the Grantee to the alternative minimum tax in the year
of exercise.
(b) Exercise of Incentive Stock Option Following Disability. If the
-------------------------------------------------------
Grantee's Continuous Service terminates as a result of Disability that is not
total and permanent disability as defined in Section 22(e)(3) of the Code, to
the extent permitted on the date of termination, the Grantee must exercise an
Incentive Stock Option within three (3) months of such termination for the
Incentive Stock Option to be qualified as an Incentive Stock Option.
(c) Exercise of Non-Qualified Stock Option. On exercise of a Non-
--------------------------------------
Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.
(d) Disposition of Shares. In the case of a Non-Qualified Stock
---------------------
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding periods that apply to Shares acquired
upon exercise of a Non-Qualified Stock Option. If Shares purchased under an
Incentive Stock Option are disposed of prior to the expiration of such
4
<PAGE>
one-year or two-year periods, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (i) the Fair
Market Value of the Shares on the date of exercise, or (ii) the sale price of
the Shares.
11. Entire Agreement: Governing Law. The Notice, the Plan and this Option
-------------------------------
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the
Notice, the Plan and this Option Agreement (except as expressly provided
therein) is intended to confer any rights or remedies on any persons other than
the parties. The Notice, the Plan and this Option Agreement are to be construed
in accordance with and governed by the internal laws of the State of California
(as permitted by Section 1646.5 of the California Civil Code, or any similar
successor provision) without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Should
any provision of the Notice, the Plan or this Option Agreement be determined by
a court of law to be illegal or unenforceable, such provision shall be enforced
to the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.
12. Headings. The captions used in the Notice and this Option Agreement
--------
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.
13. Dispute Resolution. The provisions of this Section 13 shall be the
------------------
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees pursuant to Section 8 (the "parties") shall attempt in good faith to
resolve any disputes arising out of or relating to the Notice, the Plan and this
Option Agreement by negotiation between individuals who have authority to settle
the controversy. Negotiations shall be commenced by either party by notice of a
written statement of the party's position and the name and title of the
individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to resolve the
dispute. If the dispute has not been resolved by negotiation, the parties agree
that any suit, action, or proceeding arising out of or relating to the Notice,
the Plan or this Option Agreement shall be brought in the United States District
Court for the Northern District of California (or should such court lack
jurisdiction to hear such action, suit or proceeding, in a California state
court in the County of San Francisco) and that the parties shall submit to the
jurisdiction of such court. The parties irrevocably waive, to the fullest
extent permitted by law, any objection the party may have to the laying of venue
for any such suit, action or proceeding brought in such court. THE PARTIES ALSO
EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH
SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 13
shall for any reason be held
5
<PAGE>
invalid or unenforceable, it is the specific intent of the parties that such
provisions shall be modified to the minimum extent necessary to make it or its
application valid and enforceable.
14. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.
6
<PAGE>
EXHIBIT A
---------
MORE.COM, INC. 2000 STOCK INCENTIVE PLAN
EXERCISE NOTICE
---------------
More.com, Inc.
520 Third Street, Suite 245
San Francisco, CA 94107
Attention: Secretary
1. Exercise of Option. Effective as of today, ______________, ___ the
------------------
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase ___________ shares of the Common Stock (the "Shares") of More.com, Inc.
(the "Company") under and pursuant to the Company's 2000 Stock Incentive Plan,
as amended from time to time (the "Plan") and the [ ] Incentive [ ] Non-
Qualified Stock Option Award Agreement (the "Option Agreement") and Notice of
Stock Option Award (the "Notice") dated ______________, ________. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Exercise Notice.
2. Representations of the Grantee. The Grantee acknowledges that the
------------------------------
Grantee has received, read and understood the Notice, the Plan, and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.
4. Delivery of Payment. The Grantee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.
5. Tax Consultation. The Grantee understands that the Grantee may suffer
----------------
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice
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6. Taxes. The Grantee agrees to satisfy all applicable federal, state and
-----
local income and employment tax withholding obligations and herewith delivers to
the Company the full amount of such obligations or has made arrangements
acceptable to the Company to satisfy such obligations. In the case of an
Incentive Stock Option, the Grantee also agrees, as partial consideration for
the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Date of Award or within one (1) year from the date the Shares
were transferred to the Grantee. If the Company is required to satisfy any
federal, state or local income or employment tax withholding obligations as a
result of such an early disposition, the Grantee agrees to satisfy the amount of
such withholding in a manner that the Administrator prescribes.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Exercise Notice to single or multiple assignees, and this agreement shall
inure to the benefit of the successors and assigns of the Company. This Exercise
Notice shall be binding upon the Grantee and his or her heirs, executors,
administrators, successors and assigns.
8. Headings. The captions used in this Exercise Notice are inserted for
--------
convenience and shall not be deemed a part of this agreement for construction or
interpretation.
9. Dispute Resolution. The provisions of Section 13 of the Option
------------------
Agreement shall be the exclusive means of resolving disputes arising out of or
relating to this Exercise Notice.
10. Governing Law; Severability. This Exercise Notice is to be construed
---------------------------
in accordance with and governed by the internal laws of the State of California
(as permitted by Section 1646.5 of the California Civil Code, or any similar
successor provision) without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Should
any provision of this Exercise Notice be determined by a court of law to be
illegal or unenforceable, such provision shall be enforced to the fullest extent
allowed by law and the other provisions shall nevertheless remain effective and
shall remain enforceable.
11. Notices. Any notice required or permitted hereunder shall be given in
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writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice) with postage
and fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate in
writing from time to time to the other party.
12. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.
13. Entire Agreement. The Notice, the Plan, and the Option Agreement are
----------------
incorporated herein by reference, and together with this Exercise Notice
constitute the entire
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agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and the
Grantee with respect to the subject matter hereof, and may not be modified
adversely to the Grantee's interest except by means of a writing signed by the
Company and the Grantee. Nothing in the Notice, the Plan, the Option Agreement
and this Exercise Notice (except as expressly provided therein) is intended to
confer any rights or remedies on any persons other than the parties.
Submitted by: Accepted by:
GRANTEE: MORE.COM, INC.
By:___________________________________
_____________________________ Title:________________________________
(Signature)
Address: Address:
- ------- -------
____________________________ 520 Third Street, Suite 245
____________________________ San Francisco, CA 94107
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Exhibit 10.5
MORE.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of more.com, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
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Company and its Designated Parents or Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Administrator" means either the Board or a committee of the
-------------
Board that is responsible for the administration of the Plan as is designated
from time to time by resolution of the Board.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of employee stock purchase plans, if any, under applicable
provisions of federal securities laws, state corporate and securities laws, the
Code, the rules of any applicable stock exchange or national market system, and
the rules of any foreign jurisdiction applicable to participation in the Plan by
residents therein.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Change in Control" means a change in ownership or control of the
-----------------
Company effected through the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means more.com, Inc., a Delaware corporation.
-------
(h) "Compensation" means an Employee's base salary from the Company
------------
or one or more Designated Parents or Subsidiaries, including such amounts of
base salary as are deferred by the Employee (i) under a qualified cash or
deferred arrangement described in Section
1
<PAGE>
401(k) of the Code, or (ii) to a plan qualified under Section 125 of the Code.
Compensation does not include overtime, bonuses, annual awards, other incentive
payments, reimbursements or other expense allowances, fringe benefits (cash or
noncash), moving expenses, deferred compensation, contributions (other than
contributions described in the first sentence) made on the Employee's behalf by
the Company or one or more Designated Parents or Subsidiaries under any employee
benefit or welfare plan now or hereafter established, and any other payments not
specifically referenced in the first sentence.
(i) "Corporate Transaction" means any of the following transactions:
---------------------
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
(2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital
stock of the Company's subsidiary corporations) in connection with
complete liquidation or dissolution of the Company;
(3) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger; or
(4) acquisition by any person or related group of persons (other
than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities
(whether or not in a transaction also constituting a Change in
Control), but excluding any such transaction that the Administrator
determines shall not be a Corporate Transaction
(j) "Designated Parents or Subsidiaries" means the Parents or
----------------------------------
Subsidiaries which have been designated by the Administrator from time to time
as eligible to participate in the Plan.
(k) "Effective Date" means the effective date of the Registration
--------------
Statement relating to the Company's initial public offering of its Common Stock.
However, should any Designated Parent or Subsidiary become a participating
company in the Plan after such date, then such entity shall designate a separate
Effective Date with respect to its employee-participants.
(l) "Employee" means any individual, including an officer or
--------
director, who is an employee of the Company or a Designated Parent or Subsidiary
for purposes of Section 423 of the Code. For purposes of the Plan, the
employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the
2
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individual's employer. Where the period of leave exceeds ninety (90) days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
ninety-first (91st) day of such leave, for purposes of determining eligibility
to participate in the Plan.
(m) "Enrollment Date" means the first day of each Offer Period.
---------------
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(o) "Exercise Date" means the last day of each Purchase Period.
-------------
(p) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(1) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a share of Common
Stock for the last market trading day prior to the time of the
determination (or, if no closing price was reported on that date, on
the last trading date on which a closing price was reported) on the
stock exchange determined by the Administrator to be the primary
market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such
exchange or national market system, the average of the closing bid and
asked prices of a share of Common Stock on the Nasdaq Small Cap Market
for the day prior to the time of the determination (or, if no such
prices were reported on that date, on the last date on which such
prices were reported), in each case, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(2) In the absence of an established market of the type described
in (1), above, for the Common Stock, and subject to (3), below, the
Fair Market Value thereof shall be determined by the Administrator in
good faith; or
(3) On the initial Effective Date of the Plan, the Fair Market
Value shall be the price at which the Board, or if applicable, the
Pricing Committee of the Board, and the underwriters agree to offer
the Common Stock to the public in the initial public offering of the
Common Stock.
(q) "Offer Period" means an Offer Period established pursuant to
------------
Section 4 hereof.
(r) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(s) "Participant" means an Employee of the Company or Designated
-----------
Parent or Subsidiary who is actively participating in the Plan.
(t) "Plan" means this Employee Stock Purchase Plan.
----
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(u) "Purchase Period" means a period of approximately six months,
---------------
commencing on February 15 and August 15 of each year and terminating on the next
following February 14 or August 14, respectively; provided, however, that the
first Purchase Period shall commence on the Effective Date and shall end on
August 14, 2000.
(v) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(w) "Reserves" means the sum of the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(x) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility.
-----------
(a) General. Any individual who is an Employee on a given Enrollment
-------
Date shall be eligible to participate in the Plan for the Offer Period
commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of the Plan to
--------------------------------
the contrary notwithstanding, no Employee shall be granted an option under the
Plan (i) if, immediately after the grant, such Employee (taking into account
stock owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Parent or Subsidiary, or (ii) which permits the Employee's rights to purchase
stock under all employee stock purchase plans of the Company and its Parents or
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding Subsection (a),
---------------------------
above, the following Employees shall not be eligible to participate in the Plan
for any relevant Offer Period: (i) Employees whose customary employment is 20
hours or less per week; (ii) Employees whose customary employment is for not
more than 5 months in any calendar year; (iii) Employees who have been employed
for 10 business days or less; and (iv) Employees who are subject to rules or
laws of a foreign jurisdiction that prohibit or make impractical the
participation of such Employees in the Plan.
4
<PAGE>
4. Offer Periods.
-------------
(a) The Plan shall be implemented through overlapping or consecutive
Offer Periods until such time as (i) the maximum number of shares of Common
Stock available for issuance under the Plan shall have been purchased or (ii)
the Plan shall have been sooner terminated in accordance with Section 19 hereof.
The maximum duration of an Offer Period shall be twenty-seven (27) months.
Initially, the Plan shall be implemented through overlapping Offer Periods of
twenty-four (24) months' duration commencing each February 15 and August 15
following the Effective Date (except that the initial Offer Period shall
commence on the Effective Date and shall end on February 14, 2002).
(b) A Participant shall be granted a separate option for each Offer
Period in which he or she participates. The option shall be granted on the
Enrollment Date and shall be automatically exercised in successive installments
on the Exercise Dates ending within the Offer Period.
(c) If on the first day of any Purchase Period in an Offer Period in
which a Participant is participating, the Fair Market Value of the Common Stock
is less than the Fair Market Value of the Common Stock on the Enrollment Date of
the Offer Period (after taking into account any adjustment during the Offer
Period pursuant to Section 18(a)), the Offer Period shall be terminated
automatically and the Participant shall be enrolled automatically in the new
Offer Period which has its first Purchase Period commencing on that date,
provided the Participant is eligible to participate in the Plan on that date and
has not elected to terminate participation in the Plan.
(d) Except as specifically provided herein, the acquisition of Common
Stock through participation in the Plan for any Offer Period shall neither limit
nor require the acquisition of Common Stock by a Participant in any subsequent
Offer Period.
5. Participation.
-------------
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the designated payroll office of
the Company at least ten (10) business days prior to the Enrollment Date for the
Offer Period in which such participation will commence, unless a later time for
filing the subscription agreement is set by the Administrator for all eligible
Employees with respect to a given Offer Period.
(b) Payroll deductions for a Participant shall commence with the
first partial or full payroll period beginning on the Enrollment Date and shall
end on the last complete payroll period during the Offer Period, unless sooner
terminated by the Participant as provided in Section 10.
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<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a Participant files a subscription agreement, the
Participant shall elect to have payroll deductions made during the Offer Period
in amounts between one percent (1%) and not exceeding ten percent (10%) of the
Compensation which the Participant receives during the Offer Period.
(b) All payroll deductions made for a Participant shall be credited
to the Participant's account under the Plan and will be withheld in whole
percentages only. A Participant may not make any additional payments into such
account.
(c) A Participant may discontinue participation in the Plan as
provided in Section 10, or may increase or decrease the rate of payroll
deductions during the Offer Period by completing and filing with the Company a
change of status notice in the form of Exhibit B to this Plan authorizing an
increase or decrease in the payroll deduction rate. Any increase or decrease in
the rate of a Participant's payroll deductions shall be effective with the first
full payroll period commencing ten (10) business days after the Company's
receipt of the change of status notice unless the Company elects to process a
given change in participation more quickly. A Participant's subscription
agreement (as modified by any change of status notice) shall remain in effect
for successive Offer Periods unless terminated as provided in Section 10. The
Administrator shall be authorized to limit the number of payroll deduction rate
changes during any Offer Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant's
payroll deductions shall be decreased to 0%. Payroll deductions shall recommence
at the rate provided in such Participant's subscription agreement, as amended,
at the time when permitted under Section 423(b)(8) of the Code and Section 3(b)
herein, unless such participation is sooner terminated by the Participant as
provided in Section 10.
7. Grant of Option. On the Enrollment Date, each Participant shall
---------------
be granted an option to purchase (at the applicable Purchase Price) two thousand
(2,000) shares of the Common Stock, subject to adjustment as provided in Section
18 hereof; provided (i) that such option shall be subject to the limitations set
forth in Sections 3(b), 6 and 12 hereof, and (ii) the maximum number of shares
of Common Stock a Participant shall be permitted to purchase in any Purchase
Period shall be five hundred (500) shares, subject to adjustment as provided in
Section 18 hereof. Exercise of the option shall occur as provided in Section 8,
unless the Participant has withdrawn pursuant to Section 10, and the option, to
the extent not exercised, shall expire on the last day of the Offer Period.
8. Exercise of Option. Unless a Participant withdraws from the Plan
------------------
as provided in Section 10, below, the Participant's option for the purchase of
shares will be exercised automatically on each Exercise Date, by applying the
accumulated payroll deductions in the Participant's account to purchase the
number of full shares subject to the option by dividing such Participant's
payroll deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price.
No
6
<PAGE>
fractional shares will be purchased; any payroll deductions accumulated in a
Participant's account which are not sufficient to purchase a full share shall be
carried over to the next Purchase Period or Offer Period, whichever applies, or
returned to the Participant, if the Participant withdraws from the Plan.
Notwithstanding the foregoing, any amount remaining in a Participant's account
following the purchase of shares on the Exercise Date due to the application of
Section 423(b)(8) of the Code or Section 7, above, shall be returned to the
Participant and shall not be carried over to the next Offer Period. During a
Participant's lifetime, a Participant's option to purchase shares hereunder is
exercisable only by the Participant.
9. Delivery. Upon receipt of a request from a Participant after
--------
each Exercise Date on which a purchase of shares occurs, the Company shall
arrange the delivery to such Participant, as promptly as practicable, of a
certificate representing the shares purchased upon exercise of the Participant's
option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A Participant may either (i) withdraw all but not less than all
the payroll deductions credited to the Participant's account and not yet used to
exercise the Participant's option under the Plan or (ii) terminate future
payroll deductions, but allow accumulated payroll deductions to be used to
exercise the Participant's option under the Plan at any time by giving written
notice to the Company in the form of Exhibit B to this Plan. If the Participant
elects withdrawal alternative (i) described above, all of the Participant's
payroll deductions credited to the Participant's account will be paid to such
Participant as promptly as practicable after receipt of notice of withdrawal,
such Participant's option for the Offer Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Offer Period. If the Participant elects withdrawal alternative (ii)
described above, no further payroll deductions for the purchase of shares will
be made during the Offer Period, all of the Participant's payroll deductions
credited to the Participant's account will be applied to the exercise of the
Participant's option on the next Exercise Date, and after such Exercise Date,
such Participant's option for the Offer Period will be automatically terminated.
If a Participant withdraws from an Offer Period, payroll deductions will not
resume at the beginning of the succeeding Offer Period unless the Participant
delivers to the Company a new subscription agreement.
(b) Upon termination of a Participant's employment relationship (as
described in Section 2(k)) at a time more than three (3) months from the next
scheduled Exercise Date, the payroll deductions credited to such Participant's
account during the Offer Period but not yet used to exercise the option will be
returned to such Participant or, in the case of his/her death, to the person or
persons entitled thereto under Section 14, and such Participant's option will be
automatically terminated. Upon termination of a Participant's employment
relationship (as described in Section 2(k)) within three (3) months of the next
scheduled Exercise Date, the payroll deductions credited to such Participant's
account during the Offer Period but not yet used to exercise the option will be
applied to the purchase of Common Stock on the next Exercise Date, unless the
Participant (or in the case of the Participant's death, the person or persons
entitled to the Participant's account balance under Section 14) withdraws from
the Plan by
7
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submitting a change of status notice in accordance with subsection (a) of this
Section 10. In such a case, no further payroll deductions will be credited to
the Participant's account following the Participant's termination of employment
and the Participant's option under the Plan will be automatically terminated
after the purchase of Common Stock on the next scheduled Exercise Date.
11. Interest. No interest shall accrue on the payroll deductions
--------
credited to a Participant's account under the Plan.
12. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 18, the maximum number of shares of Common Stock
which shall be made available for sale under the Plan shall be two million
(2,000,000) shares, plus an annual increase to be added on the first business
day of the Company's fiscal year beginning in 2001 equal to the lesser of (i)
two million (2,000,000) shares, (ii) one and three-quarters percent (1.75%) of
the outstanding shares of Common Stock on such date, or (iii) a lesser number of
shares determined by the Administrator. If the Administrator determines that on
a given Exercise Date the number of shares with respect to which options are to
be exercised may exceed (x) the number of shares then available for sale under
the Plan or (y) the number of shares available for sale under the Plan on the
Enrollment Date of the Offer Period in which such Exercise Date is to occur, the
Administrator may make a pro rata allocation of the shares remaining available
for purchase on such Enrollment Date or Exercise Date, as applicable, in as
uniform a manner as shall be practicable and as it shall determine to be
equitable, and shall either continue all Offer Periods then in effect or
terminate any Offer Periods then in effect pursuant to Section 19, below.
(b) A Participant will have no interest or voting right in shares
covered by the Participant's option until such shares are actually purchased on
the Participant's behalf in accordance with the applicable provisions of the
Plan. No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his or her spouse.
13. Administration. The Plan shall be administered by the
--------------
Administrator which shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Administrator shall, to the full extent
permitted by Applicable Law, be final and binding upon all persons.
14. Designation of Beneficiary.
--------------------------
(a) Each Participant will file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of
8
<PAGE>
such Participant's death. If a Participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant
(and the Participant's spouse, if any) at any time by written notice. In the
event of the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living (or in existence) at the time of such
Participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Administrator), the Administrator shall deliver such shares and/or cash to the
spouse (or domestic partner, as determined by the Administrator) of the
Participant, or if no spouse (or domestic partner) is known to the
Administrator, then to the issue of the Participant, such distribution to be
made per stirpes (by right of representation), or if no issue are known to the
Administrator, then to the heirs at law of the Participant determined in
accordance with Section 27.
15. Transferability. Neither payroll deductions credited to a
---------------
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Administrator may treat such act as an election to
withdraw funds from an Offer Period in accordance with Section 10.
16. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
-------
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate
-----------------------------------------------------
Transactions.
------------
(a) Adjustments Upon Changes in Capitalization. Subject to any
------------------------------------------
required action by the stockholders of the Company, the Reserves, the Purchase
Price, the maximum number of shares that may be purchased in any Offer Period or
Purchase Period, as well as any other terms that the Administrator determines
require adjustment shall be proportionately adjusted for (i) any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, (ii) any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company,
or (iii) as the Administrator may determine in its discretion, any other
transaction with respect to Common Stock to which Section 424(a) of the Code
applies; provided, however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator and its
determination
9
<PAGE>
shall be final, binding and conclusive. Except as the Administrator determines,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason hereof shall be made with respect to, the Reserves and the Purchase
Price.
(b) Corporate Transactions. In the event of a proposed Corporate
----------------------
Transaction, each option under the Plan shall be assumed by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Administrator determines, in the exercise of its sole discretion and in lieu of
such assumption, to shorten the Offer Period then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Administrator shortens the
Offer Period then in progress in lieu of assumption in the event of a Corporate
Transaction, the Administrator shall notify each Participant in writing, at
least ten (10) days prior to the New Exercise Date, that the Exercise Date for
the Participant's option has been changed to the New Exercise Date and that the
Participant's option will be exercised automatically on the New Exercise Date,
unless prior to such date the Participant has withdrawn from the Offer Period as
provided in Section 10. For purposes of this Subsection, an option granted
under the Plan shall be deemed to be assumed if, in connection with the
Corporate Transaction, the option is replaced with a comparable option with
respect to shares of capital stock of the successor corporation or Parent
thereof. The determination of option comparability shall be made by the
Administrator prior to the Corporate Transaction and its determination shall be
final, binding and conclusive on all persons.
19. Amendment or Termination.
------------------------
(a) The Administrator may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 18, no such termination can
affect options previously granted, provided that the Plan or an Offer Period may
be terminated by the Administrator on any Exercise Date or by the Administrator
establishing a new Exercise Date with respect to any Offer Period and/or any
Purchase Period then in progress if the Administrator determines that the
termination of the Plan or such Offer Period is in the best interests of the
Company and its stockholders. Except as provided in Section 18 and this Section
19, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any Participant without the consent of affected
Participants. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other Applicable Law), the Company
shall obtain stockholder approval in such a manner and to such a degree as
required.
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Administrator shall be entitled to limit the frequency and/or number of changes
in the amount withheld during Offer Periods, change the length of Purchase
Periods within any Offer Period, determine the length of any future Offer
Period, whether future Offer Periods shall be consecutive or overlapping,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, establish additional terms, conditions, rules or procedures
to accommodate the rules or laws of applicable foreign jurisdictions, permit
payroll withholding in excess of the amount designated by a Participant in order
to adjust for delays or mistakes in the Company's processing of properly
10
<PAGE>
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each Participant properly
correspond with amounts withheld from the Participant's Compensation, and
establish such other limitations or procedures as the Administrator determines
in its sole discretion advisable and which are consistent with the Plan.
20. Notices. All notices or other communications by a Participant to
-------
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Administrator at the
location, or by the person, designated by the Administrator for the receipt
thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all Applicable
Laws and shall be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an option,
the Company may require the Participant to represent and warrant at the time of
any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned Applicable Laws. In addition, no options shall be exercised
or shares issued hereunder before the Plan shall have been approved by
stockholders of the Company as provided in Section 23.
22. Term of Plan. The Plan shall become effective upon the earlier
------------
to occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 19.
23. Stockholder Approval. Continuance of the Plan shall be subject
--------------------
to approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under Applicable Laws.
24. No Employment Rights. The Plan does not, directly or indirectly,
--------------------
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company or
a Designated Parent or Subsidiary, and it shall not be deemed to interfere in
any way with such employer's right to terminate, or otherwise modify, an
employee's employment at any time.
25. No Effect on Retirement and Other Benefit Plans. Except as
-----------------------------------------------
specifically provided in a retirement or other benefit plan of the Company or a
Designated Parent or Subsidiary, participation in the Plan shall not be deemed
compensation for purposes of computing benefits or contributions under any
retirement plan of the Company or a Designated Parent or Subsidiary, and shall
not affect any benefits under any other benefit plan of any kind or any benefit
plan subsequently instituted under which the availability or amount of benefits
is related to level of compensation. The Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.
11
<PAGE>
26. Effect of Plan. The provisions of the Plan shall, in accordance
--------------
with its terms, be binding upon, and inure to the benefit of, all successors of
each Participant, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
27. Governing Law. The Plan is to be construed in accordance with
-------------
and governed by the internal laws of the State of California (as permitted by
Section 1646.5 of the California Civil Code, or any similar successor provision)
without giving effect to any choice of law rule that would cause the application
of the laws of any jurisdiction other than the internal laws of the State of
California to the rights and duties of the parties, except to the extent the
internal laws of the State of California are superseded by the laws of the
United States. Should any provision of the Plan be determined by a court of law
to be illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.
28. Dispute Resolution. The provisions of this Section 28 (and as
------------------
restated in the Subscription Agreement) shall be the exclusive means of
resolving disputes arising out of or relating to the Plan. The Company and the
Participant, or their respective successors (the "parties"), shall attempt in
good faith to resolve any disputes arising out of or relating to the Plan by
negotiation between individuals who have authority to settle the controversy.
Negotiations shall be commenced by either party by notice of a written statement
of the party's position and the name and title of the individual who will
represent the party. Within thirty (30) days of the written notification, the
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to resolve the dispute. If the dispute
has not been resolved by negotiation, the parties agree that any suit, action,
or proceeding arising out of or relating to the Plan shall be brought in the
United States District Court for the Northern District of California (or should
such court lack jurisdiction to hear such action, suit or proceeding, in a
California state court in the County of San Francisco) and that the parties
shall submit to the jurisdiction of such court. The parties irrevocably waive,
to the fullest extent permitted by law, any objection the party may have to the
laying of venue for any such suit, action or proceeding brought in such court.
THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL
OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this
Section 28 shall for any reason be held invalid or unenforceable, it is the
specific intent of the parties that such provisions shall be modified to the
minimum extent necessary to make it or its application valid and enforceable.
12
<PAGE>
Exhibit A
more.com, Inc. 2000 Employee Stock Purchase Plan
SUBSCRIPTION AGREEMENT
Effective with the Offer Period beginning on:
[_] ESPP Effective Date [_] August 15, 2000 or [_] February 15, 2001
1. Personal Information [modify data requested as appropriate]
Legal Name (Please Print)__________________________ _________ ___________
(Last) (First) (MI) Location Department
Street Address_____________________________________ ______________________
Daytime Telephone
City, State/Country, Zip___________________________ ______________________
E-Mail Address
Social Security No. __ __ __ - Employee I.D. No.___ ______________________
Manager Mgr. Location
2. Eligibility Any Employee whose customary employment is more than 20 hours
per week and more than 5 months per calendar year, who has been an Employee
for more than 10 business days and who does not hold (directly or
indirectly) five percent (5%) or more of the combined voting power of the
Company, a parent or a subsidiary, whether in stock or options to acquire
stock is eligible to participate in the more.com, Inc. 2000 Employee Stock
Purchase Plan (the "ESPP"); provided, however, that Employees who are
subject to the rules or laws of a foreign jurisdiction that prohibit or make
impractical the participation of such Employees in the ESPP are not eligible
to participate.
3. Definitions Each capitalized term in this Subscription Agreement shall have
the meaning set forth in the ESPP.
4. Subscription I hereby elect to participate in the ESPP and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the ESPP. I have received a complete copy of the
ESPP and a prospectus describing the ESPP and understand that my
participation in the ESPP is in all respects subject to the terms of the
ESPP. The effectiveness of this Subscription Agreement is dependent on my
eligibility to participate in the ESPP.
5. Payroll Deduction Authorization I hereby authorize payroll deductions from
my Compensation during the Offer Period in the percentage specified below
(payroll reductions may not exceed 10% of Compensation nor $21,250 per
calendar year):
Percentage to be Deducted (circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
6. ESPP Accounts and Purchase Price I understand that all payroll deductions
will be credited to my account under the ESPP. No additional payments may be
made to my account. No interest will be credited on funds held in the
account at any time including any refund of the account caused by withdrawal
from the ESPP. All payroll deductions shall be accumulated for the purchase
of Company Common Stock at the applicable Purchase Price determined in
accordance with the ESPP.
7. Withdrawal and Changes in Payroll Deduction I understand that I may
discontinue my participation in the ESPP at any time prior to an Exercise
Date as provided in Section 10 of the ESPP, but if I do not withdraw from
the ESPP, any accumulated payroll deductions will be applied automatically
to purchase Company Common Stock. I may increase or decrease the rate of my
payroll deductions in whole percentage increments to not less than one
percent (1%) during any Purchase Period by completing and timely filing a
Change of Status Notice. Any increase or decrease will be effective for the
full payroll period occurring after ten (10) business days from the
Company's receipt of the Change of Status Notice.
8. Perpetual Subscription I understand that this Subscription Agreement shall
remain in effect for successive Offer Periods until I withdraw from
participation in the ESPP, or termination of the ESPP.
9. Taxes I have reviewed the ESPP prospectus discussion of the federal tax
consequences of participation in the ESPP and consulted with tax consultants
as I deemed advisable prior to my participation in the ESPP. I hereby agree
to notify
A-1
<PAGE>
the Company in writing within thirty (30) days of any disposition (transfer
or sale) of any shares purchased under the ESPP if such disposition occurs
within two (2) years of the Enrollment Date (the first day of the Offer
Period during which the shares were purchased) or within one (1) year of the
Exercise Date (the date I purchased such shares), and I will make adequate
provision to the Company for foreign, federal, state or other tax
withholding obligations, if any, which arise upon the disposition of the
shares. In addition, the Company may withhold from my Compensation any
amount necessary to meet applicable tax withholding obligations incident to
my participation in the ESPP, including any withholding necessary to make
available to the Company any tax deductions or benefits contingent on such
withholding.
10. Dispute Resolution The provisions of this Section 10 and Section 28 of the
ESPP shall be the exclusive means of resolving disputes arising out of or
relating to the Plan. The Company and I, or our respective successors (the
"parties"), shall attempt in good faith to resolve any disputes arising out
of or relating to the Plan by negotiation between individuals who have
authority to settle the controversy. Negotiations shall be commenced by
either party by notice of a written statement of the party's position and
the name and title of the individual who will represent the party. Within
thirty (30) days of the written notification, the parties shall meet at a
mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to resolve the dispute. If the dispute has not
been resolved by negotiation, the Company and I agree that any suit, action,
or proceeding arising out of or relating to the Plan shall be brought in the
United States District Court for the Northern District of California (or
should such court lack jurisdiction to hear such action, suit or proceeding,
in a California state court in the County of San Francisco) and that we
shall submit to the jurisdiction of such court. The Company and I
irrevocably waive, to the fullest extent permitted by law, any objection we
may have to the laying of venue for any such suit, action or proceeding
brought in such court. THE COMPANY AND I ALSO EXPRESSLY WAIVE ANY RIGHT WE
HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If
any one or more provisions of this Section 10 or Section 28 of the ESPP
shall for any reason be held invalid or unenforceable, it is the specific
intent of the Company and I that such provisions shall be modified to the
minimum extent necessary to make it or its application valid and
enforceable.
11. Designation of Beneficiary In the event of my death, I hereby designate the
following person or trust as my beneficiary to receive all payments and
shares due to me under the ESPP : [_] I am single [_] I am married
Beneficiary_________________________________ Relationship to Beneficiary
(please print) (Last) (First) (MI) (if any)
Street Address______________________________ ____________________________
City, State/Country, Zip____________________
12. Termination of ESPP I understand that the Company has the right, exercisable
in its sole discretion, to amend or terminate the ESPP at any time, and a
termination may be effective as early as an Exercise Date, including the
establishment of an alternative date for an Exercise Date within each
outstanding Offer Period.
Date:___________ Employee Signature:_____________________________________
_____________________________________
spouse's signature
(if beneficiary is other than spouse)
A-2
<PAGE>
Exhibit B
more.com, Inc. 2000 Employee Stock Purchase Plan
CHANGE OF STATUS NOTICE
_______________________________________
Participant Name (Please Print)
_______________________________________
Social Security Number
================================================================================
Withdrawal From ESPP
I hereby withdraw from the more.com, Inc. 2000 Employee Stock Purchase Plan
(the "ESPP") and agree that my option under the applicable Offer Period
will be automatically terminated and all accumulated payroll deductions
credited to my account will be refunded to me or applied to the purchase of
Common Stock depending on the alternative indicated below. No further
payroll deductions will be made for the purchase of shares in the
applicable Offer Period and I shall be eligible to participate in a future
Offer Period only by timely delivery to the Company of a new Subscription
Agreement.
[_] Withdrawal and Purchase of Common Stock
Payroll deductions will terminate, but your account balance will be applied
to purchase Common Stock on the next Exercise Date. Any remaining balance
will be refunded.
[_] Withdrawal Without Purchase of Common Stock
Entire account balance will be refunded to me and no Common Stock will be
purchased on the next Exercise Date provided this notice is submitted to
the Company ten (10) business days prior to the next Exercise Date.
================================================================================
[_] Change in Payroll Deduction
I hereby elect to change my rate of payroll deduction under the ESPP as
follows (select one):
Percentage to be Deducted (circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
An increase or a decrease in payroll deduction will be effective for the
first full payroll period commencing no fewer than ten (10) business days
following the Company's receipt of this notice, unless this change is
processed more quickly.
================================================================================
B-1
<PAGE>
================================================================================
[_] Change of Beneficiary [_] I am single [_] I am married
This change of beneficiary shall terminate my previous beneficiary
designation under the ESPP. In the event of my death, I hereby designate
the following person or trust as my beneficiary to receive all payments and
shares due to me under the ESPP:
Beneficiary___________________________________ Relationship to Beneficiary
(please print) (Last) (First) (MI) (if any)
Street Address________________________________ ____________________________
City, State/Country, Zip______________________
===============================================================================
Date:_______________ Employee Signature:_____________________________________
_____________________________________
spouse's signature
(if beneficiary is other than spouse)
B-2
<PAGE>
EXHIBIT 10.6
COMPENSATION PROTECTION AGREEMENT
---------------------------------
THIS COMPENSATION PROTECTION AGREEMENT (this "Agreement"), made as of the
___ day of ________, 2000, by and between more.com, Inc., a corporation
incorporated under the laws of Delaware (the "Company"), and _________________
("Protected Officer").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of Protected
Officer in the event of a threat or occurrence of a Change in Control and to
ensure Protected Officer's continued dedication and efforts in such event
without undue concern for Protected Officer's personal financial and employment
security; and
WHEREAS, in order to induce Protected Officer to remain in the employ of
the Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with Protected
Officer to provide Protected Officer with certain benefits in the event
Protected Officer's employment is terminated as a result of, or in connection
with, a Change in Control;
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of _______
-----------------
__, 2000 (the "Effective Date") and shall continue in effect until the third
anniversary of the Effective Date; provided, that commencing on the third
--------
anniversary of the Effective Date and on each subsequent anniversary thereof,
the term of this Agreement shall automatically be extended for one (1) year
unless either the Company or Protected Officer shall have given written notice
to the other at least ninety (90) days prior thereto that the term of this
Agreement shall not be so extended; and provided, further, that notwithstanding
-------- -------
any such notice by the Company not to extend, the term of this Agreement shall
not expire prior to the expiration of twelve (12) months after the occurrence of
a Change in Control.
2. Definitions.
-----------
2.1. Accrued Compensation. "Accrued Compensation" shall mean an
--------------------
amount which shall include all amounts earned or accrued through the Termination
Date (as hereinafter defined) but not paid as of the Termination Date,
including, without limitation, (i) base salary, (ii) reimbursement for
reasonable and necessary expenses incurred by Protected Officer on behalf of the
Company during the period ending on the Termination Date, and (iii) vacation
pay.
1
<PAGE>
2.2. Base Amount. "Base Amount" shall mean the amount of Protected
-----------
Officer's annual base salary at the rate in effect immediately prior to the
Change in Control, and shall include all amounts of Protected Officer's base
salary that are deferred under the qualified and non-qualified employee benefit
plans of the Company or any other agreement or arrangement.
2.3. Bonus Amount. "Bonus Amount" shall mean the greater of (i) 100%
------------
of the last annual incentive payment paid or payable to Protected Officer prior
to the Termination Date under the Company's cash bonus incentive plan, and (ii)
Protected Officer's incentive target for the fiscal year in which the Change in
Control occurs.
2.4. Cause. A termination of employment is for "Cause" if Protected
-----
Officer has been convicted of a felony involving fraud or dishonesty or the
termination is evidenced by a resolution adopted in good faith by two-thirds of
the Board to the effect that Protected Officer (i) intentionally and continually
failed substantially to perform Protected Officer's reasonably assigned duties
with the Company (other than a failure resulting from Protected Officer's
incapacity due to physical or mental illness or from Protected Officer's
assignment of duties that would constitute Good Reason (as hereinafter
defined)), which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance has been delivered
to Protected Officer specifying the manner in which Protected Officer has failed
substantially to perform, or (ii) intentionally engaged in conduct which is
demonstrably and materially injurious to the Company; provided, that no
--------
termination of Protected Officer's employment shall be for Cause as set forth in
clause (ii) above until (a) there shall have been delivered to Protected Officer
a copy of a written notice setting forth that Protected Officer was guilty of
the conduct set forth in clause (ii) and specifying the particulars thereof in
detail, and (b) Protected Officer shall have been provided an opportunity to be
heard in person by the Board (with the assistance of Protected Officer's counsel
if Protected Officer so desires). No act, nor failure to act, on Protected
Officer's part shall be considered "intentional" unless Protected Officer has
acted, or failed to act, with a lack of good faith and with a lack of reasonable
belief that Protected Officer's action or failure to act was in the best
interest of the Company.
2.5. Change in Control. "Change in Control" shall mean any of the
-----------------
following:
(a) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any Person (as the
term "person" is used for purposes of Section 13 or 14 of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such
Person has Beneficial Ownership (as the term "beneficial ownership" is defined
under Rule 13d-3 promulgated under the 1934 Act) of forty percent (40%) or more
of the combined voting power of the Company's then outstanding Voting
Securities; Provided, that in determining whether a Change in Control has
--------
occurred, Voting Securities which are acquired in a Non-Control Acquisition (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i)
an
2
<PAGE>
employee benefit plan (or a trust forming a part thereof) maintained by (1)
the Company or (2) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned directly or
indirectly by the Company (a "Subsidiary"), (ii) the Company or any Subsidiary,
or (iii) any Person in connection with a Non-Control Transaction (as hereinafter
defined);
(b) The individuals who, as of date this Agreement is approved
by the Board, are members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least a majority of the Board; provided, that if the
--------
appointment, election or nomination for election by the Company's stockholders
of any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this Agreement, be
considered a member of the Incumbent Board; and provided, further, that no
-------- -------
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
1934 Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest;
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization satisfies the
conditions set forth in clauses (i) and (ii) below (any transaction(s)
meeting the requirements of clauses (i) and (ii) below being referred to
herein as "Non-Control Transactions"):
(i) the stockholders of the Company immediately
before such merger, consolidation or reorganization own, directly or
indirectly, immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting
power of the outstanding voting securities of the corporation
resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
consolidation or reorganization; and
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute
at least a majority of the members of the board of directors of the
Surviving Corporation;
(2) A complete liquidation or dissolution of the Company; or
3
<PAGE>
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary); and
(d) Any other event that at least two-thirds of the Incumbent
Board in its sole discretion shall determine constitutes a Change in Control.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person; provided, that if a
--------
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company the Subject Person becomes the Beneficial Owner
of any additional voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(e) Notwithstanding anything contained in this Agreement to the
contrary, if Protected Officer's employment is terminated prior to a Change in
Control and the Board determines that such termination (i) was at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who subsequently effectuates a
Change in Control (a "Third Party") or (ii) otherwise occurred in connection
with, or in anticipation of, a Change in Control which actually occurs, then,
for all purposes of this Agreement, the date of a Change in Control with respect
to Protected Officer shall mean the date immediately prior to the date of such
termination of Protected Officer's employment.
2.6. Company. The "Company" shall mean more.com, Inc. and shall
-------
include its "Successors and Assigns" (as hereinafter defined).
2.7. Disability. "Disability" shall mean a physical or mental
----------
infirmity which impairs Protected Officer's ability to substantially perform
Protected Officer's duties with the Company for a period of one hundred eighty
(180) consecutive days; provided, that Protected Officer has not returned to
--------
Protected Officer's full-time employment prior to the Termination Date as stated
in the Notice of Termination (as hereinafter defined).
2.8. Good Reason.
-----------
(a) "Good Reason" shall mean the occurrence after a Change in
Control of any of the events or conditions described in subsections (i) through
(viii) hereof:
(i) (A) a change in Protected Officer's status, title,
position or responsibilities (including reporting responsibilities) which,
in Protected Officer's reasonable judgment, represents an adverse change
from
4
<PAGE>
Protected Officer's status, title, position or responsibilities as in
effect at any time within ninety (90) days preceding the date of a Change
in Control or at any time thereafter; (B) the assignment to Protected
Officer of any duties or responsibilities which, in Protected Officer's
reasonable judgment, are inconsistent with Protected Officer's status,
title, position or responsibilities as in effect at any time within ninety
(90) days preceding the date of a Change in Control or at any time
thereafter; or (C) any removal of Protected Officer from or failure to
reappoint or reelect Protected Officer to any of such offices or positions,
except in connection with the termination of Protected Officer's employment
for Disability, Cause, as a result of Protected Officer's death or by
Protected Officer other than for Good Reason;
(ii) reduction in Protected Officer's base salary to
a level below that in effect at any time within ninety (90) days preceding
the date of a Change in Control or at any time thereafter (except to the
extent such reduction is part of a comprehensive reduction in salary
applicable to employees of the Company generally so long as the reduction
applicable to Protected Officer is comparable to the reduction applied to
other senior executives of the Company), or any failure to pay Protected
Officer any compensation or benefits to which Protected Officer is entitled
within five (5) days of the date due;
(iii) the Company's requiring Protected Officer to be
based at any place outside a 25-mile radius from Protected Officer's job
location or residence prior to the Change in Control, except for reasonably
required travel on the Company's business which is not materially greater
than such travel requirements prior to the Change in Control;
(iv) the failure by the Company to (A) continue in
effect (without reduction in benefit level and/or reward opportunities) any
material compensation or employee benefit plan in which Protected Officer
was participating at any time within ninety (90) days preceding the date of
the Change in Control or at any time thereafter, including, but not limited
to, the plans listed on Appendix A (which shall include vacation policies),
unless such plan is replaced with a plan that provides substantially
equivalent compensation or benefits to Protected Officer, or (B) provide
Protected Officer with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to
those provided for under each other employee benefit plan, program and
practice in which Protected Officer was participating at any time within
ninety (90) days preceding the date of the Change in Control or at any time
thereafter or which are provided to other similarly situated executives of
the Company;
(v) the insolvency or the filing (by any party,
including the Company) of a petition for bankruptcy of the Company, which
petition is not dismissed within sixty (60) days;
5
<PAGE>
(vi) any material breach by the Company of any
provision of this Agreement:
(vii) any purported termination of Protected Officer's
employment for Cause by the Company which does not comply with the terms of
Section 2.4; or
(viii) the failure of the Company to obtain an
agreement, satisfactory to Protected Officer, from any Successors and
Assigns (as hereinafter defined) to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof.
(b) Any event or condition described in this Section 2.8 which
occurs prior to a Change in Control, but which the Board determines (i) was at
the request of a Third Party, or (ii) otherwise arose in connection with, or in
anticipation of, a Change in Control which actually occurs, shall constitute
Good Reason for purposes of this Agreement notwithstanding that it occurred
prior to the Change in Control.
(c) Protected Officer's right to terminate Protected Officer's
employment pursuant to this Section 2.8 shall not be affected by Protected
Officer's incapacity due to physical or mental illness. Protected Officer must
determine whether to invoke the right to terminate employment pursuant to
Section 2.8(a)(i) or 2.8(a)(iii) within ninety (90) days of the change in status
or relocation referred to therein.
2.9. Notice of Termination. Following a Change in Control, "Notice
---------------------
of Termination" shall mean a written notice from the Company of termination of
Protected Officer's employment which indicates the specific termination
provision in this Agreement relied upon and which sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Protected Officer's employment under the provision so indicated.
2.10. Pro-Rata Bonus. "Pro-Rata Bonus" shall mean an amount equal to
--------------
the Bonus Amount multiplied by a fraction the numerator of which is the number
of days in the fiscal year through the Termination Date and the denominator of
which is 365.
2.11. Successors and Assigns. "Successors and Assigns" shall mean a
----------------------
corporation or other entity acquiring all or substantially all the assets and
business of the Company (including this Agreement), whether by operation of law
or otherwise.
2.12. Termination Date. "Termination Date" shall mean (i) in the case
----------------
of Protected Officer's death, Protected Officer's date of death, (ii) in the
case of Good Reason, the last day of Protected Officer's employment, and (iii)
in all other cases, the date specified in the Notice of Termination; provided,
--------
that if Protected Officer's employment is terminated by the Company for Cause or
due to Disability, the date specified in the Notice of Termination shall be at
least thirty (30) days from the date the Notice of Termination is given to
Protected Officer; and provided, further, that in the case of Disability
-------- -------
Protected Officer shall not have returned to the full-time performance of
Protected Officer's duties during such period of at least thirty (30) days.
6
<PAGE>
3. Protected Officer Obligations. During the term of this
-----------------------------
Agreement, and excluding any periods of vacation and sick leave to which
Protected Officer is entitled, Protected Officer agrees to devote his full time
and attention spent on business matters to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to Protected Officer by the Company that do not constitute Good Reason, to use
Protected Officer's reasonable best efforts to perform faithfully and
efficiently such responsibilities; provided, that it shall not be a violation of
--------
this Agreement for Protected Officer to, without limitation, (i) serve on
corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions, (iii) manage
personal investments and (iv) perform such other activities as the Board may
approve, so long as such activities do not interfere materially with the
performance of Protected Officer's responsibilities as an employee of the
Company. It is expressly understood and agreed that to the extent that any such
activities have been conducted by Protected Officer prior to the date of a
Change of Control, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to such date shall
not thereafter be deemed to interfere with the performance of Protected
Officer's responsibilities to the Company.
4. Termination of Employment.
-------------------------
4.1. Termination Benefits. If, during the term of this Agreement,
--------------------
Protected Officer's employment with the Company shall be terminated within
twelve (12) months following a Change in Control, Protected Officer shall be
entitled to the following compensation and benefits:
- --------
(a) If Protected Officer's employment with the Company shall be
terminated (i) by the Company for Cause or Disability, (ii) by reason of
Protected Officer's death, (iii) due to Protected Officer's retirement pursuant
to the Company's policies applying to executive officers generally, or (iv) by
Protected Officer other than for Good Reason, the Company shall pay to Protected
Officer the Accrued Compensation;
(b) If Protected Officer's employment with the Company shall be
terminated for any reason other than as specified in Section 4.1(a), Protected
Officer shall be entitled to the following:
(i) the Company shall pay Protected Officer all
Accrued Compensation and a Pro-Rata Bonus;
(ii) the Company shall pay Protected Officer as
severance pay and in lieu of any further compensation for periods
subsequent to the Termination Date, an amount in cash equal to two (2)
times the sum of (A) the Base Amount and (B) the Bonus Amount;
(iii) until the third anniversary of the Date of
Termination, Protected Officer shall have such rights with respect to
benefits provided by the Company, including without limitation life
insurance, disability,
7
<PAGE>
medical, dental and hospitalization benefits and pension and retirement
benefits as were provided to Protected Officer as of the Effective Date or,
if greater, at any time within ninety (90) days preceding the date of the
Change in Control; and
(iv) the restrictions on any outstanding incentive
awards (including restricted stock and granted performance shares or units)
granted to Protected Officer under the Company's stock option and other
stock incentive plans or under any other incentive plan or arrangement
shall lapse and such incentive award shall become 100% vested, all stock
options and stock appreciation rights granted to Protected Officer shall
become immediately exercisable and shall become 100% vested and all
performance units granted to Protected Officer shall become 100% vested,
except that such acceleration will not occur, if in the opinion of the
Company's accountants, it would render unavailable "pooling of interest"
accounting for a Change in Control that would otherwise qualify for such
accounting treatment; provided however that such acceleration of any
outstanding equity-based incentive awards under the provisions of any
employment agreement, offer letter or stock option or other equity-based
compensation award agreement entered into by Protected Officer prior to the
Effective Date shall occur regardless of whether such acceleration would
render unavailable "pooling of interest" accounting for a Change in Control
that would otherwise qualify for such accounting treatment. In addition,
the vesting and exercisability of any purchase rights granted under an
employee stock purchase plan qualified under Section 423 of the Code shall
not accelerate under this Section 4.1(b)(iv).
(c) The amounts provided for in Sections 4.1(a) and 4.1(b)(i),
and (ii) shall be paid in a single lump sum cash payment within thirty (30) days
after the Termination Date (or earlier, if required by applicable law).
(d) The Protected Officer shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to Protected Officer in any subsequent
employment.
4.2. Other Benefit Policies. The severance pay and benefits provided
----------------------
for in this Section 4 shall be in lieu of any other severance or termination pay
to which Protected Officer may be entitled under any Company severance or
termination plan, program, practice or arrangement except as provided in Section
4.1(b)(iv). The Protected Officer's entitlement to any other compensation or
benefits shall be determined in accordance with the Company's employee benefit
plans (including the plans listed on Appendix A) and other applicable programs,
policies and practices then in effect. The Company may condition the payment to
Protected Officer of severance benefits pursuant to Section 4.1(b)(ii) upon
Protected Officer's delivery of a reasonable form of release in favor of the
Company containing customary terms and conditions for the release of employment
related claims. Nothing in this Agreement shall alter Protected Officer's
status as an "at will" employee of the Company.
8
<PAGE>
5. Notice of Termination. Following a Change in Control, any purported
---------------------
termination of Protected Officer's employment by the Company shall be
communicated by Notice of Termination to Protected Officer. For purposes of
this Agreement, no such purported termination shall be effective without such
Notice of Termination.
6. Excise Tax Payments.
-------------------
6.1. Notwithstanding anything contained in this Agreement to the
contrary, to the extent that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")) to Protected Officer or for Protected Officer's benefit, paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise in connection with, or arising out of, Protected Officer's
employment with the Company or a Change in Control (a "Payment" or "Payments"),
would be subject to the excise tax imposed under Code Section 4999, or any
interest or penalties are incurred by Protected Officer with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), the Payments shall be
reduced (but not below zero) if and to the extent that a reduction in the
Payments would result in Protected Officer retaining a larger amount, on an
after-tax basis (taking into account federal, state and local income taxes and
the Excise Tax), than if Protected Officer received all of the Payments (any
such reduced amount is hereinafter referred to as the "Limited Payment Amount").
Unless Protected Officer shall have given prior written notice specifying a
different order to the Company to effectuate the Limited Payment Amount, the
Company shall reduce or eliminate the Payments by (i) first reducing or
eliminating those payments or benefits which are payable in cash and then (ii)
by reducing or eliminating non-cash payments or benefits, in each case in
reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined). Any notice
given by Protected Officer pursuant to the preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing Protected Officer's rights and entitlements to any benefits or
compensation.
6.2. An initial determination as to whether the Payments shall be
reduced to the Limited Payment Amount and the amount of such Limited Payment
Amount shall be made, at the Company's expense, by the accounting firm that is
the Company's independent accounting firm as of the date of the Change in
Control (the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation, to the Company and Protected Officer within five
(5) days of the Termination Date, if applicable, or such other time as requested
by the Company or by Protected Officer (provided Protected Officer reasonably
believes that any of the Payments may be subject to the Excise Tax) and, if the
Accounting Firm determines that no Excise Tax is payable by Protected Officer
with respect to a Payment or Payments, it shall furnish Protected Officer with
an opinion reasonably acceptable to Protected Officer that no Excise Tax will be
imposed with respect to any such Payment or Payments. Within ten (10) days of
the delivery of the Determination to Protected Officer, Protected Officer shall
have the right to dispute the Determination (the "Dispute"). If there is no
Dispute, the Determination shall be
9
<PAGE>
binding, final and conclusive upon the Company and Protected Officer, subject to
the application of Section 6.3 below.
6.3. As a result of the uncertainty in the application of Sections
4999 and 280G of the Code, it is possible that the Payments to be made to, or
provided for the benefit of, Protected Officer either will be greater (an
"Excess Payment") or less (an "Underpayment") than the amounts provided for by
the limitations contained in Section 5.1.
(a) If it is established, pursuant to a final determination of a
court or an Internal Revenue Service (the "IRS") proceeding which has been
finally and conclusively resolved, that an Excess Payment has been made, such
Excess Payment shall be deemed for all purposes to be a loan to Protected
Officer made on the date Protected Officer received the Excess Payment, which
loan Protected Officer must repay to the Company together with interest at the
applicable federal rate under Code Section 7872(f)(2); provided, that no loan
--------
shall be deemed to have been made and no amount will be payable by Protected
Officer to the Company unless, and only to the extent that, the deemed loan and
payment would either reduce the amount on which Protected Officer is subject to
tax under Code Section 4999 or generate a refund of tax imposed under Code
Section 4999.
(b) In the event that it is determined, by (i) the Accounting
Firm, the Company (which shall include the position taken by the Company, or
together with its consolidated group, on its federal income tax return) or the
IRS, (ii) pursuant to a determination by a court, or (iii) upon the resolution
to Protected Officer's satisfaction of the Dispute, that an Underpayment has
occurred, the Company shall pay an amount equal to the Underpayment to Protected
Officer within ten (10) days of such determination or resolution, together with
interest on such amount at the applicable federal rate under Code Section
7872(f)(2) from the date such amount would have been paid to Protected Officer
until the date of payment.
7. Cooperation. Notwithstanding anything to the contrary contained herein,
-----------
payment of the amounts specified in Section 4.1(b)(ii) hereof is conditional
upon Protected Officer cooperating with the Company in connection with any
Change of Control or proposed Change of Control and all matters relating to
Protected Officer's employment with the Company and assisting the Company as
reasonably requested in transitioning Protected Officer's responsibilities to
Protected Officer's replacement as well as upon Protected Officer refraining
from doing or saying anything derogatory about the Company or its businesses or
personnel; provided, that Protected Officer shall not be required to perform any
--------
duties or take any action that would constitute Good Reason.
8. Confidential Information. Protected Officer shall hold in confidence
------------------------
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company and its businesses, which shall have been
obtained by Protected Officer in the course of Protected Officer's employment by
the Company and which shall not be public knowledge (other than by acts by
Protected Officer in violation of this Agreement) ("Confidential Information").
---------
Whether before or after termination of the Protected
10
<PAGE>
Officer's employment with the Company, Protected Officer shall not, without the
prior written consent of the Company, communicate or divulge any Confidential
Information, other than to the Company and to those persons or entities
designated by the Company or as otherwise is reasonably necessary for Protected
Officer to carry out his or her responsibilities as an executive of the Company.
In no event shall an asserted violation of the provisions of this Section 8
constitute a basis for deferring or withholding any amounts otherwise payable to
Protected Officer under this Agreement.
9. Exclusive Remedy.
----------------
9.1. Protected Officer's right to salary continuation and other
severance benefits pursuant to Section 4.1 shall be Protected Officer's sole and
exclusive remedy for any termination of Protected Officer's employment by the
Company other than for Death, Disability or Cause or by Protected Officer for
Good Reason. The payments, severance benefits and severance protections provided
to Protected Officer pursuant to this Agreement are provided in lieu of any
severance payments, severance benefits and severance protections provided in any
other plan or policy of the Company, except as may be expressly provided in
writing under the terms of any plan or policy of the Company, or in a written
agreement between the Company and Protected Officer entered into after the date
of this Agreement. Notwithstanding the foregoing, nothing in this Agreement
shall prevent or limit Protected Officer's continuing or future participation in
any benefit, bonus, incentive or other plan or program provided by the Company
(except for any severance or termination policies, plans, programs or practices)
and for which Protected Officer may qualify, nor shall anything herein limit or
reduce such rights as Protected Officer may have under any other agreements with
the Company (except for any severance or termination agreement). Amounts which
are vested benefits or which Protected Officer is otherwise entitled to receive
under any plan or program of the Company shall be payable in accordance with
such plan or program, except as explicitly modified by this Agreement.
9.2. The Company agrees to pay, to the full extent permitted by law,
all legal fees and expenses which Protected Officer may reasonably incur as a
result of any contest by the Company or others of the validity or enforceability
of, or liability under, any provision of this Agreement which is ultimately
decided in favor of Protected Officer.
10. Successors; Binding Agreement.
-----------------------------
10.1. This Agreement shall be binding upon and shall inure to the
benefit of the Company and its Successors and Assigns, and the Company shall
require any Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
10.2. Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by Protected Officer or Protected Officer's
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This
11
<PAGE>
Agreement shall inure to the benefit of and be enforceable by Protected
Officer's legal personal representative.
11. Fees and Expenses. The Company shall pay all reasonable legal fees and
-----------------
related expenses (including the reasonable costs of experts, evidence and
counsel) incurred by Protected Officer as they become due as a result of (a)
Protected Officer's termination of employment (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination of
employment), (b) Protected Officer's seeking to obtain or enforce any right or
benefit provided by this Agreement (including, but not limited to, any such fees
and expenses incurred in connection with any Dispute) or by any other plan or
arrangement maintained by the Company under which Protected Officer is or may be
entitled to receive benefits, and (c) Protected Officer's hearing before the
Board as contemplated in Section 2.4; provided, that the circumstances set forth
--------
in clauses (a) and (b) of this Section 11 (other than as a result of Protected
Officer's termination of employment under circumstances described in Section
2.5(d)) occurred on or after a Change in Control.
12. Notice. Notices and all other communications provided for in this
------
Agreement (including the Notice of Termination) shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided, that all notices to
--------
the Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the third business day
after the mailing thereof, except that notice of change of address shall be
effective only upon receipt.
13. Settlement of Claims. The Company's obligation to make the payments
--------------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against Protected Officer or others.
14. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Protected Officer and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representation, oral or otherwise, express or implied, with respect to the
subject matter hereof has been made by either party which is not expressly set
forth in this Agreement.
12
<PAGE>
15. Governing Law; Arbitration.
--------------------------
(a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California without giving
effect to the conflict of laws principles thereof.
(b) Any controversy or claim arising out of, relating to or in
connection with this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association ("AAA") in
accordance with its then existing Commercial Arbitration rules and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
(c) It is the express agreement of the parties that the
provisions of this Section, including the rules of the AAA , as modified by the
terms of this Section 15, shall govern the arbitration of any disputes arising
pursuant to this Agreement. In the event of any conflict between the law of the
State of California, the law of the arbitral location, and the U.S. Arbitration
Act (Title 9, U.S. Code), with respect to any arbitration conducted pursuant to
this Agreement, to the extent permissible, it is the express intent of the
parties that the law of California, as modified herein, shall prevail. To the
extent this Section 15 is deemed a separate agreement, independent from this
Agreement, Sections 11, 12, 14, 16 and 17 are incorporated herein by reference.
Either party (the "Initiating Party") may commence an arbitration by submitting
----------------
a Demand for Arbitration under the AAA Rules and by notice to the other Party
(the "Respondent") in accordance with Section 12. Such notice shall set forth in
----------
reasonable detail the basic operative facts upon which the Initiating Party
seeks relief and specific reference to the clauses of this Agreement, the amount
claimed, if any, and any nonmonetary relief sought against the Respondent.
After the initial list of issues to be resolved has been submitted, the
arbitrators shall permit either party to propose additional issues for
resolution in the pending proceedings.
(d) The place of arbitration shall be Denver, California, or any
other place selected by mutual agreement.
(e) The parties shall attempt, by agreement, to nominate a sole
arbitrator for confirmation by the AAA. If the parties fail so to nominate a
sole arbitrator within 30 days from the date when the Initiating Party's Demand
for Arbitration has been communicated to the other party, a board of three
arbitrators shall be appointed by the parties jointly or, if the parties cannot
agree as to three arbitrators within 30 days after the commencement of the
arbitration proceeding, then one arbitrator shall be appointed by each of
Protected Officer and the Company within 60 days after the commencement of the
arbitration proceeding and the third arbitrator shall be appointed by mutual
agreement of such two arbitrators. If such two arbitrators shall fail to agree
within 75 days after commencement of the arbitration proceeding upon the
appointment of the third arbitrator, the third arbitrator shall be appointed by
the AAA in accordance with its then existing rules. Notwithstanding the
foregoing, if any party shall fail to appoint an arbitrator within the specified
time period, such arbitrator and the third arbitrator shall be appointed by the
AAA in accordance with its then existing rules. For purposes of this Section 15,
the "commencement of the arbitration proceeding" shall be deemed to be the date
upon
13
<PAGE>
which the Demand for Arbitration has been received by the AAA. Any award
shall be rendered by a majority of the members of the board of arbitration.
(f) An award rendered in connection with an arbitration pursuant
to this Section 15 shall be final and binding upon the parties, and any judgment
upon such an award may be entered and enforced in any court of competent
jurisdiction.
(g) The parties agree that the award of the arbitral tribunal
will be the sole and exclusive remedy between them regarding any and all claims
between them with respect to the subject matter of the arbitrated dispute. The
parties hereby waive all jurisdictional defenses in connection with any
arbitration hereunder or the enforcement of any order or award rendered pursuant
thereto (assuming that the terms and conditions of this arbitration clause have
been complied with).
(h) With respect to any award issued by the arbitrators pursuant
to this Agreement, the parties expressly agree (i) that such order shall be
conclusive proof of the validity of the determination(s) of the arbitrators
underlying such order; and (ii) any federal court sitting in Denver, California,
or any other court having jurisdiction, may enter judgment upon and enforce such
order, whether pursuant to the U.S. Arbitration Act, or otherwise.
(i) The arbitrators shall issue a written explanation of the
reasons for the award and a full statement of the facts as found and the rules
of law applied in reaching their decision to both parties. The arbitrators shall
apportion to each party all costs (other than attorneys' fees) incurred in
conducting the arbitration in accordance with what the arbitrators deem just and
equitable under the circumstances. The prevailing party shall be entitled to
recover its attorneys' fees from the other party. Any provisional remedy which
would be available to a court of law shall be available from the arbitrators
pending arbitration of the dispute. Either party may make an application to the
arbitrators seeking injunctive or other interim relief, and the arbitrators may
take whatever interim measures they deem necessary in respect of the subject
matter of the dispute, including measures to maintain the status quo until such
time as the arbitration award is rendered or the controversy is otherwise
resolved. The arbitrator shall have the authority to award any remedy or relief
that a court of the State of California could order or grant, including, without
limitation, specific performance of any obligation created under this Agreement,
the issuance of an injunction, or the imposition of sanctions for abuse or
frustration of the arbitration process, but specifically excluding punitive
damages (the parties specifically agree that punitive damages shall not be
available in the event of any dispute).
(j) The parties may file an application in any proper court for
a provisional remedy in connection with an arbitrable controversy, but only upon
the ground that the award to which the application may be entitled may be
rendered ineffectual without provisional relief.
14
<PAGE>
16. Severability. The provisions of this Agreement shall be deemed
------------
severable, and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or otherwise, between the parties hereto
with respect to the subject matter hereof except that the provisions regarding
the acceleration of vesting and exercisability of any outstanding equity-based
incentive awards under any employment agreement, offer letter or stock option or
other equity-based compensation award agreement entered into by Protected
Officer prior to the Effective Date shall remain in full force and effect.
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and Protected Officer has executed this Agreement as
of the day and year first above written.
MORE.COM, INC.
ATTEST: By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- -----------------------------
Secretary
PROTECTED OFFICER
---------------------------------------
Signature
---------------------------------------
Print Name
16
<PAGE>
Exhibit 10.7
LEASE
500 THIRD STREET
INTEREAL CORPORATION, AGENTS
(415) 778-3900
THIS LEASE ("Lease"), dated as of August 1, 1999, for reference purposes
only is made and entered into by and between 500 THIRD STREET ASSOCIATES, a
California General Partnership herein called Lessor and MORE.COM a DELAWARE
corporation herein called Lessee.
THIS LEASE is subject to the terms, covenants and conditions herein set
forth, and the Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
said performance.
WITNESSETH:
ARTICLE 1
Premises
Lessor hereby leases to Lessee and Lessee leases from Lessor for the term,
at the rental, and upon all of the conditions set forth herein a portion of that
certain real property situated in the City and County of San Francisco, State of
California, commonly known as the 500 Third Street Building, located at the
Southwest corner of Third and Bryant Streets. Said portion is more particularly
described as: (See Addendum) a suite of approximately (See Addendum), as
diagrammed on Exhibit "B" attached to and made a part of this lease. Said real
property, including the land and the improvements therein or so much as Lessee
is entitled to occupy or use under terms of this Lease, is herein called the
"Premises".
ARTICLE 2
Term
Except as otherwise provided in this Lease, the term of this Lease shall be
One (1) year commencing on August 1, 1999. and expiring on July 31, 2000 unless
sooner terminated pursuant to any provisions hereof.
ARTICLE 3
Possession
Notwithstanding said commencement date, if for any reason Lessor cannot
deliver possession of the Premises to Lessee on said date, Lessor shall not be
subject to any liability therefor, nor shall such failure affect the validity of
this
1
<PAGE>
Lease or the obligations of Lessee hereunder or extend the term hereof, but
in such case, Lessee shall not be obligated to pay rent until possession of the
Premises is tendered to Lessee; provided, however, that if Lessor shall not have
delivered possession of the Premises within sixty (60) days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. If Lessee occupies the Premises
prior to said commencement date, such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance t he termination date, and
Lessee shall pay rent for such period at the initial monthly rates set forth
below.
ARTICLE 4
Base Rent
Lessee shall pay to Lessor as base rent for the Premises the sum of TWENTY
FOUR THOUSAND, FIVE HUNDRED SIXTY ONE Dollars and 50/100 ($24,561.50),
commencing August 1, 1999 in advance on or before the first day of each calendar
month of the term of this Lease without deduction, offset, prior notice or
demand, in lawful money of the United States. Base Rent for any period during
the term hereof which is for less than one month shall be a pro rata portion of
the monthly installment calculated on a 30-day month basis and payable in
advance.
ARTICLE 5
Security Deposit
Lessee has deposited with Lessor the sum of TWENTY FOUR THOUSAND, FIVE
HUNDRED SIXTY ONE Dollars and 50/100 ($24,561.50). Said sum shall be held by
Lessor as security for the faithful performance by Lessee of all the terms,
covenants, and conditions of this Lease to be kept and performed by Lessee
during the term hereof. If Lessee defaults with respect to any provision of
this Lease, including, but not limited to the provisions relating to the payment
of rent, Lessor may (but shall not be required to) use, apply or retain all or
any part of this security deposit for the payment of any rent or any other sum
in default, or for the payment of any amount which Lessor may spend or become
obligated to spend by reason of Lessee's default, or to compensate Lessor for
any other loss or damage which Lessor may suffer by reason of Lessee's default.
If any portion of said deposit is so used or applied, Lessee shall within five
(5) days after written demand therefor, deposit cash with Lessor in an amount
sufficient to restore the security deposit to its original amount and Lessee's
failure to do so shall be a material breach of this Lease. Lessor shall not be
required to keep this security deposit separate from its general funds, and
Lessee shall not be entitled to interest on such deposit. If Lessee shall fully
and faithfully perform every provision of this Lease to be performed by it, the
security deposit or any balance thereof shall be returned to Lessee (or, at
Lessor's option, to the last assignee of Lessee's interest hereunder) at the
expiration
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of the Lease Term. In the event of termination of Lessor's interest in this
Lease, Lessor shall transfer said deposit to Lessor's successor in interest.
ARTICLE 6
Rent Adjustments
Notwithstanding anything contained in this Article, the rental payable
by Lessee shall in no event be less than the base rent specified in Article
four (4) herein above. For the purposes of this Article, the following
terms are defined as follows:
Base Year: The calendar year in which this Lease term
commences, (1998).
Comparison Year: Each calendar year of the term after the Base Year.
(A) Direct Expenses: In addition to Base Rent, Lessee shall pay to
Lessor its Pro Rata share of expenses as herein defined. All direct
costs of operation and maintenance, as determined by standard
accounting practices, shall include the following costs by way of
illustration, but not be limited to: real property taxes and
assessments; rent taxes, gross receipt taxes, (whether assessed
against the Lessor or assessed against the Lessee and collected by the
Lessor, or both), water and sewer charges, insurance premiums,
utilities, janitorial services, labor, costs incurred in the
management of the Building, if any, air conditioning & heating,
elevator maintenance, supplies, material, equipment, and tools,
including maintenance, costs, and upkeep of all parking and common
areas. ("Direct Expenses" shall not include depreciation on the
Building of which the Premises are a part or equipment therein, loan
payments, executive salaries or real estate brokers' commissions, or
costs paid directly by Lessee).
If the Direct Expenses paid or incurred by the Lessor for the
Comparison Year on account of the operation or maintenance of the Building
of which the Premises area part are in excess of the Direct Expenses paid
or incurred for the Base Year, then the Lessee shall pay 9.06% of the
increase. This percentage is that portion of the total rentable area of the
Building occupied by the Lessee hereunder. Lessor shall endeavor to give to
Lessee on or before the first day of March of each year following the
respective Comparison Year a statement of the increase in rent payable by
Lessee hereunder, but failure by Lessor to give such statement by said date
shall not constitute a waiver by Lessor of its right to require an increase
in rent. Upon receipt of the statement for the first Comparison Year,
Lessee shall pay in full the total amount of increase due for the first
Comparison Year, and in addition for the then current year, the amount of
any such increase shall be used as an estimate for said current year and
this amount shall be divided into twelve (12) equal monthly installments
and Lessee shall pay to Lessor, concurrently with the regular monthly rent
payment next due following the receipt of such statement, an amount equal
to one (1) monthly installment multiplied by the number of months from
January in the calendar year in which said statement is submitted to the
month of
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such payment, both months inclusive. Subsequent installments shall be payable
concurrently with the regular monthly rent payments for the balance of that
calendar year and shall continue until the next Comparison Year's statement is
rendered. If the next or any succeeding Comparison Year results in a greater
increase in Direct Expenses, then upon receipt of a statement from Lessor,
Lessee shall pay a lump sum equal to such total increase in Direct Expenses over
the Base Year, less the total of the monthly installments of estimated increases
paid in the previous calendar year for which comparison is then being made to
the Base Year; and the estimated monthly installments to be paid for the next
year, following said Comparison Year, shall be adjusted to reflect such
increase. If in any Comparison Year the Lessee's share of Direct Expenses be
less than the preceding year, then upon receipt of Lessor's statement, any
overpayment made by Lessee on the monthly installment basis provided above shall
be credited towards the next monthly rent falling due and the estimated monthly
installments of Direct Expenses to be paid shall be adjusted to reflect such
lower Direct Expenses for the most recent Comparison Year. Even though the term
has expired and Lessee has vacated the Premises, when the final determination is
made of Lessee's share of Direct Expenses for the year in which this Lease
terminates, Lessee shall immediately pay any increase due over the estimated
expenses paid and conversely any overpayment made d expenses decree shall be
immediately rebated by Lessor to Lessee.
(B) UTILITIES. Lessee shall pay prior to delinquency for all water, gas,
hear, light, power, telephone, sewage, air conditioning and ventilating,
scavenger, janitorial, landscaping and all other materials and utilities
supplied to the Premises. If any such services are not separately metered
to Lessee, Lessee shall pay a pro rata share of all charges which are
jointly metered, the determination to be made by Lessor, and payment to be
made by Lessee together with rent as estimated by Lessor. Pro rata share
for purposes hereof shall be 9.06% and may be adjusted reasonably to
reflect actual usage and cost.
ARTICLE 7
Property Taxes
Lessee shall pay prior to delinquency all taxes assessed against and levied
upon trade fixtures, furnishings, equipment and all other personal property of
Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
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ARTICLE 8
Use
The Premises shall be used and occupied by Lessee for only the following
purposes and for no other purposes whatsoever without obtaining the prior
written consent of Lessor: Offices & warehouse space.
(A) Lessee shall not do or permit anything to be done in or about the
Premises which will increase the existing rate of insurance upon the
Premises (unless Lessee shall pay any increased premium as a result of such
use or acts) or cause the cancellation of any insurance policy covering
said Premises or any building of which the Premises may be a part, nor
shall Lessee sell or permit to be kept, used or sold in or about said
Premises any articles which may be prohibited by a standard form policy of
fire insurance.
(B) Lessee shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of any building of which the Premises may be a
part or injure or annoy them or use or allow the Premises to be used for
any unlawful or objectionable purpose, nor shall Lessee cause, maintain or
permit any nuisance in, an or about the Premises. Lessee shall not commit
or suffer to be committed any waste in or upon the Premises.
(C) Lessee shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute,
zoning restriction, ordinance or governmental rule or regulation or
requirements or duly constituted public authorities now in force or which
may hereafter be enacted or promulgated. Lessee shall at its sole cost and
expense promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Premises. The judgment
of any court of competent jurisdiction or the admission of Lessee in any
action against Lessee, whether Lessor be a party thereto or not, that
Lessee has violated any law, statute, ordinance or governmental rule,
regulation or covenant, shall be conclusive of that fact as between Lessor
and Lessee.
(D) Lessee understands and acknowledges that using the Premises as
permanent lodging or residence is prohibited by this lease and by local
zoning ordinances. Lessee further understands and acknowledges that Lessee
may not "build out" or construct any tenant improvements in the Premises
incident to use of the Premises as a residence, including, but not limited
to, a kitchen or a bedroom. Lessee certifies that the premises shall not
be used as a residence. Further, Lessee expressly agrees to indemnify the
Lessor and to hold the Lessor harmless in the event Lessor is subject to
any liability, either civil or criminal, including, but not limited to, any
expense, fines, levies,
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liens or other assessments, expenses or liabilities incurred as a result of
any proceeding by any person or governmental entity, as a result of
Lessee's violation of these terms.
ARTICLE 9
Condition of Premises
If the Premises are completed as of the date of execution hereof, then
Lessee, by execution of this Lease, shall be deemed to have accepted the
Premises in the condition existing as of the date of execution and in any event
this Lease shall be subject to all applicable zoning ordinances and to any
municipal, county and state laws and regulations governing and regulating the
use of the Premises. Lessee acknowledges that neither Lessor nor Lessor's agent
has made any representation or warranty as to the suitability of the Premises
for the conduct of Lessee's business.
ARTICLE 10
Maintenance, Repair and Alterations
Lessee shall keep in good order, condition and repair the Premises and
every part thereof, structural and non structural, (whether or not such portion
of the Premises requiring repair, or the means of repairing the same are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, including, without limiting the
generality of the foregoing, all plumbing, heating, air conditioning, (Lessee
shall procure and maintain, at Lessee's expense, an air conditioning system
maintenance contract, if applicable) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls, (interior and
exterior), ceilings, floors, windows, doors, plate glass and skylights located
within the Premises.
(A) Lessor's Rights. If Lessee fails to perform Lessee's obligations under
this Article 10, or under any other paragraph of the Lease, Lessor may at
its option (but shall not be required to) enter upon the Premises after ten
(10) days' prior written notice to Lessee (except in the case of an
emergency, in which case no notice shall be required), perform such
obligations on Lessee's behalf and put the same in good order, condition
and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall become due and payable as
additional rental to Lessor together with Lessee's next rental installment.
(B) Lessor's Obligations. Except for the obligations of Lessor under
Article 9 (relating to Lessor's warranty), Article 14 (relating to
destruction of the Premises) and under Article 15 (relating to condemnation
of the Premises), it is intended by the parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises
nor the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be
that of the Lessee tinder Article 10 hereof. Lessee expressly waives the
benefit of any statute
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now or hereinafter in effect which would otherwise afford Lessee the right
to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the Premises in good order, condition and repair.
(C) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding
$10,00, -in cumulative costs during the term of this Lease. In any event,
whether or not in excess of $2,500 in cumulative cost, Lessee shall make no
change or alteration to the exterior of the Premises nor the exterior of
the building(s) on the Premises without Lessor's prior written consent,
less those alterations approved in Exhibit "C."
(1) As used in this Article 10 (C) the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or
Utility Installations at the expiration of the term, and restore the
Premises to their prior condition. Lessor may require Lessee to
provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the
estimated cost of such improvements, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations or
improvements, additions or Utility Installations without the prior
approval of Lessor, Lessor may require that Lessee remove any or all
of the same, less those alterations approved in Exhibit "C."
(2) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which
requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its
consent, the consent shall be deemed conditioned upon Lessee acquiring
a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Lessor prior to the commencement of
the work and the compliance by Lessee of a I conditions of said permit
in a prompt and expeditious manner.
(3) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any
mechanics' lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity
of
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any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability
for the same and holding the Premises free from the effect of such
lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(4) Unless Lessor requires their removal, as set forth in Article 10
(C), all alterations, improvement, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures
of Lessee), which may be made on the Premises, shall become the
property of the Lessor and remain upon and be surrendered with the
Premises at the expiration of the term. Notwithstanding the
provisions of this Article 10 (C), Lessee's machinery and equipment,
other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the
property of Lessee and may be removed by Lessee subject to the
provisions of Article 11.
ARTICLE 11
Surrender of Premises
On the last day of the term hereof, or on any sooner termination, Lessee
shall surrender the Premises to Lessor in the same condition as when received,
ordinary wear and tear excepted, clean and free of debris. Lessee shall repair
any damage to the Premises occasioned by the installation or removal of Lessee's
trade fixtures, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distributions systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the Premises in good operating condition.
ARTICLE 12
Liability Insurance
Lessee shall, at Lessee's expense, obtain and keep in force during the term
of this Lease a policy of comprehensive public liability insurance insuring
Lessor and Lessee against any liability arising out of the ownership, use,
occupancy or maintenance of the Premises and all area appurtenant thereto. The
limit of said insurance shall not, however, limit the liability of the Lessee
hereunder. Lessee may carry said insurance under a blanket policy, providing,
however, said insurance by Lessee shall have a Lessor's protective liability
endorsement attached thereto. If Lessee shall fail to procure and maintain said
insurance, Lessor may, but shall not be required to, procure and maintain same,
but at the expense of the Lessee. Insurance required hereunder, shall be in
companies rated A+ or better in "Best's
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Insurance Guide". Lessee shall deliver to Lessor prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Lessor. No policy shall be cancelable or subject
to reduction of coverage except after ten (10) days' prior written notice to
Lessor.
ARTICLE 13
Subrogation
As long as their respective insurers so permit, Lessor and Lessee hereby
mutually waive their respective rights of recovery against each other for any
loss insured by fire, extended coverage and other property insurance policies
existing for the benefit of the respective parties. Each party shall obtain any
special endorsements, if required by their insurer to evidence compliance with
the aforementioned waiver.
ARTICLE 14
Damage or Destruction
(A) Partial Damage -- Insured. In the event improvements on the Premises
are damaged by any casualty which is covered under an insurance policy
required to be maintained pursuant to Article 13, then Lessor shall repair
such damage as soon as reasonably possible and this Lease shall continue in
full force and effect.
(B) Partial Damage -- Uninsured. In the event the improvements on the
Premises are damaged, except by a negligent or willful act or omission of
Lessee, by any casualty not covered under an insurance policy required to
be maintained pursuant to Article 12, then Lessor may, at Lessor's option,
either:
(1) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and
effect, or
(2) give written notice to Lessee within thirty (30) days after the
date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of the damage.
In the event Lessor elects to terminate this Lease pursuant to this
Article 14 (B), Lessee shall have the right within ten (10) days after
receipt of the required notice to notify Lessor in writing of Lessee's
intention to repair such damage at Lessee's expense, without
reimbursement from Lessor, in which event this Lease shall continue in
full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice
within the ten (10) day period, this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
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(C) Total Destruction. If the Premises are totally destroyed during the
term of this Lease from any cause whether or not covered by the insurance
required under Article 13 (including any destruction required by any
authorized public authority), this Lease shall automatically terminate as
of the date of such total destruction.
(D) Damage Near End of The Term. If the Premises are partially destroyed
or damaged during the last six (6) months of the terms of this Lease,
Lessor may at Lessor's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage.
(E) Lessor's Obligations. The Lessor shall not be required to repair any
injury or damage by fire or other cause, or to make any restoration or
replacement of any panelings, decorations, office fixtures, partitions,
railings, ceilings, floor covering, equipment, machinery or fixtures or any
other improvements or property installed in the Premises by Lessee or at
the direct or indirect expense of Lessee. Lessee shall be required to
restore or replace same in the event of damage.
(F) Abatement of Rent; Lessee's Remedies.
(1) If the premises are partially destroyed or damaged and Lessor or
Lessee repairs them pursuant to this Lease, the rent payable hereunder
for the period during which such damage and repair continues shall be
abated in proportion to the extent to which Lessee's use of the
Premises is impaired. Except for abatement of rent, if any, Lessee
shall have no claim against Lessor for any damage suffered by reason
of any such damage, destruction, repair or restoration.
(2) If Lessor shall be obligated to repair or restore the Premises
under this Section 14 and shall not commence such repair or
restoration within ninety (90) days after such obligation shall
accrue, Lessee at Lessee's option may cancel and terminate this Lease
by written notice to Lessor at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate
as of the date of such notice.
(G) Termination -- Advance Payments. Upon termination of this Lease
pursuant to Article 14, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor
shall, in addition, return to Lessee so much of Lessee's security deposit
as has not theretofore been applied by Lessor.
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ARTICLE 15
Condemnation
(A) If the premises or any portion thereof are taken under the power of
eminent domain, or sold by Lessor under the threat of the exercise of said
power (all of which is herein referred to as "condemnation"), this Lease
shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever occurs first. If more than
ten percent (10%) of the floor area of any buildings on the Premises, or
more than twenty-five percent (25%) of the land area of the Premises not
covered with buildings, is taken by condemnation, either Lessor or Lessee
may terminate this Lease, as of the date the condemning authority takes
possession, by notice in writing of such election within twenty (20) days
after Lessor shall have notified Lessee of the taking, or in the absence of
such notice then within twenty (20) days after the condemning authority
shall have taken possession.
(B) If this Lease is not terminated by either Lessor or Lessee then it
shall remain in full force and effect as to the portion of the Premises
remaining, provided the rent shall be reduced in the proportion that the
floor area of the buildings taken within the Premises bears to the total
floor area of all buildings located on the Premises. In the event this
Lease is not so terminated then Lessor agrees, at Lessor's sole cost, to
restore the Premises to a complete unit of like quality and character as
existed prior to the condemnation as soon as reasonably possible. All
awards for the taking of any part of the Premises or any payment made under
the threat of the exercise of compensation for diminution of value of a
leasehold or for the taking of the fee or as severance damages; provided,
however, that Lessee shall be entitled to any award for loss of or damage
to Lessee's trade fixtures and removable personal property. In the event
that this Lease is not terminated by reason of such in connection with such
condemnation, Lessor shall, to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such
repair.
ARTICLE 16
Liens
Lessee shall keep the Premises and the property in which the Premises are
situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by Lessee. Lessor may require, a t Lessor's
sole option, that Lessee shall provide to Lessor, at Lessee's sole cost and
expense, a lien and completion bond in an amount equal to one and one-half times
any and all estimated cost of any improvements, additions, or alterations in the
Premises, to insure Lessor
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against any liability for mechanics' and material men's liens and to insure
completion of the work.
ARTICLE 17
Assignment and Subletting
Lessee shall not mortgage, pledge, hypothecate or encumber this Lease or
any interest therein. Lessee shall not assign this Lease or sublet, or suffer
any other person (the agents and servants of Lessee excepted) to occupy or use,
the Premises, or any part thereof, or any right or privilege appurtenant thereto
without the prior written consent of Lessor first had and obtained, which
consent shall not be unreasonably withheld. Lessor's consent to one assignment
or subletting shall not be deemed to be a consent to any subsequent assignment
or subletting, nor shall Lessor's consent release Lessee from any of its
obligations under this Lease unless such consent expressly so provides. Any
assignment, subletting, occupation or use without the consent of Lessor shall be
void and, at the option of Lessor, shall terminate this Lease.
(A) In the event at any time or times during the Term of this Lease Lessee
desires to sublet all or part of the Premises, Lessor reserves the prior
right and option to:
(1) sublet from Lessee any portion of the Premises proposed by Lessee
to be sublet for the term for which such portion is proposed to be
sublet but at the same rent (including escalation as provided for in
Article 6 hereof) as Lessee is required to pay to Lessor under this
Lease for the same space, computed on a pro rata of square footage
basis or
(2) terminate this Lease as it pertains to the portion of the
Premises so proposed by Lessee to be sublet. Lessee shall notify
Lessor in writing if Lessee proposes to sublet all or any part of the
Premises, designating the space proposed to be sublet and the terms of
the proposed subletting. Lessor shall be allowed fifteen (15) days
after Lessor's foregoing option. If Lessor fails to exercise its said
option, all the provisions of Article 17 subparagraph (1) above,
respecting subletting, nevertheless shall be in full force and effect
and nothing contained in this subparagraph (2) shall be construed as a
waiver by Lessor of any of its rights under said subparagraph (1).
(B) Lessor's foregoing right and option shall continue throughout the
entire term of this Lease.
(C) In no event shall Lessee assign this Lease or sublet the Premises or
any portion thereof to any then-existing lessee of the building, unless
affirmed in writing by the Lessor.
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ARTICLE 18
Hold Harmless
Lessee shall indemnify and hold harmless Lessor against and from any and
all claims arising from Lessee's use of the Premises for the conduct of its
business or from any activity, work, or other thing done, permitted or suffered
by the Lessee in or about the Premises, and shall further indemnify and hold
harmless Lessor against and from any and all claims arising from any breach or
default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any act or negligence of the
Lessee, or any officer, agent, employee, guest, or invitee of Lessee, and from
all and against all cost, attorney's fees, expenses and liabilities incurred in
or about any such claim or any action or proceeding brought thereon, and, in any
case, action or proceeding be brought against Lessor by reason of any such
claim, Lessee upon notice from Lessor shall defend the same a t Lessee's expense
by counsel reasonably satisfactory to Lessor. Lessee as a material part of the
consideration to Lessor hereby assumes all risk of damage to property or injury
to persons, in, upon or about the Premises, from any cause other than Lessor's
negligence, and Lessee hereby waives all claims in respect thereof against
Lessor. Lessor or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or its agents shall not be
liable for any damage to property entrusted to employees of the Building, nor
for loss or damage to any property by theft or otherwise, nor for any injury to
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak from any part of
the Building or from the pipes, appliances or plumbing works therein or from the
roof, street or subsurface or from any other place resulting from dampness or
any other cause whatsoever, unless caused by or due to the negligence of Lessor,
its agents, servants or employees. Lessor or its agents shall not be liable for
interference with the light or other incorporeal hereditaments, loss of business
by Lessee, nor shall Lessor be liable for any latent defect in the Premises or
in the Building. Lessee shall give prompt notice to Lessor in case of fire or
accidents in the Premises or in the Building or of defects therein or in the
fixtures or equipment.
ARTICLE 19
Rules and Regulations
Lessee shall faithfully observe and comply with the rules and regulations,
indicated on Exhibit "A" attached hereto and hereby reference thereto made a
part hereof, that Lessor shall from time to time promulgate. Lessor reserves the
right from time to time to make all reasonable modifications to said rules. The
additions and modifications to those rules shall be binding upon Lessee upon
delivery of a copy of them to Lessee. Lessor shall not be responsible to Lessee
for the nonperformance of any said rules by any other tenants or occupants.
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ARTICLE 20
Holding Over
If Lessee remains in possession of the Premises or any part thereof after
the expiration of the term hereof, with the express written consent of Lessor,
such occupancy shall be a tenancy from month to month and a rental in the amount
equal to 125% of the last monthly rental, plus all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
ARTICLE 21
Entry By Lessor
Lessor reserves and shall at any and all times have the right to enter the
Premises, inspect the same, supply janitorial service and any other service to
be provided by Lessor to Lessee hereunder, to submit said Premises to
prospective purchasers or tenants, to post notices of non-responsibility, and to
alter, improve or repair the Premises and any portion of the Building of which
the Premises are a part that Lessor may deem necessary or desirable, without
abatement of rent and may for that purpose erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, always providing that the entrance to the Premises shall not be
blocked thereby, and further providing that the business of the Lessee shall not
be interfered with unreasonably. Lessee hereby waives any claim for damages or
for any injury or inconvenience to or interference with Lessee's business, any
loss of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby. For each of the aforesaid purposes, Lessor shall at all
times have and retain a key with which to unlock all of the doors in, upon and
about the Premises, excluding Lessee's vaults, safes and files, and Lessor shall
have the right to use any and all means which Lessor may deem proper to open
said doors in an emergency, in order to obtain entry to the Premises without
liability to Lessee except for any failure to exercise due care for Lessee's
property. Any entry to the Premises obtained by Lessor by any of said means, or
otherwise shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction
of Lessee from the Premises or any portion thereof.
ARTICLE 22
Estoppel
Lessee shall at any time and from time to time upon not less than ten (10)
days' prior written notice from Lessor execute, acknowledge and deliver to
Lessor a statement in writing,
(A) certifying that this Lease is unmodified and in full force and effect
(or, if modified, stating the mature of such modification and certifying
that this Lease as so modified, is in full force and effect), and the date
to which the rental and other charges are paid in advance, if any, and
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<PAGE>
(B) acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of the Lessor hereunder, or specifying such defaults
if any are claimed.
Any such statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the real property of which the Premises
are a part.
ARTICLE 23
Reconstruction
In the event the Premises or the Building of which the Premises are a part
are damaged by fire or other perils covered by extended coverage insurance,
Lessor agrees to forthwith repair the same; and this Lease shall remain in full
force and effect, except that Lessee shall be entitled to a proportionate
reduction of the rent while such repairs are being made, such proportionate
reduction to be based upon the extent to which the making of such repairs shall
materially interfere with the business carried on by the Lessee in the Premises.
If the damage is due to the fault or neglect of Lessee or its employees, there
shall be no abatement of rent.
(A) In the event the Premises or the Building of which the Premises are a
part are damaged as a result of any cause other than the perils covered by
fire and extended coverage insurance, then Lessor shall forthwith repair
(1) to repair or restore such damage, this Lease continuing in full
force and effect, but the rent to be proportionately reduced as herein
above in this Article provided; or
(2) give notice to Lessee at any time within sixty (60) days after
such damage terminating this Lease as of the date specified in such
notice, which date shall be no less than thirty (30) days and no more
than sixty (60) days after the giving of such notice. In the event of
giving such notice, this Lease shall expire and all interest of the
Lessee in the Premises shall terminate on the date so specified in
such notice and the rent, reduced by a proportionate amount, based
upon the extent, if any, to which such damage materially interfered
with the business carried on by the Lessee in the Premises, shall be
paid up to date of said such termination.
(B) Notwithstanding anything to the contrary contained in this Article,
Lessor shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered
under this Article occurs during the last twelve (12) months of the term of
this Lease or any extension thereof. Lessor shall not be required to repair
any injury or damage by fire or other cause, or to make any repairs or
replacements of any panels, decoration, office fixtures, railings, floor
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covering, partitions, or any other property installed in the Premises by
Lessee.
(C) The Lessee shall not be entitled to any compensation or damages from
Lessor for loss of the use of the whole or any part of the Premises,
Lessee's personal property or any inconvenience or annoyance occasioned by
such damage, repair, reconstruction or restoration.
ARTICLE 24
Authority of Parties
Corporate Authority. If Lessee is a corporation, each individual executing
this lease on behalf of said corporation represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said corporation, in
accordance with a duly adopted resolution of the board of directors of said
corporation or in accordance with the by-laws of said corporation, and that this
Lease is binding upon said corporation in accordance with its terms.
Limited Partnerships. If the Lessor herein is a limited partnership, it is
understood and agreed that any claims by Lessee on Lessor shall be limited to
the assets of the limited partnership, and furthermore, Lessee expressly waives
any and all rights to proceed against the individual partners or the officers,
directors or shareholders of any corporate partner, except to the extent of
their interest in said limited partnership.
ARTICLE 25
Default
The occurrence of any one or more of the following events shall constitute
a default and breach of the Lease by Lessee.
(A) The vacating or abandonment of the Premises by Lessee.
(B) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof by Lessor to Lessee.
(C) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Lessee, other than described in Article 25 (B) above, where such failure
shall continue for a period of thirty (30) days after written notice
thereof by Lessor to Lessee; provided, however, that if the nature of
Lessee's default is such that more than thirty (30) days are reasonable
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
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(D) The making by Lessee of any general assignment or general arrangement
for the benefit of creditors; or the filing by or against Lessee of a
petition to have Lessee adjudged a bankrupt, or a petition or
reorganization or arrangement under any law relating to bankruptcy (unless,
in the case of a petition filed against Lessee, the same is dismissed
within sixty (60) days); or the appointment of a trustee or a receiver to
take possession of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where such seizure is
not discharged in thirty (30) days.
ARTICLE 26
Remedies in Default
In the event of any such material default or breach by Lessee, Lessor may
at any time thereafter, with or without notice or demand and without limiting
Lessor in the exercise of a right or remedy which Lessor may have by reason of
such default or breach:
(A) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the
cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorney's fees, any real estate commission actually paid; the worth at the
time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that
Lessee proves could be reasonable avoided; that portion of the leasing
commission paid by Lessor and applicable to the unexpired term of this
Lease. Unpaid installments of rent or other sums shall bear interest from
the date due at the rate of ten (10%) per cent per annum. In the event
Lessee shall have abandoned the Premises, Lessor shall have the option of:
(1) taking possession of the Premises and recovering from Lessee the
amount specified in this paragraph, or
(2) proceeding under the provision of the following Article 26 (B).
(B) Maintain Lessee's right to possession, in which case this Lease shall
continue in effect whether or not Lessee shall have abandoned the Premises.
In such event Lessor shall be entitled to enforce all of Lessor's rights
and
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remedies under this Lease, including the right to recover the rent as it
becomes due hereunder.
(C) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decision of the State in which the Premises are located.
ARTICLE 27
General Provisions
(A) Plats and Riders. Clauses, plats and riders, if any, signed by the
Lessor and the Lessee and endorsed on or affixed to this Lease are a part
hereof.
(B) Waiver. The waiver by Lessor of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant
or condition herein contained. The subsequent acceptance of rent hereunder
by Lessor shall not be deemed to be a waiver of any preceding breach by
Lessee of any term, covenant or condition of this Lease, other than the
failure of the Lessee to pay the particular rental so accepted, regardless
of Lessor's knowledge of such preceding breach at the time of the
acceptance of such rent.
(C) Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Lessee to the Lessor shall be sent
by United States Mail, postage prepaid, addressed to the Lessor at the
Office of the Building, or to such other person or place as the Lessor may
from time to time designate in a notice to the Lessee.
(D) Joint Obligation. If there be more than one Lessee the obligations
hereunder imposed upon Lessees shall be joint and several.
(E) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
(F) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(G) Successors and Assigns. The covenants and conditions herein contained,
subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of the parties thereto.
(H) Recordation. Neither Lessor nor Lessee shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.
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(I) Quiet Possession. Upon Lessee paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have
quiet possession of the Premises for the entire term hereof, subject to all
the provisions of this Lease.
(J) Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent or other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited
to, processing and accounting charges, and late charges which may be
imposed upon Lessor by terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or of a sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after said amount is due, then Lessee shall pay to Lessor a late
charge equal to ten (10%) per cent of such over due amount. The parties
hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Lessor will incur by reason of the late payment
by Lessee. Acceptance of such late charges by the Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder.
(K) Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements or understanding pertaining to any such
matters shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest. This Lease shall
not be effective or binding on any party until fully executed by both
parties hereto.
(L) Inability to Perform. This Lease and the obligations of the Lessee
hereunder shall not be affected or impaired because the Lessor is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other cause beyond the reasonable control of the Lessor.
(M) Attorneys' Fees. In the event of any action or proceeding brought by
either party against the other under this Lease the prevailing party shall
be entitled to recover all costs and expenses including the fees of its
attorneys in such action or proceeding in such amount as the court may
adjudge reasonable as attorneys' fees.
(N) Sale of Premises by Lessor. In the event of any sale of the Building,
Lessor shall be and is hereby entirely freed and relieved of all liability
under any and all of its covenants and obligations contained in or after
the consummation of such sale; and the purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without any further
agreement between
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the parties or their successors in interest or between the parties and any
such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Lessor under this Lease.
(O) Subordination, Attornment. Upon request of the Lessor, Lessee will in
writing subordinate its rights hereunder to the lien of any first mortgage,
or first deed of trust to any bank, insurance company or other lending
institution, now or hereafter in force against the land and Building of
which the Premises are a part, and upon any buildings hereafter placed upon
the land of which the Premises are a part, and to all advances made or
hereafter to be made upon the security thereof. In the event any
proceedings are brought for foreclosure, or in the event of the exercise of
the power of sale under any mortgage or deed or trust made by the Lessor
covering the Premises, the Lessee shall attorn to the purchaser upon any
such foreclosure or sale and recognize such purchaser as the Lessor under
this Lease. The provision of this Article to the contrary notwithstanding,
and so long as Lessee is not in default hereunder, this Lease shall remain
in full force and effect for the full term hereof.
(P) Name. Lessee shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as
an address of the business to be conducted by the Lessee in the Premises.
(Q) Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provision shall remain in full force
and effect.
(R) Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(S) Choice of Law. This Lease shall be governed by the laws of the State
in which the Premises are located.
(T) Signs and Auctions. Lessee shall not place any sign upon the Premises
or Building or conduct any auction thereon without Lessor's prior written
consent.
ARTICLE 28
Non-Discrimination
Lessee herein covenants by and for himself, his heirs, executors,
administrators and assigns, and all persons claiming under or through him, and
this Lease is made and accepted upon and subject to the following conditions:
That there shall be no discrimination against or segregation of any person
or group of persons on account of race, color, creed, national origin or
ancestry, in the
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leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the
premises herein leased, nor shall Lessee himself, or any persons claiming under
or through him, establish or permit any such practice or practices of
discrimination or segregation with reference to the selection, location, number,
use or occupancy of Lessees, Lessors, sublessors, sublessees or vendees in the
premises herein leased.
ARTICLE 29
Lessor's Agents
It is understood and agreed that this Lease is executed by Bressie and
Company solely in their capacity as Lessor's agents and said Bressie and Company
shall not be obligated to perform any of the terms, conditions or covenants to
be performed by Lessor herein, nor in any way be liable hereunder.
ARTICLE 30
Brokers
Lessee warrants that it has had no dealings with any real estate broker or
agents in connection with the negotiation of this Lease excepting only None and
it knows of no other real estate broker or agent who is entitled to a commission
in connection with this Lease.
If this Lease has been filled in, it has been prepared for submission to
your attorney for his approval. No representation or recommendation is made by
the real estate broker or its agents or employees as to the legal sufficiency,
legal effect, or tax consequences of this Lease or the transactions relating
thereto.
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THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE AND ON THE DATE
SPECIFIED IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
"LESSOR
500 THIRD STREET ASSOCIATES
c/o Intereal Corporation
520 Third Street, Suite 555
San Francisco, CA 94107
By:____________________________
Title: Agent For Owner Dated: 8/17/99
-------------------------
"LESSEE"
MORE.COM
a Delaware corporation
By: /s/ Donald M. Kendall
-------------------------
Title: CEO Dated 8/16/99
-------------------------
By: _________________________
Title: COO Dated 8/16/99
-------------------------
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Exhibit 10.8
PROFESSIONAL OFFICE BUILDING LEASE
BETWEEN
CHARLES A. SEGALAS
an individual
("Landlord")
and
more.com, inc.
a Delaware corporation
("Tenant")
485 Third Street
San Francisco, California
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. PREMISES AND COMMON AREAS............................................. 3
1.1 Premises.................................................... 3
1.2 Common Areas................................................ 3
(a) Common Areas Defined................................... 3
(b) Tenant's Right to Use Common Areas..................... 3
(c) Landlord's Control and Management...................... 3
2. TERM OF LEASE......................................................... 3
2.1 Term of Lease............................................... 3
2.2 Possession Before Term Commences............................ 4
3. DELIVERY OF POSSESSION................................................ 4
3.1 Delivery of Possession...................................... 4
3.2 Delay in Delivery of Premises............................... 4
4. USE OF PREMISES....................................................... 4
4.1 Permitted Use............................................... 4
4.2 Limitations on Use.......................................... 4
4.3 Compliance with Laws........................................ 5
4.4 Insurance Increases......................................... 5
4.5 Rules and Regulations....................................... 5
5. RENT.................................................................. 6
5.1 Amount of Rent; Payment..................................... 6
5.2 Prepaid Rent................................................ 6
5.3 Security Deposit............................................ 6
5.4 Short First or Last Month................................... 6
(a) Adjustments of Monthly Rent............................ 6
5.5 Late Charge................................................. 7
5.6 Additional Rent............................................. 7
6. BUILDING OPERATING COSTS; UTILITIES................................... 7
6.1 Payment of Building Costs................................... 7
6.2 Definition of Tenant's Share................................ 8
6.3 Definition of Building Costs................................ 8
6.4 Definition of Real Property Taxes........................... 8
6.5 Utilities and Services...................................... 8
6.6 Tenant's Additional Service Requirements.................... 8
6.7 Interruption of Utility Service............................. 9
6.8 Energy Conservation......................................... 9
7. PERSONAL PROPERTY TAXES............................................... 9
7.1 Personal Property Taxes..................................... 9
</TABLE>
i
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<TABLE>
<S> <C>
8. MAINTENANCE AND REPAIR OF THE PREMISES................................. 10
8.1 Tenant's Obligations......................................... 10
8.2 Alterations.................................................. 10
8.3 Mechanics' Liens............................................. 11
9. MAINTENANCE AND REPAIR OF STRUCTURE.................................... 11
9.1 Landlord's Obligations....................................... 11
10. INSURANCE AND INDEMNIFICATION.......................................... 11
10.1 Insurance Required of Tenant................................. 11
(a) Casualty Insurance...................................... 12
(b) Liability Insurance..................................... 12
10.2 Policy Form.................................................. 12
10.3 Subrogation.................................................. 12
10.4 Indemnification.............................................. 12
11. DESTRUCTION; CONDEMNATION.............................................. 13
11.1 Destruction.................................................. 13
11.2 Condemnation................................................. 14
12. DEFAULT; REMEDIES...................................................... 14
12.1 Default...................................................... 14
12.2 Remedies in Default.......................................... 15
13. ASSIGNMENT AND SUBLETTING.............................................. 16
13.1 Definition of Assignment..................................... 16
13.2 No Assignment................................................ 17
13.3 Costs........................................................ 17
13.4 Termination.................................................. 17
13.5 Involuntary Assignment; Attachment; Involuntary Proceedings.. 17
13.6 Consideration to Landlord.................................... 17
14. SALE OF BUILDING....................................................... 18
14.1 Sale of Building............................................. 18
15. LEASE SUBJECT TO SUBORDINATION......................................... 18
15.1 Lease Subject to Subordination............................... 18
16. GENERAL PROVISIONS..................................................... 19
16.1 Signs and Blinds............................................. 19
16.2 Entry........................................................ 19
16.3 Statement of Status.......................................... 19
16.4 Attorneys' Fees.............................................. 19
16.5 Captions..................................................... 19
16.6 Notices...................................................... 19
16.7 Successors................................................... 20
16.8 Joint and Several Obligations of Tenant...................... 20
16.9 Liability of Landlord........................................ 20
</TABLE>
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<TABLE>
<S> <C>
16.10 Independent Covenants........................................ 20
16.11 Waiver....................................................... 20
16.12 Attachments.................................................. 20
16.13 Entire Agreement............................................. 20
16.14 Amendment.................................................... 21
16.15 Severability................................................. 21
16.16 Time of Essence.............................................. 21
16.17 Holding Over................................................. 21
16.18 Broker....................................................... 21
16.19 Parking...................................................... 22
</TABLE>
iii
<PAGE>
PROFESSIONAL OFFICE BUILDING LEASE
THIS LEASE is made and entered into by the Landlord and Tenant named herein
who agree as follows:
FUNDAMENTAL LEASE PROVISIONS. The fundamental provisions of this Lease
are:
<TABLE>
<CAPTION>
Section
<S> <C>
1. Date of Lease: October 29, 1999
2. Landlord: Charles A. Segalas, an individual
3. Tenant: more.com, inc., a Delaware corporation
4. Address and Description of Premises:
(a) the third floor (the "Premises") of 485 Third Street, the building 1.1
commonly known as 485 Third Street, San Francisco, California (the
"Building").
(b) Approximate square footage of Premises: 1,900 square feet 1.1
5. Term:
(a) Duration: Thirty-Six (36) months. 2.1
(b) Commencement Date: November 15, 1999, or the date on which 2.1
Tenant commences business at the Premises, whichever is earlier.
6. Use:
(a) Permitted Use: e-commerce office. 4.1
7. Monthly Rent; Building Costs:
(a) Monthly Rent: 5.1
Month Base Rent
1-12 $5,700.00
13-24 $5,985.00
25-36 $6,284.25
(b) Prepaid Rent: $5,700 plus estimated share of Building Costs of 5.2
$87.09 as first month's rent
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
(c) Security Deposit: $11,400.00 5.3
(d) Initial Estimate of Tenant's Share of Building Costs: $87.09 per 6.1
month
(e) Tenant's portion of Building Costs: 27.43682% 6.2
8. Minimum Liability Insurance Amount: $2,000,000 10.1(b)
Combined Single Limit
9. Addresses for Notice: 18.7
(a) Landlord: 3 Los Conejos, Orinda, CA 94563-2214
(b) Tenant: At the Premises
10. Broker or Finder: Meade N. Boutwell, Cushman Wakefield 18.16
Commission to be paid by: Landlord ($5,700)
11. Exhibits:
Exhibit A - Rules and Regulations
</TABLE>
Each reference in the Lease to any of the Fundamental Lease Provisions
shall be construed to include the provisions set forth above as well as all of
the additional terms and provisions of the applicable sections of the Lease.
The foregoing Fundamental Lease Provisions are hereby approved.
Landlord: Tenant:
CHARLES A. SEGALAS, an individual More.com, inc., a Delaware corporation
_____________________________________ By: _________________________________
Charles A. Segalas
Name: _______________________________
Title: ______________________________
By: _________________________________
Name: _______________________________
Title: ______________________________
2
<PAGE>
1. PREMISES AND COMMON AREAS.
1.1 Premises. Landlord leases to Tenant, and Tenant leases from
Landlord the real property described in Paragraph 4(a) of the Fundamental Lease
Provisions (hereinafter called the "Premises"). The Premises consist of a
portion of the Building described in Paragraph 4(a) of the Fundamental Lease
Provisions, on real property which is owned by Landlord. For purposes of this
Lease, the Premises shall be deemed to contain the number of square feet of
floor area set forth in Paragraph 4(b) of the Fundamental Lease Provisions.
1.2 Common Areas.
(a) Common Areas Defined. The term "Common Areas" means all
areas and facilities outside the Premises and within the exterior boundaries of
the real property that are not leaseable to other tenants and that are provided
and designated by Landlord for the general use and convenience of Tenant and its
authorized representatives and invitees, of other tenants of the Building and
their respective authorized representatives and invitees, and/or of the general
public. Common Areas are areas within and outside of the Building such as,
without limitation, pedestrian walkways, landscaped areas, sidewalks and
entryway, stairways, lobbies, and rear exit staircases.
(b) Tenant's Right to Use Common Areas. Landlord gives to
Tenant and its authorized representatives and invitees the non-exclusive right
to use the Common Areas with others who are entitled to use the Common Areas,
subject to Landlord's rights set forth in Section 1.2(c).
(c) Landlord's Control and Management. Landlord may increase,
reduce, or change in any manner the Common Areas as Landlord shall deem
appropriate. Without limitation, Landlord shall also have the right, from time
to time, to establish and enforce reasonable rules and regulations applicable to
all tenants concerning the maintenance, management, use and operation of the
Common Areas, and to select a person, firm, or entity to maintain and operate
any of the Common Areas and to close temporarily parts of the Common Areas for
maintenance, repair, and renovation purposes. The provisions of this Section
1.2(c) to the contrary notwithstanding, in the exercise of the rights hereunder,
Landlord shall provide reasonable access to and from the Premises, subject to
reasonable rules and regulations and security measures approved by Landlord.
2. TERM OF LEASE.
2.1 Term of Lease. The term of this Lease (the "Term") shall be the
period stated in Paragraph 5(a) of the Fundamental Lease Provisions, commencing
on the Commencement Date set forth in Paragraph 5(b) of the Fundamental Lease
Provisions.
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<PAGE>
2.2 Possession Before Term Commences. If Landlord consents to Tenant
taking possession of the Premises prior to the Commencement Date, then all of
the provisions of this Lease except the payment of Monthly Rent and other
periodic charges shall be applicable and in full force and effect during such
period.
3. DELIVERY OF POSSESSION.
3.1 Delivery of Possession. Landlord shall deliver possession of the
Premises to Tenant on the Commencement Date in their existing condition, except
that the Premises shall be broom clean and free of debris, carpeting cleaned as
necessary in Landlord's reasonable discretion, with touch up painting as
necessary in Landlord's reasonable discretion, and the plumbing, lighting,
heating, ventilating and air conditioning systems, if any, shall be in good
operating condition. Unless otherwise provided, Landlord shall have no
obligation to improve, remodel or otherwise modify the Premises for Tenant's
use.
3.2 Delay in Delivery of Premises. If Landlord is unable to deliver
possession of the Premises to Tenant on or before the Commencement Date,
Landlord shall not be subject to any liability for its failure to do so. Subject
to the termination right set forth below, this failure shall not affect the
validity of this Lease or the obligations of Tenant under it, but the Term shall
commence on the date on which Landlord delivers possession of the Premises to
Tenant. If, for any reason other than a delay caused in whole or in part by
Tenant, the Premises are not delivered to Tenant within three (3) months after
the date set forth in Paragraph 5(b) of the Fundamental Lease Provisions,
Tenant, as its sole right and remedy, shall have the option of terminating this
Lease, without further obligation or liability on the part of either party, by
delivering written notice of termination to Landlord at any time after such date
and before the Premises are delivered. Upon such termination, any deposits
previously made by Tenant shall be promptly returned.
4. USE OF PREMISES.
4.1 Permitted Use. Subject to the provisions of Section 4.2, Tenant
shall use and occupy the Premises solely for the purpose set forth in Paragraph
6(a) of the Fundamental Lease Provisions, and for no other use or purpose.
4.2 Limitations on Use. Tenant shall not use the Premises for or
carry on or permit in or upon the Premises, or any part thereof, any offensive,
noisy, or dangerous trade, business, manufacture or occupation, or any nuisance,
or anything against public policy, or interfere with the business of owners or
occupants of adjacent properties, or other tenants in the Building, as the case
may be. Tenant agrees not to cause, permit or suffer any waste or damage,
disfigurement or injury to the Premises, to the fixtures or equipment therein,
or to the Common Areas, nor to permit or suffer any overloading of the floor of
the Premises and/or other parts of the Building. Tenant shall not install,
operate or maintain in the Premises any electrical equipment which does not bear
the Underwriters Laboratory approval, or which equipment would, in the
reasonable
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opinion of Landlord, overload any portion of the electrical system which serves
the Building.
4.3 Compliance with Laws. Tenant shall, at its sole cost and
expense, promptly comply with all local, state or federal laws, statutes,
ordinances and governmental rules, regulations or requirements now in force or
which may hereafter be in force (collectively, "Laws") with respect to the use,
operation and condition of the Premises, including, without limitation, any Laws
regarding or requiring alterations to the Premises and any Laws relating to the
storage, use and/or disposal of Hazardous Materials. "Hazardous Materials" as
used herein shall mean any hazardous or toxic substance, material, chemical or
waste which is now or may subsequently during the term hereof be defined as such
by, or which is now or may subsequently during the term hereof be regulated by,
any governmental or quasi-governmental law, ordinance, rule or regulation. The
judgment of any court of competent jurisdiction or the admission of Tenant in
any action against Tenant, whether Landlord is a party to it or not, that Tenant
has violated any Law will be conclusive of that fact as between Landlord and
Tenant. Tenant's obligations under this paragraph shall include, without
limitation, any alterations to the Premises that may be required under the
Americans with Disabilities Act as a result of Tenant's alterations or
improvements to the Premises, but shall not include seismic or other alterations
or improvements that are not required as a result of Tenant's specific and
unique use of the Premises.
4.4 Insurance Increases. If the rate of any insurance carried by
Landlord is increased as a result of Tenant's use of the Premises or the cost,
value or nature of Tenant's improvements, equipment or personal property located
in the Premises, Tenant shall pay to Landlord, upon request and at least fifteen
(15) days before the date Landlord is obligated to pay a premium on such
insurance and in addition to all other amounts payable hereunder, a sum equal to
the difference between the increased premium and what the premium would
otherwise have been, as reasonably determined by Landlord's insurer.
4.5 Rules and Regulations. Tenant's use of the Premises and the
Common Areas shall be subject at all times prior to and during the term of the
Lease to the rules and regulations from time to time promulgated by Landlord.
The current rules and regulations are set forth in Exhibit A attached to this
Lease. Landlord reserves the right at any time to change or rescind any one or
more of these rules and regulations or to make any additional rules and
regulations that, in Landlord's judgment, may be necessary for: (a) the
management, safety, care, and cleanliness of the Premises, Building, and real
property; (b) the preservation of good order; or (c) the convenience of other
occupants and tenants in the Premises and Building. Such rules and regulations
shall become effective and a part of this Lease when a copy of same has been
delivered to Tenant. The failure of another tenant to comply with such rules and
regulations will neither excuse Tenant's obligation to comply with such rules
and regulations or any other obligation of Tenant under this Lease nor cause
Landlord to be liable to Tenant for any damage resulting to Tenant. Tenant shall
cause Tenant's employees, invitees and authorized representatives to comply with
such rules and regulations.
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5. RENT.
5.1 Amount of Rent; Payment. Beginning on the Commencement Date,
Tenant shall pay monthly rent in the amount set forth in Paragraph 7(a) of the
Fundamental Lease Provisions (the "Monthly Rent"). The Monthly Rent shall be
subject to adjustment in accordance with Section 5.5. Monthly Rent shall be paid
on the first day of each calendar month of the Lease term, without deduction,
offset, prior notice or demand, and shall be mailed or paid in person at the
address designated in writing by Landlord from time to time.
5.2 Prepaid Rent. Upon execution of this Lease, Tenant shall pay to
Landlord the amount of prepaid rent set forth in Paragraph 7(b) of the
Fundamental lease Provisions, which prepaid rent shall be applied by Landlord as
provided in such paragraph.
5.3 Security Deposit. Upon execution of this Lease, Tenant shall pay
to Landlord a security deposit in the amount set forth in Paragraph 7(c) of the
Fundamental Lease Provisions. Such sum shall be held by Landlord as security for
the faithful performance by Tenant of all the terms, covenants, and conditions
of this Lease to be kept and performed by Tenant during the term hereof. If
Tenant defaults with respect to any provision of this Lease, including, without
limitation, the provisions relating to the payment of rent, Landlord may (but
shall not be required to) use, apply or retain all or any part of the security
deposit to the payment of any rent in default, or for the payment of any amount
which Landlord may spend or become obligated to spend by reason of Tenant's
default, or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default. If any portion of the security deposit
is so used or applied, Tenant shall, within five (5) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
security deposit to its original amount and Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
security deposit separate from its general funds, and shall not be deemed a
trustee of the security deposit. Tenant shall not be entitled to interest on
such deposit. If Tenant shall fully and faithfully perform every provision of
this Lease to be performed by it, the security deposit or any balance thereof
shall be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Lease term. In the event
of termination of Landlord's interest in this Lease, Landlord shall transfer any
remaining balance of such deposit to Landlord's successor in interest.
5.4 Short First or Last Month. If the term of this Lease begins or
ends on a date other than the first or last day of the calendar month,
respectively, then Tenant's Monthly Rent for that month shall be reduced
proportionately on the basis of a 30-day month.
(a) Adjustments of Monthly Rent. If the date of any increase in
Monthly Rent falls on other than the first day of a calendar month, the increase
in Monthly Rent for such month shall be prorated on the basis of a 30-day month.
If the amount of the increase for any month, or part of a month, is not known
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when Tenant pays its rent for such month, Tenant shall promptly pay Landlord the
amount of the increase when such amount has been determined. Landlord shall
promptly notify Tenant of any increase in Monthly Rent pursuant to this Section
5.5.
5.5 Late Charge. Tenant acknowledges that late payment by Tenant to
Landlord of rent will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges and late charges that may be imposed on Landlord by the terms
any encumbrance or note secured by any encumbrance covering the Premises.
Therefore, if any installment of rent due from Tenant is not received by
Landlord within ten (10) days of the day it is due, Tenant shall pay to Landlord
an additional sum of ten percent (10%) of the overdue rent as a late charge. The
parties agree that this late charge represents a fair and reasonable estimate of
the costs that Landlord will incur and losses Landlord will suffer by reason of
late payment by Tenant. Acceptance of any late charge shall not constitute a
waiver of Tenant's default with respect to the overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies available to
Landlord.
5.6 Additional Rent. Unless otherwise provided, the terms "rent" and
"rental" as used in this Lease shall be deemed to mean Monthly Rent, adjustments
to Monthly Rent, Building Costs and any and all other sums, however designated,
required to be paid by Tenant under this Lease, whether payable to Landlord or
third parties.
6. BUILDING OPERATING COSTS; UTILITIES.
6.1 Payment of Building Costs. From and after the Commencement Date,
Tenant shall pay to Landlord Tenant's Share of Building Costs, as defined below.
Tenant's Share of Building Costs for each calendar year shall be paid in monthly
installments on the first day of each calendar month, in advance, in an amount
estimated by Landlord from time to time. It is initially estimated that Tenant's
Share of Building Costs will be the amount set forth in Paragraph 7(d) of the
Fundamental Lease Provisions. Within forty-five (45) days after the end of each
calendar year Landlord shall furnish to Tenant a statement prepared, signed and
certified to be correct by Landlord showing the total Building Costs for the
calendar year just ended and the actual amount of Tenant's Share of Building
Costs for such period. If the total amount paid by Tenant under this Section for
such year shall be less than the actual amount due from Tenant for such year as
shown on the statement, Tenant shall pay to Landlord the difference between the
amount paid by Tenant and the actual amount due, such deficiency to be paid with
ten (10) days after the furnishing of such statement. If the total amount paid
by Tenant hereunder for any such year shall exceed the actual amount due from
Tenant for such year, the excess shall be credited against the next installment
due from Tenant to Landlord under this Section. Landlord may estimate the annual
budget and charge the same to Tenant on a monthly basis subject to revision by
Landlord of the budget from time to time and final annual adjustment based upon
actual costs and expenses.
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6.2 Definition of Tenant's Share. The term "Tenant's Share" means
that portion of Building Costs determined by multiplying the total Building
Costs by a fraction, the numerator of which is the square footage of the
Premises and the denominator of which is the average total rentable square
footage in the Building (as stated in Paragraph 7(e) of the Fundamental Lease
Provisions). Tenant's Share of Building Costs for any partial calendar year at
the beginning or end of the term shall be prorated on the basis of a 365-day
year.
6.3 Definition of Building Costs. For purposes of this Lease,
"Building Costs" shall mean all costs of insurance related to the Building
(including premiums and deductible amounts) and Real Property Taxes (as defined
in Section 6.4).
6.4 Definition of Real Property Taxes. The term "Real Property
Taxes" shall mean and include all taxes, assessments, and other governmental
charges, general and special, ordinary and extraordinary, of any kind and nature
whatsoever, including, but not limited to, assessments for public improvements
or benefits, which shall during the term hereof be assessed, levied, and imposed
upon the Building, Common Areas and underlying land; except any increase in Real
Property Taxes occurring solely as a result of a change in ownership of the
Building or the underlying land shall not be included. Real Property Taxes shall
also include, without limitation, any tax, fee, or excise levied, assessed
and/or based on rent or gross receipts; on the square footage of the Premises,
of the Building, or of the Common Areas; on the act of entering into leases
affecting the Building; and/or on the occupancy of any tenant of the Building;
and any other tax, fee, or excise, however described, in substitution for or in
addition to taxes applicable to the Premises, including without limitation, a
so-called value added tax; provided, however, Tenant shall not be required to
pay any municipal, county, state or federal income or franchise taxes of
Landlord. With respect to any assessment which may be levied against or upon the
Building or underlying land and which under the laws then in force may be
evidenced by improvement or other bonds, or may be paid in annual installments,
there shall be included within the definition of "Real Property Taxes" with
respect to any tax fiscal year, only the current annual installment for such tax
fiscal year.
6.5 Utilities and Services. Tenant shall contract with service
providers for telephone, electric, gas, sewer and water service and for trash
removal for the Premises and shall directly pay all costs associated with such
services. Landlord shall have no responsibility or liability with respect to
such services.
6.6 Tenant's Additional Service Requirements. Tenant will not,
without Landlord's prior consent, do the following:
(i) Install or use special lighting beyond Building
standard, or any equipment, machinery, or device in the Premises which requires
a nominal voltage of more than one hundred twenty (120) volts single phase, or
which in Landlord's reasonable opinion exceeds the capacity of existing feeders,
conductors, risers, or wiring in or to the Premises or Building, or which
requires amounts of water or their utilities in excess of that usually furnished
or supplied for use in office space, or
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which will decrease the amount of pressure of water or the amperage or voltage
of electricity Landlord can furnish to other occupants of the Building;
(ii) Install or use any heat or cold generating equipment,
machinery or device which affects the temperature otherwise maintainable by the
heat and air conditioning system, if any, of the Building;
(iii) Use portions of the Premises for special purposes
requiring greater or more difficult cleaning work than office areas, such as,
but not limited to, kitchens, reproduction rooms, interior glass partitions, and
non-Building standard materials or finishes; or
(iv) Accumulate refuse or rubbish either in excess of that
ordinarily accumulated in professional office occupancy or at times other than
Building standard cleaning times.
6.7 Interruption of Utility Service. Landlord reserves the right,
without any liability to Tenant and without affecting Tenant's obligations under
this Lease, to stop or interrupt or reduce any utility services whenever and for
so long as may be necessary, by reason of (i) accidents or emergencies, (ii) the
making of repairs or changes which Landlord in good faith deems necessary or is
required or is permitted by this Lease or by law to make, (iii) difficulty in
securing proper supplies of fuel, water, electricity, labor or supplies, or (iv)
the compliance by Landlord with governmental, quasi-governmental or utility
company energy conservation measures. No interruption or stoppage of any of such
services will be construed as an eviction of Tenant nor will such interruption
or stoppage cause any abatement of the rent payable under this Lease or in any
manner relieve Tenant of any of Tenant's obligations under this Lease. Landlord
will not be liable for any interruption or stoppage of any of such services or
for any damage to persons or property resulting from such stoppage.
6.8 Energy Conservation. Tenant shall cooperate fully with Landlord
to effect energy conservation in the Building and shall use its best efforts to
minimize its use of energy (including, without limitation, electricity) and
water throughout the term.
7. PERSONAL PROPERTY TAXES.
7.1 Personal Property Taxes. Tenant shall pay before delinquency all
taxes, assessments, license fees, and other charges that are levied and assessed
on Tenant's equipment, furnishings, personal property, alterations, tenant
improvements made after the commencement of the term, and/or Tenant's trade
fixtures. On demand by Landlord, Tenant shall furnish Landlord with satisfactory
evidence of these payments. Tenant shall also furnish Landlord with cost
breakdowns relating to any tenant improvements, trade fixtures and alterations
relating to the Premises made by Tenant.
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If any such taxes are levied against the Building, or if the assessed value
of the Building is increased by the inclusion of a value placed on Tenant's
equipment, furnishings, personal property, alterations, tenant improvements
and/or Tenant's trade fixtures, Tenant, on demand, shall immediately reimburse
Landlord for the sum of the taxes levied against the Building, or the portion of
the taxes resulting from the increase in Landlord's assessment, as reasonably
determined by Landlord. Landlord shall have the right to pay these taxes
regardless of the validity of the levy. In addition, Tenant shall pay any tax,
fee, excise or business license tax based on the operation of and/or revenues
received from Tenant's business in the Premises.
8. MAINTENANCE AND REPAIR OF THE PREMISES.
8.1 Tenant's Obligations. Subject to the provisions of Section 11,
Tenant shall, at Tenant's sole cost and expense, maintain and keep the Premises
and every part thereof in good and safe condition and repair, including
necessary replacements and regular janitorial services. Tenant shall, upon the
expiration or earlier termination of this Lease, surrender the Premises to
Landlord in good condition, ordinary wear and tear excepted. In addition, Tenant
shall be responsible for all cleaning, maintenance and repairs to the Premises
and for the cleaning and maintaining of the exterior entryway, staircase and
sidewalk in front of the entryway so as to keep all such areas in good and safe
condition. Tenant shall also be responsible for necessary repairs to any kitchen
appliances in the Premises. At all times during the Term, Tenant shall provide
and maintain area rugs acceptable to Landlord in the Premises so as to protect
the finished wood flooring. If the Premises are served by air conditioning,
Tenant at its expense shall cause the filters to be changed on a monthly basis
in accordance with manufacturer's recommendations and, on request, shall provide
Landlord with evidence of such filter changes. Unless otherwise specifically
provided in this Lease, Landlord shall have no obligation whatsoever to alter,
remodel, improve, replace, repair, decorate or paint the Premises or any part
thereof and the parties hereto affirm that Landlord has made no representations
to Tenant respecting the condition of the Premises or the Building except as
specifically set forth in this Lease.
8.2 Alterations. Tenant shall not alter, repair or change the
Premises without the written consent of Landlord. All alterations, improvements
and changes shall become the property of Landlord upon the surrender of the
Premises. Provided Landlord notifies Tenant of such requirement at the time
Landlord approves the alterations or additions, Landlord shall have the right to
require Tenant, upon surrender, to remove any alterations or additions made by
Tenant, and Tenant shall, at Tenant's cost, repair any damage to the Premises
caused by this or any other removal. Any alterations or improvements shall be
made by a licensed contractor approved by Landlord in accordance with plans and
specifications approved by Landlord. Together with Tenant's request for approval
of proposed alterations or improvements, Tenant shall submit the names and
addresses of proposed contractor(s), financial and other pertinent information
about such contractor(s) (including, without limitation, the labor organization
affiliation or lack of affiliation of such contractor(s), certificates of
insurance to be maintained by Tenant's contractor(s), hours of construction,
proposed construction methods, evidence of security (such as payment and
performance bonds) to assure timely
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completion of the work by the contractor and payment of all costs of the work).
All alterations and improvements shall be completed with due diligence, in a
first class, workmanlike manner and in compliance with the plans and
specifications and all applicable Laws. The alterations shall be performed in a
manner that will not interfere with the quiet enjoyment of the other tenants in
the Building. Tenant acknowledges and agrees that Landlord has made no
representation or warranty regarding the tenantability, habitability or
condition of the Premises. Tenant hereby waives any right to make repairs at
Landlord's expense including without limitation any rights granted under
California Civil Code Sections 1941 and 1942.
8.3 Mechanics' Liens. Tenant shall not allow any mechanics' or
materialmen's liens to be filed against Landlord's interest in the Premises, the
Building, the Common Areas, or underlying land. Tenant shall give Landlord at
least ten (10) days' advance written notice of any alterations and Landlord
shall have the right to post any notices which it deems necessary for protection
from such liens. If such liens are filed, Landlord may pay or satisfy them, and
any sums so paid shall constitute additional rent immediately due and payable by
Tenant. Tenant may in good faith and at Tenant's own expense contest the
validity of any such asserted lien, provided that Tenant has furnished the bond
required in California Civil Code Section 3143, or any successor statute.
9. MAINTENANCE AND REPAIR OF STRUCTURE.
9.1 Landlord's Obligations. Notwithstanding the provisions of Section
8.1, Landlord shall repair and maintain the roof, structural walls, foundations,
subfloors, exterior walls, and other structural portions of the Building,
including the basic common plumbing, air conditioning (if any), heating, and
electrical systems installed or furnished by Landlord, unless such maintenance
and repairs are caused in part or in whole by the act, neglect, fault or
omission of any duty by Tenant, its agents, servants, employees or invitees, in
which case Tenant shall pay to Landlord the reasonable costs of such maintenance
and repairs. Landlord shall not be liable for any failure to make any such
repairs or to perform any maintenance unless such failure shall persist for an
unreasonable time, not less than thirty (30) days, after written notice of the
need for such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Section 11, there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the Building or the Premises or in or to fixtures, appurtenances and
equipment therein. Tenant waives the right to make repairs at Landlord's expense
under any law, statute or ordinance now or hereafter in effect.
10. INSURANCE AND INDEMNIFICATION.
10.1 Insurance Required of Tenant. Tenant shall, at Tenant's sole cost
and expense, maintain in full force and effect at all times during the term and
during any pre-term occupancy period, the insurance coverages set forth in this
Section.
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(a) Casualty Insurance. Broad form property damage in an amount not
less than full replacement cost, covering Tenant's equipment, fixtures,
furnishings and other personal property located in the Premises. Such policy or
policies of insurance shall name both Landlord as an additional insured and
Tenant as insureds. Landlord and Tenant agree that the proceeds from any such
policy or policies shall be used for the repair or replacement of the property
so covered.
(b) Liability Insurance. Commercial general liability insurance which
is to include, without limitation, products liability coverage, with such limits
as may reasonably be required by Landlord from time to time but not less than
the amounts stated in Paragraph 8 of the Fundamental Lease Provisions, for
bodily injury or death to any one person, injury and/or death to any number of
persons in any one incident, and for property damage in any one occurrence. Such
policy or policies shall name Landlord as an additional insured. Such liability
insurance shall specifically insure the hold harmless and indemnity provisions
of Section 10.4, and shall contain a provision that Landlord, although an
additional insured, shall nevertheless be entitled to recover under such policy
or policies for any damage to Landlord or its agents or representatives by
reason of acts or omissions of Tenant.
10.2 Policy Form. All insurance required of Tenant shall be in form and
written by one or more insurance companies reasonably satisfactory to Landlord
and licensed to do business in the State of California. All such insurance may
be carried under a blanket policy covering the Premises and other locations,
provided that the coverage afforded Landlord by such blanket policy shall not be
reduced or diminished by reason of the use of such blanket policy of insurance,
and provided further that the requirements of Section 10.1 are otherwise
satisfied. All such insurance shall contain endorsements that (i) such insurance
shall not be canceled or amended except upon thirty (30) days' prior notice to
Landlord by the insurance company, (ii) Tenant shall be solely responsible for
payment of premiums, and (iii) Tenant's insurance is primary in the event of
overlapping coverage which may be carried by Landlord. The minimum limits of the
commercial general liability insurance policy required by Section 10.1(b) shall
in no way limit or diminish Tenant's liability under this Lease. Tenant shall
deliver to Landlord at least fifteen (15) days prior to the time such insurance
is first required to be carried by Tenant and thereafter at least fifteen (15)
days prior to the expiration of such policy, either a duplicate original or a
certificate clearly showing compliance by Tenant with Tenant's obligations under
this Lease, together with evidence satisfactory to Landlord of the payment of
the premiums therefor.
10.3 Subrogation. Landlord and Tenant hereby mutually waive their
respective rights of recovery against each other for any loss insured by
property insurance policies existing for the benefit of the respective parties.
Each party shall obtain a special endorsement, if required by its insurer, to
evidence compliance with the aforementioned waiver.
10.4 Indemnification. Tenant shall indemnify, protect, defend and hold
Landlord harmless from all liabilities, claims, costs, expenses and damages
arising out of or in connection with (i) any damage to person or property in or
about the
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Premises, the Building and/or the Common Areas which is caused by the acts or
omissions of Tenant, its agents, employees or representatives and/or (ii) any
act or omission of Tenant, its agents, employees or representatives, which
constitutes a breach of any obligation of Tenant under this Lease. Landlord
shall not be liable to Tenant for any damage to Tenant or Tenant's property from
any cause, and Tenant waives all claims against Landlord for damage to person or
property arising from any reason, except that Landlord shall be liable to Tenant
for damage to Tenant resulting from the gross negligence of Landlord or its
authorized representatives.
11. DESTRUCTION; CONDEMNATION.
11.1 Destruction. In the event the Premises or the Building are
damaged by fire or other perils covered by insurance then in effect, Landlord
agrees to repair such damage and this Lease shall remain in full force and
effect, except that Tenant shall be entitled to a proportionate reduction of
Monthly Rent while such repairs are being made, such proportionate reduction to
be based upon the extent to which the damage and/or the making of such repairs
materially interferes with the business carried on by Tenant in the Premises.
Provided, however, if the damage is due to the fault or neglect of Tenant or its
employees, agents or invitees, there shall be no abatement of rent.
In the event the Premises or the Building are damaged as a result of any
cause other than the perils covered by insurance then in effect, then Landlord
shall forthwith repair the same provided the extent of the destruction is less
than five percent (5%) of the then full replacement cost of the Premises or the
Building, as the case may be. In the event the destruction of the Premises or
the Building is to an extent greater than five percent (5%) of the full
replacement cost, then Landlord shall have the election to: (i) repair or
restore such damage, this Lease continuing in full force and effect, but the
Monthly Rent to be proportionately reduced as provided above; or (ii) give
notice to Tenant at any time within sixty (60) days after such damage
terminating this Lease as of the date specified in such notice, which date shall
be no less than thirty (30) and no more than sixty (60) days after the giving of
such notice. In the event of giving such notice, this Lease shall terminate and
all interest of Tenant in the Premises shall terminate on the date so specified
in such notice. Monthly Rent, reduced by a proportionate amount based upon the
extent, if any, to which such damage materially interferes with the business
carried on by Tenant in the Premises, shall be paid up to the date of such
termination.
The provisions of this Section to the contrary notwithstanding: (i)
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Section occurs during the last six (6) months of the term of this Lease or
any extension thereof, and (ii) Landlord's obligation to repair and/or
reconstruct the Premises shall not exceed Landlord's original construction
obligations under this Lease, if any, which original construction obligations
shall be deemed to exclude any construction done by Landlord on Tenant's behalf
and at Tenant's cost. If existing laws do not permit the Premises to be
restored to substantially the same condition as they were in immediately before
destruction, either party can terminate this Lease by giving written notice to
the other party within thirty (30) days after such destruction.
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Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any equipment, fixtures,
furnishings or personal property of Tenant or any tenant improvements installed
in the Premises by Tenant, all of which shall be Tenant's obligation to restore.
Tenant shall not be entitled to any compensation or damages from Landlord
for loss of the use of the whole or any part of the Premises or Tenant's
personal property, or for any inconvenience or annoyance occasioned by such
damage, repair, reconstruction or restoration.
The provisions of California Civil Code Sections 1932(2) and 1933(4), and
any successor statutes, shall be inapplicable with respect to any destruction of
the Building or the Premises.
11.2 Condemnation. If the Premises are condemned and taken by any
governmental authority or if such portion of the Building, Common Areas and/or
underlying land is condemned and taken so that the Premises can no longer
reasonably be used for the purpose allowed in this Lease, either party shall
have the right to terminate this Lease and all condemnation awards shall be
payable to Landlord, except for any award made to Tenant for the taking of
personal property or fixtures belonging to Tenant, for the interruption of or
damage of Tenant's business, or for Tenant's unamortized cost of leasehold
improvements paid for by Tenant and which Tenant has the right to remove. Each
party waives the provisions of California Code of Civil Procedure Section
1265.130, and any successor statute, allowing either party to petition the
Superior Court to terminate this Lease in the event of condemnation.
12. DEFAULT; REMEDIES.
12.1 Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant;
(b) The failure by Tenant to make any payment of rent when due, where
such failure continues for a period of five (5) days after written notice
thereof by Landlord to Tenant;
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than the payment of money, where such failure shall continue for a period
of thirty (30) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that more than
30 days are reasonably required for its cure, then Tenant shall not be deemed to
be in default if Tenant commences such cure within such 30-day period and
thereafter diligently prosecutes such cure to completion;
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors, or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt, or a petition of reorganization
or
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arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days), or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease where possession is not restored to Tenant within thirty (30) days, or the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days;
(e) An assignment or subletting, or a purported assignment or
subletting, in violation of Section 13; or
(f) If Tenant, any of Tenant's owners or any entity in which Tenant
has an ownership interest is a partner in the partnership entity which
constitutes Landlord, a failure by such partner to perform any obligation or
duty it may have as a partner in such partnership.
The notices required under this Section 12.1 are the only notices required
to be given by Landlord to Tenant in the event of Tenant's default and are not
in addition to any statutory notices otherwise required by the unlawful detainer
statutes of California.
12.2 Remedies in Default. In the event of any such default or breach by
Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, without limitation: (i) the
cost of recovering possession of the Premises; (ii) expenses of reletting,
including necessary renovation and alteration of the Premises; (iii) the worth
at the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such award
exceeds the amount of such rental loss for the same period that Tenant proves
could be reasonably avoided; (iv) that portion of any leasing commission paid by
Landlord and applicable to the unexpired term of this Lease; and (v) any other
amounts allowed by law. Unpaid installments of rent or other sums shall bear
interest from the date due at the maximum rate allowed by law from time to time.
In the event Tenant shall have abandoned the Premises, Landlord shall have the
option of (1) taking possession of the Premises and recovering from Tenant the
amount specified in this paragraph, or (2) proceeding under the following
provisions of this Section.
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due or to relet the
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Premises or any part thereof for such term and on such provisions as Landlord,
in its sole discretion, may deem advisable.
(c) Re-enter the Premises, with or without terminating this Lease,
and remove all property and persons therefrom, which property may be stored at a
public warehouse or elsewhere at Tenant's cost.
(d) After ten (10) days' notice to Tenant, or a shorter period if
additional damage may result, cure the default for the account and at the
expense of Tenant, which amount shall be due from Tenant to Landlord immediately
upon demand.
(e) Pursue any other remedy now or hereafter available to Landlord
under the laws of the State of California.
13. ASSIGNMENT AND SUBLETTING.
13.1 Definition of Assignment. The use of the words "assignment,"
"assign," "assigned," "subletting," or "sublet," or any derivation thereof, in
this Section 13 shall include:
(a) The pledging, mortgaging or encumbering of Tenant's interest
in this Lease, or the Premises or any part thereof;
(b) The total or partial occupation of all or any part of the
Premises by any person, firm, partnership, or corporation, or any groups of
persons, firms, partnerships, or corporations, or any combination thereof, other
than Tenant;
(c) An assignment or transfer by operation of law;
(d) If Tenant is a partnership or limited liability company
("LLC"), a withdrawal or change, voluntary, involuntary, or by operation of law,
of the partner or partners (or member(s) in the case of an LLC) owning a
majority of the partnership or LLC interest as of the date of this Lease, or the
dissolution of the partnership or LLC; provided, however, that the transfer of a
partnership or LLC interest by testacy or intestacy shall not be deemed an
assignment prohibited by this Section;
(e) If Tenant consists of more than one person, a purported
assignment, voluntary, involuntary, or by operation of law, from a majority of
such persons to the others;
(f) If Tenant is a corporation, any dissolution, merger,
consolidation, or other reorganization of the corporation, or the sale or other
transfer of a controlling voting interest, direct or indirect, of the corporate
stock of Tenant, or the sale of 51% of the value of the assets of the
corporation; provided, however, the transfer of a controlling voting interest of
the corporate stock of Tenant by testacy or intestacy shall not be deemed an
assignment prohibited by this Section.
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13.2 No Assignment. Tenant shall not voluntarily assign or
encumber all or any portion of its interest in this Lease or in the Premises, or
sublease (except as provided in the following sentence) all or any part of the
Premises, or allow any other person or entity (except Tenant's authorized
representatives) to occupy or use all or any part of the Premises. The preceding
sentence notwithstanding, Tenant shall have the limited night to sublease all or
a portion of the Premises, subject to the following conditions: (i) Tenant shall
obtain Landlord's prior written approval of the proposed sublessee (which
approval Landlord shall not unreasonably withhold) and (ii) the sublease
document shall be subject to Landlord's prior written approval and shall be
prepared by Landlord's counsel at Tenant's expense. Any assignment, encumbrance,
or sublease made without Landlord's consent shall be voidable and, at Landlord's
election, shall constitute a default. No consent to any assignment, encumbrance,
or sublease shall constitute a waiver of the provisions of this Section.
13.3 Costs. In the event Tenant requests Landlord to consent to a
proposed assignment, subletting or encumbrance, Tenant shall pay to Landlord, on
demand, whether or not such consent is ultimately given, Landlord's reasonable,
administrative costs and attorneys' fees incurred in connection with each such
request, including without limitation, attorneys' fees for preparing and
negotiation any sublease as provided in Section 13.2.
13.4 Termination. At the option of Landlord, if this Lease is
terminated for any reason Landlord will either (i) terminate all subleases, or
(ii) treat all subleases as being assigned to Landlord, in which case the
sublessees will attorn directly to Landlord.
13.5 Involuntary Assignment; Attachment; Involuntary Proceedings.
If an involuntary assignment occurs, Landlord shall have the election to
terminate this Lease and this Lease shall not be treated as an asset of Tenant,
and Tenant shall have no further rights under this Lease. If an attachment or
execution is levied against Tenant, Tenant shall have thirty (30) days in which
to cause the attachment or execution to be removed. If any involuntary
proceedings in bankruptcy are brought against Tenant, or if a receiver is
appointed, Tenant shall have thirty (30) days in which to have the involuntary
proceeding dismissed or the receiver removed.
13.6 Consideration to Landlord. Without in any way limiting the
prohibitions under Section 13.2 above, if Landlord agrees to consent to an
assignment or sublease, (i) Tenant shall pay Landlord seventy-five percent (75%)
of the consideration received by Tenant attributable to the assignment of
Tenant's interest in this Lease and (ii) Tenant shall pay to Landlord from time
to time, immediately after Tenant's receipt thereof, seventy-five percent (75%)
of all rent or other consideration Tenant receives from such subtenant in excess
of the rent payable under this Lease, as appropriately prorated with respect to
a sublease of a portion of the Premises. In making the calculations provided for
this Section, the consideration paid to Tenant shall first be reduced by
Tenant's expenses associated with an assignment or sublease, including without
limitation, brokerage fees, remodeling costs, attorneys' fees or other fees
charged by Landlord.
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14. SALE OF BUILDING.
14.1 Sale of Building. If Landlord sells or transfers its
interest in the Building, Landlord shall deliver or credit any security deposit
to Landlord's successor in interest and thereupon be relieved of further
responsibility with respect to the Security Deposit. In the event of any sale or
transfer of the Building, Landlord shall be and is hereby entirely released and
relieved of all liability under this Lease arising out of any act, occurrence or
omission occurring after the consummation of such sale, and the purchaser at
such sale or any subsequent sale of the Building shall be deemed, without any
further agreement between the parties or their successors in interest or between
the parties and any such purchaser, to have assumed and agreed to carry out any
and all of the covenants and obligations of Landlord under this Lease. Tenant
shall, upon request of any person or party succeeding to the interest of
Landlord, attorn to such successor in interest and recognize such successor in
interest as Landlord under this Lease.
15. LEASE SUBJECT TO SUBORDINATION.
15.1 Lease Subject to Subordination. This Lease is and shall be
subject and subordinate to all ground or underlying leases which now exist or
may hereafter be executed affecting the Building, to any underlying covenants,
conditions and restrictions, and to the lien and provisions of any mortgage or
deeds of trust now or hereafter placed against the Building or against
Landlord's interest or estate in the Building or on or against any ground or
underlying lease, and any renewals, modifications, consolidations and extensions
of such lease(s), any covenants, conditions and restrictions, and any mortgages
and deeds of trust without the necessity of the execution and delivery of any
further instruments on the part of Tenant to effect such subordination. If any
mortgagee, beneficiary, trustee or ground lessor elects to have this Lease prior
to the lien of such mortgagee's, beneficiary's, trustee's or ground lessor's
mortgage or deed of trust or ground lease, and gives notice of such election to
Tenant, this Lease shall be deemed prior to the lien of such mortgage or deed or
trust or ground lease, whether this Lease is dated prior or subsequent to the
date of such mortgage, deed of trust, or the date of the recording thereof.
Tenant shall execute and deliver within ten (10) days of request from Landlord,
without charge, such further instruments evidencing the subordination of this
Lease to any ground or underlying lease, any covenants, conditions and
restrictions, and any mortgage or deed of trust; provided, such instrument shall
provide that as long as Tenant is not in default of this Lease, Tenant's
possession of the Premises shall not be affected by any foreclosure proceedings
or ground lease termination. In the event any proceedings are brought for
default under any ground or underlying lease or under any covenants, conditions
and restrictions, or in the event of foreclosure or the exercise of the power of
sale under any mortgage or deed of trust against the Premises, Tenant shall,
upon request of any person or party succeeding to the interest of Landlord as a
result of such proceedings, attorn to such successor in interest and recognize
such successor in interest as Landlord under this Lease.
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16. GENERAL PROVISIONS.
16.1 Signs and Blinds. The parties recognize that Landlord shall
maintain uniform signage, directory, and blind systems for the Building.
Accordingly, Tenant agrees not to place any signs or other marking upon any
externally visible parts of the Premises or remove or replace the window blinds
without Landlord's written consent. Landlord shall have the right to remove any
signs, advertisements, displays, or similar items, without notice to Tenant.
Landlord shall have the exclusive right to the use of the roof, exterior walls
of the Building, and the airspace above the roof. Landlord has the exclusive
right to erect and maintain signs and shall have access thereto. All revenue
arising from such signs shall be solely and exclusively that of Landlord, and
Tenant shall have no right or claim thereto. Except with the express prior
written consent of Landlord, no advertising medium shall be utilized by Tenant
which can be heard or seen outside the Premises including, without limitation,
any signs, searchlights, loudspeakers, phonographs, radio, television, or
musical instruments.
16.2 Entry. Tenant shall permit Landlord and its agents to enter
the Premises at all reasonable times for the purpose of inspecting the Premises,
or for the purpose of maintaining the Building or making repairs or alterations
to any other portion of the Building. Landlord may erect scaffolding or other
equipment reasonably required for such work, and may post notices of
nonresponsibility. Landlord shall give Tenant reasonable notice before entering
the Premises, except that notice shall not be required in the case of emergency.
Landlord's rights under this Section extend to the owner of the adjacent
property on which excavation or construction is to take place and to the
representatives, agents and contractors of such adjacent property owner.
16.3 Statement of Status. Upon request by Landlord, Tenant agrees
to execute and return within ten (10) days of request a customary and reasonable
statement of status of its tenancy and estoppel certificate.
16.4 Attorneys' Fees. In the event that either party to this
Lease commences any action or proceeding against the other by reason of any
breach or alleged breach of any term or condition of this Lease, or for the
interpretation of this Lease, the prevailing party in such an action or
proceeding shall be entitled to recover such amount as the court may judge to be
reasonable attorneys' fees, and all reasonable costs incurred.
16.5 Captions. The captions of articles and paragraphs of this
Lease are for reference only, and shall not be construed in any way as a part of
this Lease.
16.6 Notices. Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by prepaid, certified or registered mail, return receipt requested, and
shall be addressed to the other party at the address set forth in Paragraph 9 of
the Fundamental Lease Provisions. Either party may change its address by
notifying the other party of the change of address in the manner as provided in
this Section.
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16.7 Successors. Subject to the restrictions of Section 13, all
of the provisions of this Lease shall bind and inure to the benefit of the
parties and their respective heirs, legal representatives, successors and
assigns.
16.8 Joint and Several Obligations of Tenant. If more than one
individual or entity comprises Tenant, the obligations imposed on each
individual or entity that comprises Tenant under this Lease shall be joint and
several.
16.9 Liability of Landlord. Except as otherwise provided in this
Lease or applicable law, for any breach of this Lease the liability of Landlord
(including all persons and entities that comprise Landlord, and any successor
landlord) and any recourse by Tenant against Landlord shall be limited to the
interest of Landlord and Landlord's successors in interest in and to the
Building. On behalf of itself and all persons claiming by, through, or under
Tenant, Tenant expressly waives and releases Landlord from any personal
liability with respect to this Lease.
16.10 Independent Covenants. This Lease shall be construed as
though the covenants between Landlord and Tenant are independent and not
dependent. Tenant expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations under this Lease,
Tenant shall not be entitled:
(a) To make any repairs or perform any acts at Landlord's
expense; or
(b) To any setoff of the Rent or other amounts owing under
this Lease against Landlord.
The foregoing, however, shall in no way impair Tenant's right to bring a
separate action against Landlord for any violation by Landlord of the provisions
of this Lease if notice is first given to Landlord and any lender of whose
address Tenant has been notified, and a reasonable opportunity (in no event less
than thirty (30) days after notice from Tenant) is granted to Landlord and that
lender to correct those violations.
16.11 Waiver. No covenant, term or condition or the breach thereof
shall be deemed waived, except by written consent of the party against whom the
waiver is claimed and any waiver of the breach of any covenant, term or
condition shall not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other covenant, term or condition. Acceptance by
Landlord of any performance by Tenant after the time the same was due shall not
constitute a waiver by Landlord of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Landlord in writing.
16.12 Attachments. Exhibits, addenda, schedules and riders
attached hereto and listed in Paragraph 11 of the Fundamental Lease Provisions
are deemed to constitute part of this Lease and are incorporated into this
Lease.
16.13 Entire Agreement. This Lease, including any exhibits and
attachments hereto listed in the Fundamental Lease Provisions, constitutes the
entire
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agreement between Landlord and Tenant relative to the Premises. Landlord and
Tenant agree here-by that all prior or contemporaneous oral or written
agreements, or letters of intent, between and among themselves or their agents
including any leasing agents and representatives, relative to the leasing of the
Premises are merged in or revoked by this Lease.
16.14 Amendment. This Lease and the exhibits and attachments may
be altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant.
16.15 Severability. If any term or provision of this Lease is, to
any extent, determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each remaining term and provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
16.16 Time of Essence. Time is of the essence of this Lease and
each and every provision of this Lease.
16.17 Holding Over. If Tenant, or any party claiming rights to the
Premises through Tenant, retains possession of the Premises with or without the
written consent of Landlord after the expiration or earlier termination of this
Lease, such possession shall constitute a tenancy at will, subject to all the
terms and provisions of this Lease. If Tenant fails to surrender the Premises to
Landlord on the date as required herein, Tenant shall hold Landlord harmless
from all damages resulting from Tenant's failure to surrender the Premises,
including, without limitation, claims made by a succeeding tenant resulting from
Tenant's failure to surrender the Premises. If Tenant remains in possession of
the Premises after expiration or earlier termination of this Lease without
Landlord's written consent, Tenant's continued possession shall be on the basis
of a tenancy at sufferance and Tenant shall pay as rent during the holdover
period an amount equal to the greater of:
(a) One hundred fifty percent (150%) of the then fair market
rental (as reasonably determined by Landlord) for the Premises; or
(b) Two hundred percent (200%) of the Monthly Rent and Additional
Rent payable under this Lease for the last full month before the date of
expiration or termination.
16.18 Broker. Landlord and Tenant each warrant and represent to
the other that neither has had any dealings with any real estate broker, agent
or finder in connection with the negotiation of this Lease or the introduction
of the parties to this transaction, except for any broker named in Paragraph 10
of the Fundamental Lease Provisions (whose commission shall be paid by the party
designated in Paragraph 10), and that it knows of no other real estate broker,
agent or finder who is or might be entitled to a commission or fee in connection
with this Lease. In the event of any such additional claims for brokers' or
finders' fees with respect to this Lease, Tenant shall
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indemnify, hold harmless, protect and defend Landlord from and against such
claims if they shall be based upon any statement or representation or agreement
made, or alleged to have been made, by Tenant, and Landlord shall indemnify,
hold harmless, protect and defend Tenant if such claims shall be based upon any
statement, representation or agreement made, or alleged to have been made, by
Landlord.
16.19 Parking. Tenant acknowledges that there is no on-site
parking at the Premises or the Building and that Landlord makes no
representations or warranties regarding the availability of off-site parking.
EXECUTED on the date stated in the Fundamental Lease Provisions.
LANDLORD: TENANT:
CHARLES A. SEGALAS, an individual more.com, inc., a Delaware corporation
- ------------------------------------- By: _________________________________
Charles A. Segalas Name:________________________________
Title:_______________________________
By: _________________________________
Name:________________________________
Title:_______________________________
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EXHIBIT A
RULES AND REGULATIONS
Tenant shall comply with the following Rules and Regulations:
1. Locks; Keys. Tenant shall not alter any lock or install any new or
additional locks or bolts on any doors or windows of the Premises without
obtaining Landlord's prior written consent. Tenant shall bear the cost of any
lock changes or repairs required by Tenant. Two keys shall be furnished by
Landlord for the Premises. Tenant shall provide Landlord with keys to all locks
affixed to the Premises.
2. Securing Doors; Admission to Building. Landlord reserves the right to
close and keep locked all entrance and exit doors and gates of the Building
during the hours when comparable Buildings are customarily closed and locked.
When departing after the Building's normal working hours, Tenant and Tenant's
employees and agents shall ensure that the last employee to leave shall turn off
the lights, lock the entry and deadbolt locks if there is no light in the other
unit sharing the Common Entry stairs, shall lock the double-deadbolt lock on the
ironwork gate; however, if there is a light on in the other unit, such employee
shall not lock the double-deadbolt ironwork gate. Landlord and its agents shall
not be liable for damages for any error concerning the admission to, or
exclusion from, the Building of any person. Landlord reserves the right, in the
event of invasion, mob, riot, public excitement, or other commotion, to prevent
access to the Building during the continuance of that event by any means it
considers appropriate for the safety and protection of life and property.
3. No Disturbance of Other Occupants. Tenant shall not disturb, solicit,
or canvass any occupant of the Building and shall cooperate with Landlord and
Landlord's agents to prevent those actions.
4. Use of Restrooms; Responsibility for Damage. The restrooms, urinals,
wash bowls, and other apparatus shall not be used for any purpose other than
that for which they were constructed, and no foreign substance of any kind shall
be thrown into them. The expense of any breakage, stoppage, or damage resulting
from violation of this rule shall be borne by the tenant who caused, or whose
employees or agents caused, the breakage, stoppage, or damage.
5. Restrictions on Defacement of Premises. Tenant shall not mark, drive
nails or screws into, or drill into the partitions, woodwork, or plaster, or in
any way deface the Premises or any part of the Premises, without Landlord's
prior written consent.
6. Permitted Machines. Except for vending machines intended for the sole
use of Tenant's employees and invitees, no machines other than office machines
of less than one horsepower shall be installed, maintained, or operated on the
Premises without Landlord's prior written consent.
A-1
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7. Inflammable or Combustible Fluids or Materials. Tenant shall not use,
or keep in or on the Premises, Building, or real property, any kerosene,
gasoline, or other inflammable or combustible fluid or material.
8. Animals, Birds, and Vehicles. Tenant shall not bring into, or keep
within, the Premises, Building, or real property any animals, birds, or vehicles
(e.g., bicycles).
9. Cooking; No Use of Premises for Improper Purposes. Only Underwriters'
Laboratory (UL)-approved equipment and microwave ovens may be used in the
Premises for cooking, heating food and brewing coffee, tea, hot chocolate, and
similar beverages for employees and visitors. This use must be in accordance
with all applicable federal, state, and city laws, codes, ordinances, rules, and
regulations. The Premises shall not be used for the storage of merchandise, for
lodging, or for any improper, objectionable, or immoral purposes.
10. Telephone and Other Wires. Tenant may not introduce telephone wires
or other wires into the Premises without first obtaining Landlord's approval of
the method and location of such introduction. No boring or cutting for
telephone wires or other wires shall be allowed without Landlord's consent. The
location of telephones, call boxes, and other office equipment affixed to the
Premises shall be subject to Landlord's prior approval.
11. Exclusion or Expulsion. Landlord reserves the right to exclude or
expel from the Real Property any person who, in Landlord's judgment, is under
the influence of alcohol or drugs or commits any act in violation of any of
these Rules and Regulations.
12. Loitering Prohibited. Tenant and Tenant's employees and agents shall
not loiter in or on the entrances, corridors, sidewalks, lobbies, halls,
stairways, elevators, or common areas for the purpose of smoking tobacco
products or for any other purpose. Tenant and Tenant's employees and agents
shall not obstruct those areas but use them only as a means of ingress to and
egress from the Premises.
13. Disposal of Trash and Garbage. Tenant shall store all trash and
garbage within the interior of the Premises. Tenant shall not place or have
placed in the trash boxes or receptacles any material that may not or cannot be
disposed of in the ordinary and customary manner of removing and disposing of
trash in the vicinity of the Building. In disposing of trash and garbage,
Tenant shall comply fully with any law or ordinance governing that disposal.
All trash, garbage, and refuse disposal shall be made only through entry-ways
provided for that purpose and shall be made only at times designated by
Landlord.
14. Compliance With Safety Regulations. Tenant shall comply with all
safety, fire protection, and evacuation procedures and regulations established
by Landlord or by any government agency.
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15. Protection of Premises. Tenant shall assume all responsibility,
including keeping doors locked and other means of entry to the Premises closed,
for protecting the Premises from theft, robbery, and pilferage.
16. Awnings, Curtains, and Electrical Ceiling Fixtures. No awnings or
other projection shall be attached to the outside walls of the Building without
Landlord's prior written consent. No curtains, blinds, shades, or screens shall
be attached to, hung in, or used in connection with any window or door of the
Premises without Landlord's prior written consent. All electrical fixtures must
be of a quality, type, design, and bulb color approved by Landlord. Tenant
shall abide by Landlord's regulations concerning the opening and closing of
window coverings attached to those windows, if any, in the Premises that have a
view of any interior portion of the Building or Building Common Areas.
17. Provision of Information to Tenant's Employees. Tenant shall comply
with requests by Landlord that Tenant inform Tenant's employees of items of
importance to Landlord.
Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenants. No waiver by Landlord shall be construed as
a waiver of those Rules and Regulations in favor of any other tenant, and no
waiver shall prevent Landlord from enforcing those Rules or Regulations against
any other tenant of the Building. Tenant shall be considered to have read these
Rules and Regulations and to have agreed to abide by them as a condition of
Tenant's occupancy of the Premises.
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Exhibit 10.9
PROFESSIONAL OFFICE BUILDING LEASE
BETWEEN
CHARLES A. SEGALAS
an individual
("Landlord")
and
more.com, inc.,
a Delaware corporation
("Tenant")
495 Third Street
San Francisco, California
<PAGE>
Table of Contents
<TABLE>
Page
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<S> <C>
1. PREMISES AND COMMON AREAS.......................................... 3
1.1 Premises...................................................... 3
1.2 Common Areas.................................................. 3
2. TERM OF LEASE...................................................... 3
2.1 Term of Lease................................................. 3
2.2 Possession Before Term Commences.............................. 3
3. DELIVERY OF POSSESSION............................................. 4
3.1 Delivery of Possession........................................ 4
3.2 Delay in Delivery of Premises................................. 4
4. USE OF PREMISES.................................................... 4
4.1 Permitted Use................................................. 4
4.2 Limitations on Use............................................ 4
4.3 Compliance with Laws.......................................... 5
4.4 Insurance Increases........................................... 5
4.5 Rules and Regulations......................................... 5
5. RENT............................................................... 6
5.1 Amount of Rent; Payment....................................... 6
5.2 Prepaid Rent.................................................. 6
5.3 Security Deposit.............................................. 6
5.4 Short First or Last Month..................................... 6
5.5 Adjustments of Monthly Rent................................... 7
5.6 Late Charge................................................... 7
5.7 Additional Rent............................................... 7
</TABLE>
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<TABLE>
<S> <C>
6. BUILDING OPERATING COSTS; UTILITIES................................ 7
6.1 Payment of Building Costs..................................... 7
6.2 Definition of Tenant's Share.................................. 8
6.3 Definition of Building Costs.................................. 8
6.4 Definition of Real Property Taxes............................. 8
6.5 Utilities and Services........................................ 8
6.6 Tenant's Additional Service Requirements...................... 8
6.7 Interruption of Utility Service............................... 9
6.8 Energy Conservation........................................... 9
7. PERSONAL PROPERTY TAXES............................................ 9
7.1 Personal Property Taxes....................................... 9
8. MAINTENANCE AND REPAIR OF THE PREMISES............................. 10
8.1 Tenant's Obligations.......................................... 10
8.2 Alterations................................................... 10
8.3 Mechanics' Liens.............................................. 11
9. MAINTENANCE AND REPAIR OF STRUCTURE................................ 11
9.1 Landlord's Obligations........................................ 11
10. INSURANCE AND INDEMNIFICATION...................................... 12
10.1 Insurance Required of Tenant................................. 12
10.2 Policy Form.................................................. 12
10.3 Subrogation.................................................. 12
10.4 Indemnification.............................................. 13
11. DESTRUCTION; CONDEMNATION.......................................... 13
11.1 Destruction.................................................. 13
11.2 Condemnation................................................. 14
12. DEFAULT; REMEDIES.................................................. 14
12.1 Default...................................................... 14
</TABLE>
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<TABLE>
<S> <C>
12.2 Remedies in Default.......................................... 15
13. ASSIGNMENT AND SUBLETTING.......................................... 16
13.1 Definition of Assignment..................................... 16
13.2 No Assignment................................................ 17
13.3 Costs........................................................ 17
13.4 Termination.................................................. 17
13.5 Involuntary Assignment; Attachment; Involuntary Proceedings.. 17
13.6 Consideration to Landlord.................................... 18
14. SALE OF BUILDING................................................... 18
14.1 Sale of Building............................................. 18
15. LEASE SUBJECT TO SUBORDINATION..................................... 18
15.1 Lease Subject to Subordination............................... 18
16. GENERAL PROVISIONS................................................. 19
16.1 Signs and Blinds............................................. 19
16.2 Entry........................................................ 19
16.3 Statement of Status.......................................... 19
16.4 Attorneys' Fees.............................................. 19
16.5 Captions..................................................... 20
16.6 Notices...................................................... 20
16.7 Successors................................................... 20
16.8 Joint and Several Obligations of Tenant...................... 20
16.9 Liability of Landlord........................................ 20
16.10 Independent Covenants........................................ 20
16.11 Waiver....................................................... 21
16.12 Attachments.................................................. 21
</TABLE>
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<TABLE>
<S> <C>
16.13 Entire Agreement............................................. 21
16.14 Amendment.................................................... 21
16.15 Severability................................................. 21
17. Time of Essence..................................................... 21
17.1 Holding Over.................................................. 22
17.2 Broker........................................................ 22
17.3 Parking....................................................... 22
</TABLE>
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PROFESSIONAL OFFICE BUILDING LEASE
THIS LEASE is made and entered into by the Landlord and Tenant named herein
who agree as follows:
FUNDAMENTAL LEASE PROVISIONS. The fundamental provisions of this Lease
are:
<TABLE>
<CAPTION>
Section
<S> <C> <C>
1. Date of Lease: October 29, 1999
2. Landlord: Charles A. Segalas, an individual
3. Tenant: more.com, inc., a Delaware corporation
4. Address and Description of Premises:
(a) the second floor (the "Premises") of 495 Third Street, building
1.1 the commonly known as 495 Third Street, San Francisco,
California (the "Building").
(b) Approximate square footage of Premises: 2,125 square feet 1.1
5. Term:
(a) Duration: Thirty-Six (36) months. 2.1
(b) Commencement Date: November 1, 1999, or the date on which 2.1
Tenant commences business at the Premises, whichever is earlier.
6. Use:
(a) Permitted Use: e-commerce office. 4.1
7. Monthly Rent; Building Costs:
(a) Monthly Rent: 5.1
Mouth Base Rent
1-12 $6,375.00
13-24 $6,693.75
25-36 $7,028.44
(b) Prepaid Rent: $6,375.00 plus estimated share of Building 5.2
Costs of $75.39 as first month's rent.
(c) Security Deposit: $12,750.00 5.3
</TABLE>
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<TABLE>
<S> <C>
(d) Initial Estimate of Tenant's Share of Building Costs: 6.1
$75.39 per month
(e) Tenant's portion of Building Costs: 40.47619% 6.2
8. Minimum Liability Insurance Amount: $2,000,000 10.1(b)
Combined Single Limit
9. Addresses for Notice: 18.7
(a) Landlord: 3 Los Conejos, Orinda, CA 94563-2214
(b) Tenant: At the Premises
10. Broker or Finder: Meade N. Boutwell, Cushman Wakefield 18.16
Commission to be paid by: Landlord ($6,375.00)
11. Exhibits:
Exhibit A - Rules and Regulations
</TABLE>
Each reference in the Lease to any of the Fundamental Lease Provisions
shall be construed to include the provisions set forth above as well as all of
the additional terms and provisions of the applicable sections of the Lease.
The foregoing Fundamental Lease Provisions are hereby approved.
Landlord: Tenant:
CHARLES A. SEGALAS, an individual more.com, inc., a Delaware
corporation
By:_____________________________
________________________________
Charles A. Segalas Name:___________________________
Title:____________________________
By:______________________________
Name:____________________________
Title:_____________________________
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1. PREMISES AND COMMON AREAS.
1.1 Premises. Landlord leases to Tenant, and Tenant leases from
Landlord the real property described in Paragraph 4(a) of the Fundamental Lease
Provisions (hereinafter called the "Premises"). The Premises consist of a
portion of the Building described in Paragraph 4(a) of the Fundamental Lease
Provisions, on real property which is owned by Landlord. For purposes of this
Lease, the Premises shall be deemed to contain the number of square feet of
floor area set forth in Paragraph 4(b) of the Fundamental Lease Provisions.
1.2 Common Areas.
(a) Common Areas Defined. The term "Common Areas" means all
areas and facilities outside the Premises and within the exterior boundaries of
the real property that are not leaseable to other tenants and that are provided
and designated by Landlord for the general use and convenience of Tenant and its
authorized representatives and invitees, of other tenants of the Building and
their respective authorized representatives and invitees, and/or of the general
public. Common Areas are areas within and outside of the Building such as,
without limitation, pedestrian walkways, landscaped areas, sidewalks and
entryway, stairways, lobbies, and rear exit staircases.
(b) Tenant's Right to Use Common Areas. Landlord gives to Tenant
and its authorized representatives and invitees the non-exclusive right to use
the Common Areas with others who are entitled to use the Common Areas, subject
to Landlord's rights set forth in Section 1.2(c).
(c) Landlord's Control and Management. Landlord may increase,
reduce, or change in any manner the Common Areas as Landlord shall deem
appropriate. Without limitation, Landlord shall also have the right, from time
to time, to establish and enforce reasonable rules and regulations applicable to
all tenants concerning the maintenance, management, use and operation of the
Common Areas, and to select a person, firm, or entity to maintain and operate
any of the Common Areas and to close temporarily parts of the Common Areas for
maintenance, repair, and renovation purposes. The provisions of this Section
1.2(c) to the contrary notwithstanding, in the exercise of the rights hereunder,
Landlord shall provide reasonable access to and from the Premises, subject to
reasonable rules and regulations and security measures approved by Landlord.
2. TERM OF LEASE.
2.1 Term of Lease. The term of this Lease (the "Term") shall be the
period stated in Paragraph 5(a) of the Fundamental Lease Provisions, commencing
on the Commencement Date set forth in Paragraph 5(b) of the Fundamental Lease
Provisions.
2.2 Possession Before Term Commences. If Landlord consents to Tenant
taking possession of the Premises prior to the Commencement Date, then all of
the provisions of this Lease except the payment of Monthly Rent and other
periodic charges shall be applicable and in full force and effect during such
period.
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3. DELIVERY OF POSSESSION.
3.1 Delivery of Possession. Landlord shall deliver possession of the
Premises to Tenant on the Commencement Date in their existing condition, except
that the Premises shall be broom clean and free of debris, and the plumbing,
lighting, heating, ventilating and air conditioning systems, if any, shall be in
good operating condition. Unless otherwise provided, Landlord shall have no
obligation to improve, remodel or otherwise modify the Premises for Tenant's
use.
3.2 Delay in Delivery of Premises. If Landlord is unable to deliver
possession of the Premises to Tenant on or before the Commencement Date,
Landlord shall not be subject to any liability for its failure to do so. Subject
to the termination right set forth below, this failure shall not affect the
validity of this Lease or the obligations of Tenant under it, but the Term shall
commence on the date on which Landlord delivers possession of the Premises to
Tenant. If, for any reason other than a delay caused in whole or in part by
Tenant, the Premises are not delivered to Tenant within three (3) months after
the date set forth in Paragraph 5(b) of the Fundamental Lease Provisions,
Tenant, as its sole right and remedy, shall have the option of terminating this
Lease, without further obligation or liability on the part of either party, by
delivering written notice of termination to Landlord at any time after such date
and before the Premises are delivered. Upon such termination, any deposits
previously made by Tenant shall be promptly returned.
4. USE OF PREMISES.
4.1 Permitted Use. Subject to the provisions of Section 4.2, Tenant
shall use and occupy the Premises solely for the purpose set forth in Paragraph
6(a) of the Fundamental Lease Provisions, and for no other use or purpose.
4.2 Limitations on Use. Tenant shall not use the Premises for or
carry on or permit in or upon the Premises, or any part thereof, any offensive,
noisy, or dangerous trade, business, manufacture or occupation, or any nuisance,
or anything against public policy, or interfere with the business of owners or
occupants of adjacent properties, or other tenants in the Building, as the case
may be. Tenant agrees not to cause, permit or suffer any waste or damage,
disfigurement or injury to the Premises, to the fixtures or equipment therein,
or to the Common Areas, nor to permit or suffer any overloading of the floor of
the Premises and/or other parts of the Building. Tenant shall not install,
operate or maintain in the Premises any electrical equipment which does not bear
the Underwriters Laboratory approval, or which equipment would, in the
reasonable opinion of Landlord, overload any portion of the electrical system
which serves the Building.
4.3 Compliance with Laws. Tenant shall, at its sole cost and expense,
promptly comply with all local, state or federal laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force (collectively, "Laws") with respect to the use, operation
and condition of the Premises, including, without limitation, any Laws regarding
or requiring alterations to the Premises and any Laws relating to the storage,
use and/or disposal of Hazardous Materials. "Hazardous Materials" as used herein
shall mean any hazardous or toxic substance, material, chemical or waste which
is now or may
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subsequently during the term hereof be defined as such by, or which is now or
may subsequently during the term hereof be regulated by, any governmental or
quasi-governmental law, ordinance, rule or regulation. The judgment of any court
of competent jurisdiction or the admission of Tenant in any action against
Tenant, whether Landlord is a party to it or not, that Tenant has violated any
Law will be conclusive of that fact as between Landlord and Tenant. Tenant's
obligations under this paragraph shall include, without limitation, any
alterations to the Premises that may be required under the Americans with
Disabilities Act as a result of Tenant's alterations or improvements to the
Premises, but shall not include seismic or other alterations or improvements
that are not required as a result of Tenant's specific and unique use of the
Premises.
4.4 Insurance Increases. If the rate of any insurance carried by
Landlord is increased as a result of Tenant's use of the Premises or the cost,
value or nature of Tenant's improvements, equipment or personal property located
in the Premises, Tenant shall pay to Landlord, upon request and at least fifteen
(15) days before the date Landlord is obligated to pay a premium on such
insurance and in addition to all other amounts payable hereunder, a sum equal to
the difference between the increased premium and what the premium would
otherwise have been, as reasonably determined by Landlord's insurer.
4.5 Rules and Regulations. Tenant's use of the Premises and the
Common Areas shall be subject at all times prior to and during the term of the
Lease to the rules and regulations from time to time promulgated by Landlord.
The current rules and regulations are set forth in Exhibit A attached to this
Lease. Landlord reserves the right at any time to change or rescind any one or
more of these rules and regulations or to make any additional rules and
regulations that, in Landlord's judgment, may be necessary for: (a) the
management, safety, care, and cleanliness of the Premises, Building, and real
property; (b) the preservation of good order; or (c) the convenience of other
occupants and tenants in the Premises and Building. Such rules and regulations
shall become effective and a part of this Lease when a copy of same has been
delivered to Tenant. The failure of another tenant to comply with such rules and
regulations will neither excuse Tenant's obligation to comply with such rules
and regulations or any other obligation of Tenant under this Lease nor cause
Landlord to be liable to Tenant for any damage resulting to Tenant. Tenant shall
cause Tenant's employees, invitees and authorized representatives to comply with
such rules and regulations.
5. RENT.
5.1 Amount of Rent; Payment. Beginning on the Commencement Date,
Tenant shall pay monthly rent in the amount set forth in Paragraph 7(a) of the
Fundamental Lease Provisions (the "Monthly Rent"). The Monthly Rent shall be
subject to adjustment in accordance with Section 5.5. Monthly Rent shall be paid
on the first day of each calendar month of the Lease term, without deduction,
offset, prior notice or demand, and shall be mailed or paid in person at the
address designated in writing by Landlord from time to time.
5.2 Prepaid Rent. Upon execution of this Lease, Tenant shall pay to
Landlord the amount of prepaid rent set forth in Paragraph 7(b) of the
Fundamental lease Provisions, which prepaid rent shall be applied by Landlord as
provided in such paragraph.
5
<PAGE>
5.3 Security Deposit. Upon execution of this Lease, Tenant shall pay
to Landlord a security deposit in the amount set forth in Paragraph 7(c) of the
Fundamental Lease Provisions. Such sum shall be held by Landlord as security for
the faithful performance by Tenant of all the terms, covenants, and conditions
of this Lease to be kept and performed by Tenant during the term hereof. If
Tenant defaults with respect to any provision of this Lease, including, without
limitation, the provisions relating to the payment of rent, Landlord may (but
shall not be required to) use, apply or retain all or any part of the security
deposit to the payment of any rent in default, or for the payment of any amount
which Landlord may spend or become obligated to spend by reason of Tenant's
default, or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default. If any portion of the security deposit
is so used or applied, Tenant shall, within five (5) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
security deposit to its original amount and Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
security deposit separate from its general funds, and shall not be deemed a
trustee of the security deposit. Tenant shall not be entitled to interest on
such deposit. If Tenant shall fully and faithfully perform every provision of
this Lease to be performed by it, the security deposit or any balance thereof
shall be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Lease term. In the event
of termination of Landlord's interest in this Lease, Landlord shall transfer any
remaining balance of such deposit to Landlord's successor in interest.
5.4 Short First or Last Month. If the term of this Lease begins or
ends on a date other than the first or last day of the calendar month,
respectively, then Tenant's Monthly Rent for that month shall be reduced
proportionately on the basis of a 30-day month.
5.5 Adjustments of Monthly Rent. If the date of any increase in
Monthly Rent falls on other than the first day of a calendar month, the increase
in Monthly Rent for such month shall be prorated on the basis of a 30-day month.
If the amount of the increase for any month, or part of a month, is not known
when Tenant pays its rent for such month, Tenant shall promptly pay Landlord the
amount of the increase when such amount has been determined.
5.6 Late Charge. Tenant acknowledges that late payment by Tenant to
Landlord of rent will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges and late charges that may be imposed on Landlord by the terms
any encumbrance or note secured by any encumbrance covering the Premises.
Therefore, if any installment of rent due from Tenant is not received by
Landlord within ten (10) days of the day it is due, Tenant shall pay to Landlord
an additional sum of ten percent (10%) of the overdue rent as a late charge. The
parties agree that this late charge represents a fair and reasonable estimate of
the costs that Landlord will incur and losses Landlord will suffer by reason of
late payment by Tenant. Acceptance of any late charge shall not constitute a
waiver of Tenant's default with respect to the overdue amount, nor prevent
Landlord from exercising any of the other nights and remedies available to
Landlord.
5.7 Additional Rent. Unless otherwise provided, the terms "rent" and
41 rental" as used in this Lease shall be deemed to mean Monthly Rent,
adjustments to Monthly
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Rent, Building Costs and any and all other sums, however designated, required to
be paid by Tenant under this Lease, whether payable to Landlord or third
parties.
6. BUILDING OPERATING COSTS; UTILITIES.
6.1 Payment of Building Costs. From and after the Commencement Date,
Tenant shall pay to Landlord Tenant's Share of Building Costs, as defined below.
Tenant's Share of Building Costs for each calendar year shall be paid in monthly
installments on the first day of each calendar month, in advance, in an amount
estimated by Landlord from time to time. It is initially estimated that Tenant's
Share of Building Costs will be the amount set forth in Paragraph 7(d) of the
Fundamental Lease Provisions. Within forty-five (45) days after the end of each
calendar year Landlord shall furnish to Tenant a statement prepared, signed and
certified to be correct by Landlord showing the total Building Costs for the
calendar year just ended and the actual amount of Tenant's Share of Building
Costs for such period. If the total amount paid by Tenant under this Section for
such year shall be less than the actual amount due from Tenant for such year as
shown on the statement, Tenant shall pay to Landlord the difference between the
amount paid by Tenant and the actual amount due, such deficiency to be paid with
ten (10) days after the furnishing of such statement. If the total amount paid
by Tenant hereunder for any such year shall exceed the actual amount due from
Tenant for such year, the excess shall be credited against the next installment
due from Tenant to Landlord under this Section. Landlord may estimate the annual
budget and charge the same to Tenant on a monthly basis subject to revision by
Landlord of the budget from time to time and final annual adjustment based upon
actual costs and expenses.
6.2 Definition of Tenant's Share. The term "Tenant's Share" means
that portion of Building Costs determined by multiplying the total Building
Costs by a fraction, the numerator of which is the square footage of the
Premises and the denominator of which is the average total rentable square
footage in the Building (as stated in Paragraph 7(e) of the Fundamental Lease
Provisions). Tenant's Share of Building Costs for any partial calendar year at
the beginning or end of the term shall be prorated on the basis of a 365-day
year.
6.3 Definition of Building Costs. For purposes of this Lease,
"Building Costs" shall mean all costs of insurance related to the Building
(including premiums and deductible amounts) and Real Property Taxes (as defined
in Section 6.4).
6.4 Definition of Real Property Taxes. The term "Real Property Taxes"
shall mean and include all taxes, assessments, and other governmental charges,
general and special, ordinary and extraordinary, of any kind and nature
whatsoever, including, but not limited to, assessments for public improvements
or benefits, which shall during the term hereof be assessed, levied, and imposed
upon the Building, Common Areas and underlying land; except any increase in Real
Property Taxes occurring solely as a result of a change in ownership of the
Building or the underlying land shall not be included. Real Property Taxes shall
also include, without limitation, any tax, fee, or excise levied, assessed
and/or based on rent or gross receipts; on the square footage of the Premises,
of the Building, or of the Common Areas; on the act of entering into leases
affecting the Building; and/or on the occupancy of any tenant of the Building;
and any other tax, fee, or excise, however described, in substitution for or in
addition to taxes applicable to the Premises, including without limitation, a
so-called value added tax
7
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provided, however, Tenant shall not be required to pay any municipal, county,
state or federal income or franchise taxes of Landlord. With respect to any
assessment which may be levied against or upon the Building or underlying land
and which under the laws then in force may be evidenced by improvement or other
bonds, or may be paid in annual installments, there shall be included within the
definition of "Real Property Taxes" with respect to any tax fiscal year, only
the current annual installment for such tax fiscal year.
6.5 Utilities and Services. Tenant shall contract with service
providers for telephone, electric, gas, sewer and water service and for trash
removal for the Premises and shall directly pay all costs associated with such
services. Landlord shall have no responsibility or liability with respect to
such services.
6.6 Tenant's Additional Service Requirements. Tenant will not,
without Landlord's prior consent, do the following:
(i) Install or use special lighting beyond Building standard, or any
equipment, machinery, or device in the Premises which requires a nominal
voltage of more than one hundred twenty (120) volts single phase, or which
in Landlord's reasonable opinion exceeds the capacity of existing feeders,
conductors, risers, or wiring in or to the Premises or Building, or which
requires amounts of water or their utilities in excess of that usually
furnished or supplied for use in office space, or which will decrease the
amount of pressure of water or the amperage or voltage of electricity
Landlord can furnish to other occupants of the Building;
(ii) Install or use any heat or cold generating equipment, machinery or device
which affects the temperature otherwise maintainable by the heat and air
conditioning system, if any, of the Building;
(iii) Use portions of the Premises for special purposes requiring greater or
more difficult cleaning work than office areas, such as, but not limited
to, kitchens, reproduction rooms, interior glass partitions, and non-
Building standard materials or finishes; or
(iv) Accumulate refuse or rubbish either in excess of that ordinarily
accumulated in professional office occupancy or at times other than
Building standard cleaning times.
6.7 Interruption of Utility Service. Landlord reserves the right,
without any liability to Tenant and without affecting Tenant's obligations under
this Lease, to stop or interrupt or reduce any utility services whenever and for
so long as may be necessary, by reason of (i) accidents or emergencies, (ii) the
making of repairs or changes which Landlord in good faith deems necessary or is
required or is permitted by this Lease or by law to make, (iii) difficulty in
securing proper supplies of fuel, water, electricity, labor or supplies, or (iv)
the compliance by Landlord with governmental, quasi -governmental or utility
company energy conservation measures. No interruption or stoppage of any of such
services will be construed as an eviction of Tenant nor will such interruption
or stoppage cause any abatement of the rent payable under this Lease or in any
manner relieve Tenant of any of Tenant's obligations under this Lease. Landlord
will not be liable for any interruption or stoppage of any of such services or
for any damage to persons or property resulting from such stoppage.
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6.8 Energy Conservation. Tenant shall cooperate fully with Landlord
to effect energy conservation in the Building and shall use its best efforts to
minimize its use of energy (including, without limitation, electricity) and
water throughout the term.
7. PERSONAL PROPERTY TAXES.
7.1 Personal Property Taxes. Tenant shall pay before delinquency all
taxes, assessments, license fees, and other charges that are levied and assessed
on Tenant's equipment, furnishings, personal property, alterations, tenant
improvements made after the commencement of the term, and/or Tenant's trade
fixtures. On demand by Landlord, Tenant shall furnish Landlord with satisfactory
evidence of these payments. Tenant shall also furnish Landlord with cost
breakdowns relating to any tenant improvements, trade fixtures and alterations
relating to the Premises made by Tenant.
If any such taxes are levied against the Building, or if the assessed value
of the Building is increased by the inclusion of a value placed on Tenant's
equipment, furnishings, personal property, alterations, tenant improvements
and/or Tenant's trade fixtures, Tenant, on demand, shall immediately reimburse
Landlord for the sum of the taxes levied against the Building, or the portion of
the taxes resulting from the increase in Landlord's assessment, as reasonably
determined by Landlord. Landlord shall have the right to pay these taxes
regardless of the validity of the levy. In addition, Tenant shall pay any tax,
fee,, excise or business license tax based on the operation of and/or revenues
received from Tenant's business in the Premises.
8. MAINTENANCE AND REPAIR OF THE PREMISES.
8.1 Tenant's Obligations. Subject to the provisions of Section 11,
Tenant shall, at Tenant's sole cost and expense, maintain and keep the Premises
and every part thereof in good and safe condition and repair, including
necessary replacements and regular janitorial services. Tenant shall, upon the
expiration or earlier termination of this Lease, surrender the Premises to
Landlord in good condition, ordinary wear and tear excepted. In addition, Tenant
shall be responsible for all cleaning, maintenance and repairs to the Premises
and for the cleaning and maintaining of the exterior entryway, staircase and
sidewalk in front of the entryway so as to keep all such areas in good and safe
condition. Tenant shall also be responsible for necessary repairs to any kitchen
appliances in the Premises. At all times during the Term, Tenant shall provide
and maintain area rugs acceptable to Landlord in the Premises so as to protect
the finished wood flooring. If the Premises are served by air conditioning,
Tenant at its expense shall cause the filters to be changed on a monthly basis
in accordance with manufacturer's recommendations and, on request, shall provide
Landlord with evidence of such filter changes. Unless otherwise specifically
provided in this Lease, Landlord shall have no obligation whatsoever to alter,
remodel, improve, replace, repair, decorate or paint the Premises or any part
thereof and the parties hereto affirm that Landlord has made no representations
to Tenant respecting the condition of the Premises or the Building except as
specifically set forth in this Lease.
8.2 Alterations. Tenant shall not alter, repair or change the
Premises without the written consent of Landlord. All alterations, improvements
and changes shall become the property of Landlord upon the surrender of the
Premises. Provided Landlord notifies Tenant of
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such requirement at the time Landlord approves the alterations or additions,
Landlord shall have the right to require Tenant, upon surrender, to remove any
alterations or additions made by Tenant, and Tenant shall, at Tenant's cost,
repair any damage to the Premises caused by this or any other removal. Any
alterations or improvements shall be made by a licensed contractor approved by
Landlord in accordance with plans and specifications approved by Landlord.
Together with Tenant's request for approval of proposed alterations or
improvements, Tenant shall submit the names and addresses of proposed
contractor(s), financial and other pertinent information about such
contractor(s) (including, without limitation, the labor organization affiliation
or lack of affiliation of such contractor(s), certificates of insurance to be
maintained by Tenant's contractor(s), hours of construction, proposed
construction methods, evidence of security (such as payment and performance
bonds) to assure timely completion of the work by the contractor and payment of
all costs of the work). All alterations and improvements shall be completed with
due diligence, in a first class, workmanlike manner and in compliance with the
plans and specifications and all applicable Laws. The alterations shall be
performed in a manner that will not interfere with the quiet enjoyment of the
other tenants in the Building. Tenant acknowledges and agrees that Landlord has
made no representation or warranty regarding the tenantability, habitability or
condition of the Premises. Tenant hereby waives any right to make repairs at
Landlord's expense including without limitation any rights granted under
California Civil Code Sections 1941 and 1942.
8.3 Mechanics' Liens. Tenant shall not allow any mechanics' or
materialmen's liens to be filed against Landlord's interest in the Premises, the
Building, the Common Areas, or underlying land. Tenant shall give Landlord at
least ten (10) days' advance written notice of any alterations and Landlord
shall have the right to post any notices which it deems necessary for protection
from such liens. If such liens are filed, Landlord may pay or satisfy them, and
any sums so paid shall constitute additional rent immediately due and payable by
Tenant. Tenant may in good faith and at Tenant's own expense contest the
validity of any such asserted lien, provided that Tenant has furnished the bond
required in California Civil Code Section 3143, or any successor statute.
9. MAINTENANCE AND REPAIR OF STRUCTURE.
9.1 Landlord's Obligations. Notwithstanding the provisions of Section
8.1, Landlord shall repair and maintain the roof, structural walls, foundations,
subfloors, exterior walls, and other structural portions of the Building,
including the basic common plumbing, air conditioning (if any), heating, and
electrical systems installed or furnished by Landlord, unless such maintenance
and repairs are caused in part or in whole by the act, neglect, fault or
omission of any duty by Tenant, its agents, servants, employees or invitees, in
which case Tenant shall pay to Landlord the reasonable costs of such maintenance
and repairs. Landlord shall not be liable for any failure to make any such
repairs or to perform any maintenance unless such failure shall persist for an
unreasonable time, not less than thirty (30) days, after written notice of the
need for such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Section 11, there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the Building or the Premises or in or to fixtures, appurtenances and
equipment therein. Tenant waives the right to make repairs at Landlord's expense
under any law, statute or ordinance now or hereafter in effect.
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10. INSURANCE AND INDEMNIFICATION.
10.1 Insurance Required of Tenant. Tenant shall, at Tenant's sole cost
and expense, maintain in full force and effect at all times during the term and
during any pre-term occupancy period, the insurance coverages set forth in this
Section.
(a) Casualty Insurance. Broad form property damage in an amount
not less than full replacement cost, covering Tenant's equipment, fixtures,
furnishings and other personal property located in the Premises. Such policy or
policies of insurance shall name both Landlord as an additional insured and
Tenant as insureds. Landlord and Tenant agree that the proceeds from any such
policy or policies shall be used for the repair or replacement of the property
so covered.
(b) Liability Insurance. Commercial general liability insurance
which is to include, without limitation, products liability coverage, with such
limits as may reasonably be required by Landlord from time to time but not less
than the amounts stated in Paragraph 8 of the Fundamental Lease Provisions, for
bodily injury or death to any one person, injury and/or death to any number of
persons in any one incident, and for property damage in any one occurrence. Such
policy or policies shall name Landlord as an additional insured. Such liability
insurance shall specifically insure the hold harmless and indemnity provisions
of Section 10.4, and shall contain a provision that Landlord, although an
additional insured, shall nevertheless be entitled to recover under such policy
or policies for any damage to Landlord or its agents or representatives by
reason of acts or omissions of Tenant.
10.2 Policy Form. All insurance required of Tenant shall be in form
and written by one or more insurance companies reasonably satisfactory to
Landlord and licensed to do business in the State of California. All such
insurance may be carried under a blanket policy covering the Premises and other
locations, provided that the coverage afforded Landlord by such blanket policy
shall not be reduced or diminished by reason of the use of such blanket policy
of insurance, and provided further that the requirements of Section 10.1 are
otherwise satisfied. All such insurance shall contain endorsements that (i) such
insurance shall not be canceled or amended except upon thirty (30) days' prior
notice to Landlord by the insurance company, (11) Tenant shall be solely
responsible for payment of premiums, and (iii) Tenant's insurance is primary in
the event of overlapping coverage which may be carried by Landlord. The minimum
limits of the commercial general liability insurance policy required by Section
10.1(b) shall in no way limit or diminish Tenant's liability under this Lease.
Tenant shall deliver to Landlord at least fifteen (15) days prior to the time
such insurance is first required to be carried by Tenant and thereafter at least
fifteen (15) days prior to the expiration of such policy, either a duplicate
original or a certificate clearly showing compliance by Tenant with Tenant's
obligations under this Lease, together with evidence satisfactory to Landlord of
the payment of the premiums therefor.
10.3 Subrogation. Landlord and Tenant hereby mutually waive their
respective rights of recovery against each other for any loss insured by
property insurance policies existing for the benefit of the respective parties.
Each party shall obtain a special endorsement, if required by its insurer, to
evidence compliance with the aforementioned waiver.
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10.4 Indemnification. Tenant shall indemnify, protect, defend and hold
Landlord harmless from all liabilities, claims, costs, expenses and damages
arising out of or in connection with (i) any damage to person or property in or
about the Premises, the Building and/or the Common Areas which is caused by the
acts or omissions of Tenant, its agents, employees or representatives and/or
(ii) any act or omission of Tenant, its agents, employees or representatives,
which constitutes a breach of any obligation of Tenant under this Lease.
Landlord shall not be liable to Tenant for any damage to Tenant or Tenant's
property from any cause, and Tenant waives all claims against Landlord for
damage to person or property arising from any reason, except that Landlord shall
be liable to Tenant for damage to Tenant resulting from the gross negligence of
Landlord or its authorized representatives.
11. DESTRUCTION; CONDEMNATION.
11.1 Destruction. In the event the Premises or the Building are
damaged by fire or other perils covered by insurance then in effect, Landlord
agrees to repair such damage and this Lease shall remain in full force and
effect, except that Tenant shall be entitled to a proportionate reduction of
Monthly Rent while such repairs are being made, such proportionate reduction to
be based upon the extent to which the damage and/or the making of such repairs
materially interferes with the business carried on by Tenant in the Premises.
Provided, however, if the damage is due to the fault or neglect of Tenant or its
employees, agents or invitees, there shall be no abatement of rent.
In the event the Premises or the Building are damaged as a result of any
cause other than the perils covered by insurance then in effect, then Landlord
shall forthwith repair the same provided the extent of the destruction is less
than five percent (5%) of the then full replacement cost of the Premises or the
Building, as the case may be. In the event the destruction of the Premises or
the Building, is to an extent greater than five percent (5%) of the full
replacement cost, then Landlord shall have the election to: (i) repair or
restore such damage, this Lease continuing in full force and effect, but the
Monthly Rent to be proportionately reduced as provided above; or (ii) give
notice to Tenant at any time within sixty (60) days after such damage. In
terminating this Lease as of the date specified in such notice, which date shall
be no less than thirty (30) and no more than sixty (60) days after the giving of
such notice. In the event of giving such notice, this Lease shall terminate and
all interest of Tenant in the Premises shall terminate on the date so specified
in such notice. Monthly Rent, reduced by a proportionate amount based upon the
extent, if any, to which such damage materially interferes with the business
carried on by Tenant in the Premises, shall be paid up to the date of such
termination.
The provisions of this Section to the contrary notwithstanding: (i)
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Section occurs during the last six (6) months of the term of this Lease or
any extension thereof; and (ii) Landlord's obligation to repair and/or
reconstruct the Premises shall not exceed Landlord's original construction
obligations under this Lease, if any, which original construction obligations
shall be deemed to exclude any construction done by Landlord on Tenant's behalf
and at Tenant's cost. If existing laws do not permit the Premises to be restored
to substantially the same condition as they were in immediately before
destruction, either party can terminate this Lease by giving written notice to
the other party within thirty (30) days after such destruction.
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Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any equipment, fixtures,
furnishings or personal property of Tenant or any tenant improvements installed
in the Premises by Tenant, all of which shall be Tenant's obligation to restore.
Tenant shall not be entitled to any compensation or damages from Landlord
for loss of the use of the whole or any part of the Premises or Tenant's
personal property, or for any inconvenience or annoyance occasioned by such
damage, repair, reconstruction or restoration.
The provisions of California Civil Code Sections 1932(2) and 1933(4), and
any successor statutes, shall be inapplicable with respect to any destruction of
the Building or the Premises.
11.2 Condemnation. If the Premises are condemned and taken by any
governmental authority or if such portion of the Building, Common Areas and/or
underlying land is condemned and taken so that the Premises can no longer
reasonably be used for the purpose allowed in this Lease, either party shall
have the right to terminate this Lease and all condemnation awards shall be
payable to Landlord, except for any award made to Tenant for the taking of
personal property or fixtures belonging to Tenant, for the interruption of or
damage of Tenant's business, or for Tenant's unamortized cost of leasehold
improvements paid for by Tenant and which Tenant has the right to remove. Each
party waives the provisions of California Code of Civil Procedure Section
1265.130, and any successor statute, allowing either party to petition the
Superior Court to terminate this Lease in the event of condemnation.
12. DEFAULT; REMEDIES.
12.1 Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant;
(b) The failure by Tenant to make any payment of rent when due,
where such failure continues for a period of five (5) days after written notice
thereof by Landlord to Tenant;
(c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Tenant, other than the payment of money, where such failure shall continue for a
period of thirty (30) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that more than
30 days are reasonably required for its cure, then Tenant shall not be deemed to
be in default if Tenant commences such cure within such 30-day period and
thereafter diligently prosecutes such cure to completion;
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors, or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt, or a petition of reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days), or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease
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where possession is not restored to Tenant within thirty (30) days, or the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days;
(e) An assignment or subletting, or a purported assignment or
subletting, in violation of Section 13; or
(f) If Tenant, any of Tenant's owners or any entity in which
Tenant has an ownership interest is a partner in the partnership entity which
constitutes Landlord, a failure by such partner to perform any obligation or
duty it may have as a partner in such partnership.
The notices required under this Section 12.1 are the only notices required
to be given by Landlord to Tenant in the event of Tenant's default and are not
in addition to any statutory notices otherwise required by the unlawful detainer
statutes of California.
12.2 Remedies in Default. In the event of any such default or breach
by Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, without limitation: (i) the
cost of recovering possession of the Premises; (11) expenses of reletting,
including necessary renovation and alteration of the Premises; (iii) the worth
at the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such award
exceeds the amount of such rental loss for the same period that Tenant proves
could be reasonably avoided; (iv) that portion of any leasing commission paid by
Landlord and applicable to the unexpired term of this Lease; and (v) any other
amounts allowed by law. Unpaid installments of rent or other sums shall bear
interest from the date due at the maximum rate allowed by law from time to time.
In the event Tenant shall have abandoned the Premises, Landlord shall have the
option of (1) taking possession of the Premises and recovering from Tenant the
amount specified in this paragraph, or (2) proceeding under the following
provisions of this Section ID.
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
fights and remedies under this Lease, including the right to recover the rent as
it becomes due or to relet the Premises or any part thereof for such term and on
such provisions as Landlord, in its sole discretion, may deem advisable.
(c) Re-enter the Premises, with or without terminating this
Lease, and remove all property and persons therefrom, which property may be
stored at a public warehouse or elsewhere at Tenant's cost.
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(d) After ten (10) days' notice to Tenant, or a shorter period
if additional damage may result, cure the default for the account and at the
expense of Tenant, which amount shall be due from Tenant to Landlord immediately
upon demand.
(e) Pursue any other remedy now or hereafter available to
Landlord under the laws of the State of California.
13. ASSIGNMENT AND SUBLETTING.
13.1 Definition of Assignment. The use of the words "assignment,"
"assign," "assigned," "subletting," or "sublet," or any derivation thereof, in
this Section 13 shall include:
(a) The pledging, mortgaging or encumbering of Tenant's interest
in this Lease, or the Premises or any part thereof,
(b) The total or partial occupation of all or any part of the
Premises by any person, firm, partnership, or corporation, or any groups of
persons, firms, partnerships, or corporations, or any combination thereof, other
than Tenant;
(c) An assignment or transfer by operation of law;
(d) If Tenant is a partnership or limited liability company
("LLC"), a withdrawal or change, voluntary, involuntary, or by operation of law,
of the partner or partners (or member(s) in the case of an LLC owning a majority
of the partnership or LLC interest as of the date of this Lease, or the
dissolution of the partnership or LLC; provided, however, that the transfer of a
partnership or LLC interest by testacy or intestacy shall not be deemed an
assignment prohibited by this Section;
(e) If Tenant consists of more than one person, a purported
assignment, voluntary, involuntary, or by operation of law, from a majority of
such persons to the others;
(f) If Tenant is a corporation, any dissolution, merger,
consolidation, or other reorganization of the corporation, or the sale or other
transfer of a controlling voting interest, direct or indirect, of the corporate
stock of Tenant, or the sale of 51% of the value of the assets of the
corporation; provided, however, the transfer of a controlling voting interest of
the corporate stock of Tenant by testacy or intestacy shall not be deemed an
assignment prohibited by this Section.
13.2 No Assignment. Tenant shall not voluntarily assign or encumber
all or any portion of its interest in this Lease or in the Premises, or sublease
(except as provided in the following sentence) all or any part of the Premises,
or allow any other person or entity (except Tenant's authorized representatives)
to occupy or use all or any part of the Premises. The preceding sentence
notwithstanding, Tenant shall have the limited night to sublease all or a
portion of the Premises, subject to the following conditions: (i) Tenant shall
obtain Landlord's prior written approval of the proposed sublessee (which
approval Landlord shall not unreasonably withhold) and (ii) the sublease
document shall be subject to Landlord's prior written approval and shall be
prepared by Landlord's counsel at Tenant's expense, Any
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assignment, encumbrance, or sublease made without Landlord's consent shall be
voidable and, at Landlord's election, shall constitute a default. No consent to
any assignment, encumbrance, or sublease shall constitute a waiver of the
provisions of this Section.
13.3 Costs. In the event Tenant requests Landlord to consent to a
proposed assignment, subletting or encumbrance, Tenant shall pay to Landlord, on
demand, whether or not such consent is ultimate]), given, Landlord's reasonable
administrative costs and attorneys' fees incurred in connection with each such
request, including without limitation, attorneys' fees for preparing and
negotiation any sublease as provided in Section 13.2
13.4 Termination. At the option of Landlord, if this Lease is
terminated for any reason Landlord will either (i) terminate all subleases, or
(ii) treat all subleases as being assigned to Landlord, in which case the
sublessees will attorn directly to Landlord.
13.5 Involuntary Assignment; Attachment; Involuntary Proceedings. If
an involuntary assignment occurs, Landlord shall have the election to terminate
this Lease and this Lease shall not be treated as an asset of Tenant, and Tenant
shall have no further rights under this Lease, If an attachment or execution is
levied against Tenant, Tenant shall have thirty (30) days in which to cause the
attachment or execution to be removed. If any involuntary proceedings in
bankruptcy are brought against Tenant, or if a receiver is appointed, Tenant
shall have thirty (30) days in which to have the involuntary proceeding
dismissed or the receiver removed.
13.6 Consideration to Landlord. Without in any way limiting the
prohibitions under Section 13.2 above, if Landlord agrees to consent to an
assignment or sublease, (i) Tenant shall pay Landlord seventy-five percent (75%)
of the consideration received by Tenant attributable to the assignment of
Tenant's interest in this Lease and (ii) Tenant shall pay to Landlord from time
to time, immediately after Tenant's receipt thereof, seventy-five percent (75%)
of all rent or other consideration Tenant receives from such subtenant in excess
of the rent payable under this Lease, as appropriately prorated with respect to
a sublease of a portion of the Premises. In making the calculations provided for
this Section, the consideration paid to Tenant shall first be reduced by
Tenant's expenses associated with an assignment or sublease, including without
limitation, brokerage fees, remodeling costs, attorneys' fees or other fees
charged by Landlord.
14. SALE OF BUILDING.
14.1 Sale of Building. If Landlord sells or transfers its interest in
the Building, Landlord shall deliver or credit any security deposit to
Landlord's successor in interest and thereupon be relieved of further
responsibility with respect to the Security Deposit. In the event of any sale or
transfer of the Building, Landlord shall be and is hereby entirely released and
relieved of all liability under this Lease arising out of any act, occurrence or
omission occurring after the consummation of such sale, and the purchaser at
such sale or any subsequent sale of the Building shall be deemed, without any
further agreement between the parties or their successors in interest or between
the parties and any such purchaser, to have assumed and agreed to carry out any
and all of the covenants and obligations of Landlord under this Lease. Tenant
shall, upon request of any person or party succeeding to the interest of
Landlord, attorn to such successor in interest and recognize such successor in
interest as Landlord under this Lease.
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15. LEASE SUBJECT TO SUBORDINATION.
15.1 Lease Subject to Subordination. This Lease is and shall be
subject and subordinate to all ground or underlying leases which now exist or
may hereafter be executed affecting the Building, to any underlying covenants,
conditions and restrictions, and to the lien and provisions of any mortgage or
deeds of trust now or hereafter placed against the Building or against
Landlord's interest or estate in the Building or on or against any ground or
underlying lease, and any renewals, modifications, consolidations and extensions
of such lease(s), any covenants, conditions and restrictions, and any mortgages
and deeds of trust without the necessity of the execution and delivery of any
further instruments on the part of Tenant to effect such subordination. If any
mortgagee, beneficiary, trustee or ground lessor elects to have this Lease prior
to the lien of such mortgagee's, beneficiary's, trustee's or ground lessor's
mortgage or deed of trust or ground lease, and gives notice of such election to
Tenant, this Lease shall be deemed prior to the lien of such mortgage or deed or
trust or ground lease, whether this Lease is dated prior or subsequent to the
date of such mortgage, deed of trust, or the date of the recording thereof.
Tenant shall execute and deliver within ten (10) days of request from Landlord,
without charge, such further instruments evidencing the subordination of this
Lease to any ground or underlying lease, any covenants, conditions and
restrictions, and any mortgage or deed of trust; provided, such instrument shall
provide that as long, as Tenant is not in default of this Lease, Tenant's
possession of the Premises shall not be affected by any foreclosure proceedings
or ground lease termination. In the event any proceedings are brought for
default under any ground or underlying lease or under any covenants, conditions
and restrictions, or in the event of foreclosure or the exercise of the power of
sale under any mortgage or deed of trust against the Premises, Tenant shall,
upon request of any person or party succeeding to the interest of Landlord as a
result of such proceedings, attorn to such successor in interest and recognize
such successor in interest as Landlord under this Lease.
16. GENERAL PROVISIONS.
16.1 Signs and Blinds. The parties recognize that Landlord shall
maintain uniform signage, directory, and blind systems for the Building.
Accordingly, Tenant agrees not to place any signs or other marking upon any
externally visible parts of the Premises or remove or replace the window blinds
without Landlord's written consent. Landlord shall have the right to remove any
signs, advertisements, displays, or similar items, without notice to Tenant.
Landlord shall have the exclusive night to the use of the roof, exterior walls
of the Building, and the airspace above the roof Landlord has the exclusive
right to erect and maintain signs and shall have access thereto. All revenue
arising from such signs shall be solely and exclusively that of Landlord, and
Tenant shall have no night or claim thereto. Except with the express prior
written consent of Landlord, no advertising medium shall be utilized by Tenant
which can be heard or seen outside the Premises including, without limitation,
any signs, searchlights, loudspeakers, phonographs, radio, television, or
musical instruments.
16.2 Entry. Tenant shall permit Landlord and its agents to enter the
Premises at all reasonable times for the purpose of inspecting the Premises, or
for the purpose of maintaining the Building or making repairs or alterations to
any other portion of the Building. Landlord may erect scaffolding or other
equipment reasonably required for such work, and may post notices of
nonresponsibility. Landlord shall give Tenant reasonable notice before entering
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the Premises, except that notice shall not be required in the case of emergency,
Landlord's rights under this Section extend to the owner of the adjacent
property on which excavation or construction is to take place and to the
representatives, agents and contractors of such adjacent property owner.
16.3 Statement of Status. Upon request by Landlord, Tenant agrees to
execute and return within ten (10) days of request a customary and reasonable
statement of status of its tenancy and estoppel certificate.
16.4 Attorneys' Fees. In the event that either party to this Lease
commences any action or proceeding against the other by reason of any breach or
alleged breach of any term or condition of this Lease, or for the interpretation
of this Lease, the prevailing party in such an action or proceeding shall be
entitled to recover such amount as the court may judge to be reasonable
attorneys' fees, and all reasonable costs incurred.
16.5 Captions. The captions of articles and paragraphs of this Lease
are for reference only, and shall not be construed in any way as a part of this
Lease.
16.6 Notices. Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by prepaid, certified or registered mail, return receipt requested, and
shall be addressed to the other party at the address set forth in Paragraph 9 of
the Fundamental Lease Provisions. Either party may change its address by
notifying the other party of the change of address in the manner as provided in
this Section.
16.7 Successors. Subject to the restrictions of Section 13, all of
the provisions of this Lease shall bind and inure to the benefit of the parties
and their respective heirs, legal representatives, successors and assigns.
16.8 Joint and Several Obligations of Tenant. If more than one
individual or entity comprises Tenant, the obligations imposed on each
individual or entity that comprises Tenant under this Lease shall be joint and
several.
16.9 Liability of Landlord. Except as otherwise provided in this
Lease or applicable law, for any breach of this Lease the liability of Landlord
(including all persons and entities that comprise Landlord, and any successor
landlord) and any recourse by Tenant against Landlord shall be limited to the
interest of Landlord and Landlord's successors in interest in and to the
Building. On behalf of itself and all persons claiming by, through, or under
Tenant, Tenant expressly waives and releases Landlord from any personal
liability with respect to this Lease.
16.10 Independent Covenants. This Lease shall be construed as though
the covenants between Landlord and Tenant are independent and not dependent.
Tenant expressly waives the benefit of any statute to the contrary and agrees
that if Landlord fails to perform its obligations under this Lease, Tenant shall
not be entitled:
(a) To make any repairs or perform any acts at Landlord's
expense; or
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(b) To any setoff of the Rent or other amounts owing under
this Lease against Landlord.
The foregoing, however, shall in no way impair Tenant's right to bring a
separate action against Landlord for any violation by Landlord of the provisions
of this Lease if notice is first given to Landlord and any lender of whose
address Tenant has been notified, and a reasonable opportunity (in no event less
than thirty (30) days after notice from Tenant) is granted to Landlord and that
lender to correct those violations,
16.11 Waiver. No covenant, term or condition or the breach thereof
shall be deemed waived, except by written consent of the party against whom the
waiver is claimed and any waiver of the breach of any covenant, term or
condition shall not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other covenant, term or condition. Acceptance by
Landlord of any performance by Tenant after the time the same was due shall not
constitute a waiver by Landlord of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Landlord in writing.
16.12 Attachments. Exhibits, addenda, schedules and riders
attached hereto and listed in Paragraph 11 of the Fundamental Lease Provisions
are deemed to constitute part of this Lease and are incorporated into this
Lease.
16.13 Entire Agreement. This Lease, including any exhibits and
attachments hereto listed in the Fundamental Lease Provisions, constitutes the
entire agreement between Landlord and Tenant relative to the Premises. Landlord
and Tenant agree here-by that all prior or contemporaneous oral or written
agreements, or letters of intent, between and among themselves or their agents
including any leasing agents and representatives, relative to the leasing of the
Premises are merged in or revoked by this Lease.
16.14 Amendment. This Lease and the exhibits and attachments may
be altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant.
16.15 Severability. If any term or provision of this Lease is, to
any extent, determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby; and
each remaining term and provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
17. TIME OF ESSENCE. Time is of the essence of this Lease and each and
every provision of this Lease.
17.1 Holding Over. If Tenant, or any party claiming rights to the
Premises through Tenant, retains possession of the Premises with or without the
written consent of Landlord after the expiration or earlier termination of this
Lease, such possession shall constitute a tenancy at will, subject to all the
terms and provisions of this Lease. If Tenant fails to surrender the Premises to
Landlord on the date as required herein, Tenant shall hold Landlord harmless
from all damages resulting from Tenant's failure to surrender the Premises,
including, without limitation, claims made by a succeeding tenant resulting from
Tenant's failure to surrender the Premises. If Tenant remains in possession of
the Premises after expiration or
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earlier termination of this Lease without Landlord's written consent, Tenant's
continued possession shall be on the basis of a tenancy at sufferance and Tenant
shall pay as rent during the holdover period an amount equal to the greater of.
(a) One hundred fifty percent (150%) of the then fair market
rental (as reasonably determined by Landlord) for the Premises; or
(b) Two hundred percent (200%) of the Monthly Rent and
Additional Rent payable under this Lease for the last full month before the date
of expiration or termination.
17.2 Broker. Landlord and Tenant each warrant and represent to the
other that neither has had any dealings with any real estate broker, agent or
finder in connection with the negotiation of this Lease or the introduction of
the parties to this transaction, except for any broker named in Paragraph 10 of
the Fundamental Lease Provisions (whose commission shall be paid by the party
designated in Paragraph 10), and that it knows of no other real estate broker,
agent or finder who is or might be entitled to a commission or fee in connection
with this Lease. In the event of any such additional claims for brokers' or
finders' fees with respect to this Lease, Tenant shall indemnify, hold harmless,
protect and defend Landlord from and against such claims if they shall be based
upon any statement or representation or agreement made, or alleged to have been
made, by Tenant, and Landlord shall indemnify, hold harmless, protect and defend
Tenant if such claims shall be based upon any statement, representation or
agreement made, or alleged to have been made, by Landlord.
17.3 Parking. Tenant acknowledges that there is no on-site parking at
the Premises or the Building and that Landlord makes no representations or
warranties regarding the availability of off-site parking.
EXECUTED on the date stated in the Fundamental Lease Provisions.
LANDLORD: TENANT:
CHARLES A. SEGALAS, an individual more.com, inc., a Delaware corporation
____________________________________ By: ____________________________________
\s\ Charles A . Segalas
Name: __________________________________
Title: _________________________________
By: ____________________________________
Name: __________________________________
Title: _________________________________
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Exhibit 10.10
LETTER OF AGREEMENT BETWEEN: UNIVERSITY CITY SCIENCE
CENTER (LESSOR)
AND
GREENTREE NUTRITION, INC.
(LESSEE)
RE: 3401 Market Street, Suite 225
Effective February 1, 1999, the lease agreement dated February 13, 1997
between Lessor and Lessee now consisting of approximately 1,789 gross square
feet is modified as follows:
1. The demised premises shall increase by Suite 228, approximately 650
gross square feet (as noted on the attached floor plan). Therefore, the
total space occupied shall be approximately 2,439 gross square feet.
2. The lease term shall be the same as Lessee's existing space.
3. The minimum fixed annual rent shall increase to Thirty-five Thousand
Seven Hundred Forty-Six Dollars ($35,746.00), payable in equal monthly
installments in advance and without demand, of Two Thousand Nine Hundred
Seventy-Eight Dollars and Thirty-Four Cents ($2,978.34).
GROSS ANNUAL MONTHLY
SUITE SQ.FT. RATE RENT
225 539 $18.00 $11,502.00 $ 958.50
224 824 $16.00 $13,184.00 $1,098.67
224A 326 $10.00 $ 3,260.00 $ 271.67
228 650 $12.00 $ 7,800.00 $ 650.00
TOTAL 2,439 $35,746.00 $2,978.84
4. The monthly use and occupancy tax shall be $94.17.
5. Any additional improvements, including electrical and/or lighting, shall
be at Lessee's sole expense, and they must be presented to Lessor for
approval.
6. Lessee shall pay an additional security deposit in the amount of $650.00
to Lessor upon execution of this Agreement.
<PAGE>
Except as expressly stated in this Agreement, all other terms and
conditions of the Lease Agreement dated February 13, 1997 remain in full force
and effect.
ACCEPTED FOR: ACCEPTED FOR:
UNIVERSITY SCIENCE CENTER GREENTREE NUTRITION, INC.
_____________________________ _____________________________
Name Name
_____________________________ _____________________________
Title Title
_____________________________ _____________________________
Date Date
<PAGE>
ASSIGNMENT OF LEASE AGREEMENT
THIS AGREEMENT made this 7th day of December, 1998, by and between
UNIVERSITY SCIENCE CENTER (hereinafter called "Lessor") whose address is 3624
Market Street, Philadelphia, Pennsylvania 19104, and ACUMIN CORPORATION
(hereinafter called "Lessee") whose address is 3401 Market Street, Suite 225,
Philadelphia, Pennsylvania 19103.
WITNESSETH:
WHEREAS, Lessor entered into a certain Lease, dated February 13, 1997
(hereinafter called "Lease") with Lessee, covering the premises consisting of
approximately 639 gross square feet of laboratory space in the building known as
3401 Market Street, Philadelphia, Pennsylvania, as amended to consist of
approximately 1,789 gross square feet of office and laboratory space.
WHEREAS, the Lessor and Lessee are desirous of amending the Lease as to
certain terms and conditions, and
NOW, THEREFORE, in consideration of their mutual covenants and intending to
be bound hereby, the parties agree as follows:
1. Consent by Lessor to Assignment of Lease. UNIVERSITY SCIENCE CENTER,
the Lessor named in the above-referenced Lease dated February 13,
1997, hereby agrees that Acumin Corporation, the Lessee under said
Lease, may assign all its rights under the said Lease to GREENTREE
NUTRITION, INC., whose address is 520 3rd Street, Suite 245, San
Francisco, CA 94107, its successors and assigns, for the remaining
term of the said Lease. This consent is subject to the payment of all
rents reserved in said Lease and the performance of all duties,
covenants, obligations, conditions, and terms contained therein. This
assignment does not relieve Acumin Corporation of its liability under
the Lease.
2. Amendment of Lease. The Lease is hereby amended as hereinafter set
forth, effective as of January 1, 1999.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this amendment the day and
year aforesaid.
- --------------------------------------------------------------------------------
BY: s/Bradford S. BY: s/Bradford S. BY: s/Charles
Oberwager Oberwager ______________
- --------------------------------------------------------------------------------
ASSIGNOR: ASSIGNEE: LESSOR:
ACUMIN CORPORATION GREENTREE NUTRITION, UNIVERSITY CITY SCIENCE
INC. CENTER
- --------------------------------------------------------------------------------
Name: s/_____________ Name: s/_____________ Name: s/_____________
- --------------------------------------------------------------------------------
Title: s/President Title: s/CFO Title: s/SVP
- --------------------------------------------------------------------------------
Date: s/12/7/98 Date: s/12/7/98 Date: s/12/11/98
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 10.11
INTERNET FULFILLMENT SERVICES AGREEMENT
This Internet Fulfillment Services Agreement ("Agreement") is made as of
July 1, 1999 by and between Bergen Brunswig Drug Company, a California
corporation ("BBDC"), and more.com, a Delaware corporation ("IR").
RECITALS
A. IR is an Internet retailer and has created a marketing and sales program
designed to supply pharmaceutical products and related services to individuals
utilizing an Internet web site;
B. BBDC is a national distributor of, among other things, products in the
categories of over-the-counter pharmaceutical products, nutritional, health and
beauty care products and home health care products, described on Schedule 1.1 to
------------
the Terms and Conditions attached as Exhibit 1 (collectively, "Products");
---------
C. IR wishes to contract with a fulfillment service provider to ship the
Products and provide related services to IR's consumers in the United States;
D. BBDC wishes to provide the services described in this Agreement to IR;
E. Under no circumstances will the Products include any prescription
pharmaceutical products; and
F. The parties wish to enter into this Agreement in order to set forth their
obligations to each other.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the parties agree as follows:
1. TERMS AND CONDITIONS.
The Terms and Conditions in Exhibit 1 ("Terms and Conditions") are
---------
incorporated by this reference. Capitalized terms used without definition have
meanings in the Terms and Conditions.
2. TERM.
Subject to Sections 9 and 10 of the Terms and Conditions, the Term of this
Agreement will be ten (10) years from the date of this Agreement.
3. MINIMUM ORDERS.
IR will submit Orders for at least [**].
4. FEES.
In addition to payment for Products, IR will pay BBDC the following service
fees.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
1
<PAGE>
4.1 Set-Up Fee. [**]
4.2 Fulfillment Fee. [**]
4.3 [**] Such election may be changed by IR effective on the first
business day of any calendar quarter upon thirty (30) days' prior written notice
to BBDC.
4.3.1. [**] in addition to the amount set forth below:
---------------------------------------------------------------------
Category [**]
---------------------------------------------------------------------
Traditional OTC and HBC [**]
---------------------------------------------------------------------
Nutritionals and natural remedies [**]
---------------------------------------------------------------------
Fragrances [**]
---------------------------------------------------------------------
Cosmetics [**]
---------------------------------------------------------------------
Home healthcare [**]
---------------------------------------------------------------------
Private label [**]
---------------------------------------------------------------------
Bulk/case goods [**]
---------------------------------------------------------------------
4.3.2. [**] per Order in addition to the amount set forth below.
---------------------------------------------------------------------
Category [**]
---------------------------------------------------------------------
Traditional OTC and HBC [**]
---------------------------------------------------------------------
Nutritionals and natural remedies [**]
---------------------------------------------------------------------
Fragrances [**]
---------------------------------------------------------------------
Cosmetics [**]
---------------------------------------------------------------------
Home healthcare [**]
---------------------------------------------------------------------
Private label [**]
---------------------------------------------------------------------
Bulk/case goods [**]
---------------------------------------------------------------------
4.3.3 [**] per line in addition to the amounts set forth below
([**] maximum is subject to further review after October 1, 1999).
---------------------------------------------------------------------
Category [**]
---------------------------------------------------------------------
Traditional OTC and HBC [**]
---------------------------------------------------------------------
Nutritionals and natural remedies [**]
---------------------------------------------------------------------
Fragrances [**]
---------------------------------------------------------------------
Cosmetics [**]
---------------------------------------------------------------------
Home healthcare [**]
---------------------------------------------------------------------
Private label [**]
---------------------------------------------------------------------
Bulk/case goods [**]
---------------------------------------------------------------------
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
2
<PAGE>
[**] represented on the manufacturers' current wholesale
price list, adjusted to reflect all applicable discounts
including free goods, promotional allowances and special
manufacturers pricing and IR contract pricing intended
by the manufacturer or supplier to be passed on to
retailers or consumers. Cash discounts, rebates and
ancillary benefits extended by any manufacturer or
supplier to the distributor are excluded from the
definition of "Cost". Any sales, use and business and
occupational taxes levied and/or paid by BBDC are IR's
responsibility and are added to IR's cost.
Net-billed items are primarily specific product
categories including home healthcare and durable medical
equipment from the Today's Healthcare (THC) catalog,
private label over-the-counter health and beauty care
merchandise, and certain consumer paper goods/bulk items
sold by the case. Net-billed items are not subject to
additional discounts or cost plus mark-ups, however such
purchases qualify towards total purchase volume.
Consumer Image and Ingredient Database License Fee. IR will be invoiced a
licensing fee of [**]
4.5 Special Services Fee. [Omitted]
4.6 Niche Products Storage Fee. At IR's reasonable request, BBDC will
provide storage space for additional items not generally stocked by BBDC ("Niche
Products"), subject to available suitable warehouse space. [**] Each Niche
Product will be subject to BBDC's standard Product set-up fee to enter it in
BBDC's order and inventory systems. Storage space will be [**] per standard
pallet (or portion thereof), payable per calendar quarter in advance, plus any
special handling or storage charges (e.g., security, refrigeration, insurance,
etc.) reasonably determined by BBDC on a case-by-case basis, adjusted to reflect
BBDC's experience. Niche Products are subject to a [**] (in lieu of the cost-
plus mark-up) in addition to the normal per-Order charge pursuant to Section
4.3. Niche Products do not qualify towards total [**]
4.7 Rebate. On a quarterly basis, BBDC will pay IR rebates pursuant
to the following schedule set forth below:
[**]
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
3
<PAGE>
[**]
4.8 Collateral Materials. IR will also be permitted to include in each
shipment up to [**] ("Collateral Materials") that are printed material no
bigger than 8 1/2 inches by 11 inches, each at no additional charge so long as
such Collateral Materials are to be included in all IR shipments. Order-specific
Collateral Materials, or Collateral Materials in excess of, or exceeding the
dimensions of, the allowable pieces of Collateral Materials described above will
be subject to an additional charge of [**] or as agreed upon by the parties. All
Collateral Materials will be paid for by IR.
5. PRICING.
BBDC will offer and make available to IR pricing programs under which
Products would be provided under this Agreement [**].
6. SERVICE LEVELS.
During the first sixty (60) days following the date BBDC begins shipping
Products under this Agreement ("Start-up Period"), BBDC will comply with the
"Start-Up Service Levels" in Exhibit A. After the Start-Up Period, BBDC will
---------
comply with the "Service Levels" in Exhibit A. Each of the Service Levels and
---------
Start-Up Service Levels will be deemed a material term of this Agreement, and
any failure to comply with them will entitle IR to terminate this Agreement
pursuant to Section 10.1.3 of the Terms and Conditions.
7. NOTICES.
Subject to Section 17.18 of the Terms and Conditions, notices to IR under
this Agreement will be sent to:
more.com, Inc.
520 Third Street, Suite 245
San Francisco, California 94107
Attn: Brad Oberwager
Fax: (415) 979-9598
with a copy to: Howard, Rice et al.
3 Embarcadero Center, 7/th/ Floor
San Francisco, California 94111
Attn: Ronald Star, Esq.
Fax: (415) 217-5910
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
4
<PAGE>
6. EXHIBITS.
All exhibits to this Agreement listed below are incorporated by this
reference.
Exhibit Number Exhibit Name
-------------- ------------
1 Terms and Conditions
A Service Levels
IN WITNESS WHEREOF, the parties have executed this Internet Fulfillment
Services Agreement as of the date first written above.
IR:
more.com
By:_______________________________________
Name:
Title:
BBDC:
Bergen Brunswig Drug Company
By:_______________________________________
Name: Chuck Prieve
Title: Vice President, e-Commerce Sales
5
<PAGE>
EXHIBIT 1
TO
INTERNET FULFILLMENT SERVICES AGREEMENT
TERMS AND CONDITIONS
1. PRODUCTS AND TERRITORY.
1.1 Products. A list of the categories of the Products ("Product
--------
Categories") is set forth in Schedule 1.1. BBDC will provide IR a list of
------------
specific products ("Products") and related information ("Item Catalog
Information" [EDI 832 Transaction Set]) from time to time. [**]
1.2 Niche Products. BBDC may elect to store and ship additional
--------------
products requested by IR, including private label products and other products
that BBDC does not otherwise carry, upon payment of the Niche Product fees set
forth on the cover page.
1.3 Territory. BBDC will provide fulfillment services for the Products
---------
in the Unites States of America and its territories and possessions and each
other territory listed on Schedule 1.3 ("Territory"). In no event will BBDC
------------
provide or ship Products to IR's consumers outside the Territory.
1.4 Exclusivity. [Omitted]
-----------
1.5 Right of First Refusal. [Omitted]
----------------------
2. ORDERS; SHIPPING; RETURNS.
2.1 Operations Manual. The Operations Manual in Schedule 2.1 ("Operations
----------------- ------------
Manual") is incorporated by this reference.
2.2 Orders. Orders for Products will be initially placed by IR's consumers
------
using IR's Internet web site. IR will forward all orders for Products to BBDC by
electronic data interchange ("EDI") pursuant to Section 3.8 at least four (4)
times per day ("Orders"). Orders will set forth a description of the Products,
SKU designations, quantities, requested method of delivery, the designated
delivery locations and other required information as agreed upon by the parties
from time to time.
2.3 Inventory. Subject to Section 4.2, BBDC will maintain sufficient
---------
inventory of the Products in an effort to facilitate the delivery of all Orders
for the Products. Inquiries by IR to BBDC's customer service representatives
concerning any Products must reference BBDC's Product number.
2.4 Shipping. BBDC will cause all lawful Orders to be shipped in
--------
accordance with the Operations Manual. Shipping guidelines may change due to
legal and product shipping requirements. Certain Products may be subject to
special shipping and handling fees. Title to, and risk of loss of, all Products
will pass from BBDC to IR upon BBDC's delivery of the Products to the shipper
for delivery to IR's consumer. [**] BBDC will use commercially reasonable
efforts to ensure that all Orders for Products received before the daily "cut-
off time" will be shipped by the corresponding shipping time for such day. Out-
of-stock or back-ordered Products will be shipped promptly after BBDC's receipt
of such Products from the manufacturer or other supplier. Inquiries about
shipping status will be first directed to the shipper and any such initial
inquires to BBDC's customer service representatives where BBDC has provided IR
with a shipper's tracking number will be subject to an additional charge. BBDC
will not process any of the following shipments of Products: (i) international
shipments, (ii) COD shipments, (iii) shipments requiring a declared value, (iv)
shipments to freight
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
6
<PAGE>
forwarding agents, (v) shipments of hazardous materials or other products
requiring specialized shipping that shipper and/or BBDC are not prepared to
provide, and (vi) Drug Enforcement Administration ("DEA") Schedule II controlled
substances.
2.5 Labels and Invoices. Unless modified by Exhibit 2, if any, IR will
------------------- ---------
provide BBDC standard packaging (standard size cardboard boxes, plain colored
plastic tape and plain bubble/paper packing material), labels and invoice forms
bearing IR's, and not BBDC's, name, logo and telephone number for BBDC's use in
shipping Products. IR may select from BBDC's standard invoice formats (inserting
IR's logo and return address) at no additional charge. Modifications and custom
work is subject to an additional charge at BBDC's then-current rates. If IR's
standard packaging, labels and invoice forms are not ordered through BBDC's
designated vendor (or IR uses non-standard packaging, labels or forms), IR will
be subject to additional charges for handling, storage and administration.
2.6 Returns. The Returned Goods Policy in Schedule 2.6 is incorporated by
------- ------------
this reference.
3. PRICING; PAYMENT.
3.1 Pricing and Fees. [**]
----------------
3.2 Price Adjustments. BBDC may change the pricing of any Product at any
-----------------
time; provided, however, any such change will not be effective with respect to
Products ordered by IR's consumers within twenty-four (24) hours of BBDC's
electronic notice to IR.
3.3 Rebates. [**]
-------
3.4 Taxes. IR will obtain and maintain a resale tax certificate in
-----
Kentucky and each other jurisdiction in which BBDC delivers Products to IR's
shipper. IR will collect and remit all applicable sales taxes and other taxes on
the sale or provision of Products to IR's consumers. IR will be responsible for
and will pay any excise, sales or use tax or other similar charge in the nature
of a tax imposed with respect to transactions under this Agreement (other than
income or other taxes on BBDC's net income) and, if paid or required to be paid
by BBDC, such amount will be added to and become part of the amount payable by
IR.
3.5 Timing of Payment. BBDC will submit invoices for the Products to IR on
-----------------
a per-Order basis for each Order received from IR's consumer. [**] IR's
obligation to pay for all purchases invoiced will be absolute and unconditional
and will not be subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever,
and such payments will be and continue to be payable in all events.
3.6 Late Payment. If payment is not received as described in Section 3.5,
------------
a late payment penalty of the [**]
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
7
<PAGE>
date. The right of BBDC to assess penalties for IR's payment delays will not
relieve IR of its obligation to make prompt payment in accordance with this
Section 3.
3.7 Financial Reconciliation. The Financial Reconciliation Process in
------------------------
Schedule 3.7 ("Financial Reconciliation Process") is incorporated by this
- ------------
reference.
3.8 EDI/EFT. The EDI/EFT Agreement in Schedule 3.8 is incorporated by
------- ------------
this reference. All Orders, IR sales reports, BBDC invoices and remittance
detail information will be transmitted by EDI. All funds will be transferred
between the parties by electronic funds transfers ("EFT"). All data files
transmitted over the public Internet will be encrypted in adherence with EDIINT
standards.
4. IR'S COVENANTS.
4.1 Web Site. IR will, at its cost, develop, produce, implement and test
--------
its web site and supporting electronic commerce enabling software, as well as
provide technical support, including developing and procuring credit card
processing and encryption software, subject, however, to the reasonable approval
of BBDC in relation to its fulfillment responsibilities under this Agreement. In
addition, IR will, at its cost, develop and procure all software interfaces or
programs necessary to enable IR to connect with BBDC's systems and operations
facilities. All software and hardware developed or purchased by IR to support
BBDC under this Agreement will remain the property of IR. Each screen accessible
to consumers on IR's web site will clearly identify IR. Unless modified by
Exhibit 2, if any, no content on IR's web site will directly or indirectly (a)
- ---------
identify BBDC or (b) lead any consumer or potential consumer to believe that IR
or its web site is the manufacturer of a Product. IR will update its web site to
indicate that a Product is unavailable or subject to other special conditions
based upon BBDC's Product notices and any failure to do so that results in
additional handling, storage, administrative or other costs to BBDC will subject
IR to an additional charge.
4.2 Marketing. [**] BBDC acknowledges that IR has sole authority and
---------
control over each stage of marketing for its program; provided however, if IR is
prohibited by law from performing any contemplated marketing activities, BBDC
may perform such functions at IR's expense to the extent BBDC may lawfully do
so. IR will provide reasonable advance notice of special offers, such as bundled
items, featured items and sales, advertising campaigns and other events that can
be reasonably expected to generate unusual volume (either overall or for
specific Products) in order to allow BBDC to have adequate inventory, staff and
other resources available to handle such volume.
4.3 Consumer Enrollment. IR will have sole responsibility for soliciting
-------------------
orders from consumers under this Agreement.
4.4 Records. IR will retain all documentation required by federal and
-------
state statutes and regulations.
4.5 License Revocation. IR will inform BBDC in writing within three (3)
------------------
business days after receiving notice of any action or proceeding from any
federal, state, or local agency to restrict, suspend, or revoke any of IR's
required licenses, permits or registrations or any other approval required to
supply the services described in this Agreement.
4.6 Compliance with Law. IR will perform all of its duties under this
-------------------
Agreement in full compliance with all applicable federal, state, and local laws
and regulations.
4.7 Adequate Space and Personnel. IR represents and warrants it has, and
----------------------------
agrees that it will continue to maintain or enlarge, as appropriate, such space,
equipment, resources, and personnel at its sole cost and expense necessary to
promote its web site and perform under this Agreement.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
8
<PAGE>
4.8 Prohibition Against Publication of Certain Materials. IR will not
----------------------------------------------------
knowingly or unknowingly incorporate in IR's web site any of the following
material (including pictures, links, or any other content, whether visible or
invisible with a web browser):
4.8.1 any material which violates or infringes any national or
international copyright, trademark, trade secret, patent, statutory, common law
or other proprietary rights of others, including any party's privacy right or
right of publicity, in effect or which may hereafter be enacted and applicable
to this Agreement or web sites;
4.8.2 any material that is libelous, slanderous, harmful, abusive,
threatening, obscene or pornographic; or
4.8.3 distribution lists to be used for unsolicited electronic mail or
other mass electronic mailings.
4.9 Adverse Event Reporting. IR will report all adverse events relating to
-----------------------
the Products pursuant to the requirements of the Food and Drug Administration.
4.10 Listed Chemicals. IR will obtain and maintain a Listed Chemicals
----------------
license from the DEA and will report the sale and shipment of all Products
pursuant to the requirements of the DEA and comply with all comparable state
requirements.
4.11 Product Recalls. IR acknowledges and agrees that BBDC will not be
---------------
obligated to recall any Product which is the subject of a manufacturer or
supplier recall but that either party may elect to do so from time to time in
its sole discretion, provided that any recall undertaken by BBDC at the request
of IR will be at IR's sole cost and expense.
4.12 Support. BBDC and IR will jointly evaluate which party will provide
-------
other support functions relating to the Products.
5. BBDC'S COVENANTS.
5.1 Records. BBDC agrees that it will retain all documentation required by
-------
federal and state statutes and regulations. If and to the extent required by
Section 1395x(v) (1) of Title 42 of the United States Code, as subsequently
amended from time to time, until the expiration of four (4) years after the
termination of this Agreement, BBDC will make available upon written request to
the Secretary of the United States Department of Health and Human Services, or
upon request to the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, a copy of this
Agreement and such books, documents, and records as are adequate to certify the
nature and extent of the costs of the goods and services provided by BBDC under
this Agreement. BBDC further agrees that in the event BBDC carries out any of
its duties under this Agreement through a subcontract, with a value or cost of
Ten Thousand Dollars ($10,000) or more over a twelve (12) month period, with a
related organization, such contract will contain a clause to the effect that
until the expiration of four (4) years after the furnishing of such services
pursuant to such subcontract, the related organization will make available, upon
written request to the Secretary of the United States Department of Health and
Human Services, or upon request to the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of such subcontract and such books, documents and records of such
organizations as are necessary to verify the nature and extent of such costs.
Notwithstanding anything set forth in this Agreement to the contrary, BBDC will
have no obligation under this Agreement to make public attorney-client
privileged documents.
5.2 Records. BBDC will retain all documentation required by federal and
-------
state statutes and regulations.
9
<PAGE>
5.3 License Revocation. BBDC agrees that it will inform IR promptly after
------------------
receiving notice of any action or proceeding from any federal, state, or local
agency to restrict, suspend, or revoke any of BBDC's required licenses, permits
or registrations or any other approval required to supply the services described
in this Agreement.
5.4 Compliance with Law. BBDC agrees that it will perform all of its
-------------------
duties under this Agreement in full compliance with all applicable federal,
state, and local laws and regulations.
5.5 Adequate Space and Personnel. BBDC represents and warrants it has,
----------------------------
and agrees that it will continue to maintain or enlarge, as appropriate, such
space, equipment, resources, and personnel at its sole cost and expense
necessary to promote its web site and perform under this Agreement.
6. REPRESENTATIONS OF THE PARTIES.
6.1 Representations and Warranties of BBDC. BBDC hereby represents and
--------------------------------------
warrants to IR that (i) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was organized; (ii) the
person executing this Agreement on its behalf is duly authorized to bind it to
all terms of this Agreement; (iii) it will have good title to all Products
delivered pursuant to this Agreement (unless such Product is subject to a
chargeback agreement); (iv) except as otherwise provided, all such Products will
be free from any security interest or other lien (unless such Product is subject
to a chargeback agreement); (v) all Products will be delivered without damage to
IR's shipper for delivery to IR's consumer; (vi) this Agreement, when executed
and delivered by it, will be its legal, valid, and binding obligation,
enforceable against it in accordance with its terms; and (vii) its execution,
delivery and performance of this Agreement will not conflict with or breach its
charter documents, delegations of authority or any material agreement to which
it is a party, or require the consent of or notice to any third party or
governmental authority.
6.2 No Representations or Warranties Regarding Products. BBDC makes, and
---------------------------------------------------
will be deemed to make, no representations or warranties, express or implied,
written or oral, as to the value, absence of defect, absence of infringement, or
the absence of any obligation based on strict liability in tort, or any other
representation or warranty whatsoever, express or implied, with respect to the
Products and services provided in this Agreement. BBDC EXPRESSLY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING BUT NOT LIMITED TO
THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING THE
PRODUCTS AND SERVICES PROVIDED IN THIS AGREEMENT. IR understands that BBDC is
not the manufacturer of any Products and agrees that IR will settle all claims,
defenses, set-offs and counterclaims it may have with or against any
manufacturer directly with the manufacturer and will not assert any such claims,
defenses, set-offs or counterclaims against BBDC. IR agrees BBDC has made no
such representations or warranties, written or oral, express or implied, about
the Products or their fitness for any purpose. Accordingly, IR agrees that BBDC,
its subsidiaries and affiliates and the directors, officers, shareholders and
agents of each will not be liable to IR for any liability, claim, loss, damage
(consequential or otherwise) or expense of any kind caused, directly or
indirectly by (i) the inadequacy of the Products for any purpose, (ii) any
deficiency or defect, (iii) any delay in providing the Products, (iv) failure to
provide the Products, or (v) death or bodily injury which may be caused by the
Products.
6.3 Representations and Warranties of IR. IR hereby represents and
------------------------------------
warrants to BBDC that (i) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was organized; (ii) the
person executing this Agreement on behalf of IR is duly authorized to bind IR to
all terms of this Agreement; (iii) this Agreement, when executed and delivered
by IR, will be the legal, valid, and binding obligation of IR, enforceable
against IR in accordance with its terms; (iv) its execution, delivery and
performance of this Agreement will not conflict with or breach its charter
documents, delegations of authority or any material agreement to which it is a
party, or require the consent of or notice to any third party or governmental
authority; and (v) IR holds all valid licenses, permits and registrations in
appropriate jurisdictions to permit IR to operate its Internet services.
10
<PAGE>
7. SOFTWARE AND DATABASE LICENSE.
7.1 Grant of License. For BBDC's Consumer Image and Ingredient Database
----------------
and each software application and/or database BBDC may provide to IR, to the
extent of BBDC's legal capacity to do so, grants IR a non-exclusive,
nontransferable and revocable license for the use of such software and/or
database ("Software") and its related documentation ("Documentation") subject to
payment by IR of the applicable licensing fee established by BBDC from time to
time. Each license is granted solely during the Term. BBDC does not grant to IR
any rights to any copyright, patent, trademark, trade name or similar rights
with respect to any Software or Documentation or any other information provided
to IR by BBDC. IR will not use the name, trade name, trademarks, service marks,
trade dress, logos or other intellectual property of BBDC, Product manufacturers
or suppliers or any of BBDC's affiliates in its web site, publicity releases,
advertising, sales literature or materials, or in any similar activity without
BBDC's prior written consent.
7.2 No Sublicense. IR may not sublicense, lease, distribute or otherwise
-------------
transfer Software or Documentation or IR's right to use the Software or
Documentation.
7.3 No Copies. IR may not make, or allow anyone else to make, copies of
---------
the Software or related Products, beyond one copy for backup and archival
purposes, except as BBDC may otherwise agree in writing. IR may not remove,
obscure, or deface any proprietary notices contained in the Software or
Documentation, and IR must include such notices in any permitted copy of the
Software.
7.4 No Alterations. IR may not alter, modify or adapt any Software or
--------------
Documentation or create derivative works from them. IR may not translate,
reverse engineer, disassemble or decompile the Software. BBDC will have no
liability for any claims by third parties or IR based upon altered Software or
Documentation.
7.5 Termination of License. The license to any part of the Software and
----------------------
Documentation will terminate automatically if IR fails to comply with the terms
of this license or any other material provision in this Agreement, or if the
Products for which IR is using the Software are discontinued. Upon termination
of a license, IR must cease using the Software and Documentation and, at BBDC's
election, return or destroy all copies of the Software and Documentation IR may
have in its possession or under its control, and certify to BBDC that IR has
done so. All of IR's obligations in this Agreement will survive termination of
any license.
7.6 Disclaimer. BBDC disclaims any representation or warranty regarding
----------
the Software and Documentation. IR acknowledges the possibility that (i) the
Software may not operate in combination with other software or hardware or in
the manner IR or its consumers may select for use and (ii) Software may not
operate without interruption or be error-free.
7.7 No Rights in Data. All files, input materials and output materials,
-----------------
the media upon which they are located (including cards, tapes, discs and other
storage facilities), and all Software (together with any Documentation, source
codes, object codes, upgrades, revisions, modifications and any related
materials) which are utilized by or developed for IR in connection with this
Agreement will be the property of BBDC.
7.8 Notice of Claims; Removal of Products and Content. Notwithstanding
-------------------------------------------------
Section 14.2.1, IR will immediately notify BBDC of any written or oral claim
that any Software or Documentation used by IR in its web site or otherwise
infringes on the rights of any third party. Immediately upon notice from BBDC,
IR will discontinue the offering of any Product and the use of any Software and
Documentation that BBDC determines may subject BBDC or IR to liability to any
third party. Failure to notify BBDC in writing within three (3) business days of
the receipt of an oral or written claim that any Software or Documentation used
by IR in its web site or otherwise infringes on the rights of any third party
will terminate and rescind all of
11
<PAGE>
BBDC's representations, warranties, and indemnification obligations with respect
to the subject matter of the claim.
8. [Omitted]
9. TERM.
Unless terminated earlier pursuant to Section 10, the term of this
Agreement will be for the period years set forth on the cover page of this
Agreement from the date of this Agreement and will be automatically extended for
additional, successive one (1) year terms (collectively, the "Term") unless
either party gives written notice to the other of its intention to not extend at
least ninety (90) days prior to the end of the then current Term.
10. TERMINATION OF AGREEMENT.
10.1 Default. This Agreement may be terminated by IR by providing written
-------
notice of termination to BBDC upon a default by BBDC under this Agreement. This
Agreement may be terminated by BBDC by providing written notice of termination
to IR upon a default by IR under this Agreement. For purposes of this provision,
a default will be deemed to have occurred upon the happening of any of the
following:
10.1.1 With respect to either party (A) filing an application by such
party for, or consent to, appointment of a trustee, receiver, or custodian of
its assets; (B) entry of an order for relief in proceedings under the United
States Bankruptcy Code, as amended or superseded from time to time; (C) making a
general assignment for the benefit of creditors; (D) entry of an order by any
court of competent jurisdiction appointing a trustee, receiver, or custodian of
its assets unless the proceedings and the person appointed are dismissed within
ninety (90) days; or (E) failure generally to pay its debts as the debts become
due within the meaning of Section 303(h)(1) as amended or superseded from time
to time, of the United States Bankruptcy Code, as determined by a Bankruptcy
Court, or in the event of a party's admission in writing of its inability to pay
its debts as they become due.
10.1.2 A party's failure to pay any amount that is due to the other
party under this Agreement or a consistent failure to make timely payments or
shipments under this Agreement and such failure continues for ten (10) days
after written notice from the other party; or
10.1.3 A party's failure to perform any other material obligation
under this Agreement, and such failure continues for thirty (30) days after such
party receives written notice of such breach from the non-breaching party;
provided, however, if the breaching party has commenced to cure such breach
within such thirty (30) days, but such cure is not completed within the thirty
(30) days, such party will be afforded the amount of additional time reasonably
necessary to complete its cure, provided it diligently pursues doing so until
completion.
10.2 Adverse Regulatory Changes. In the event of a material adverse
--------------------------
change in the laws of any jurisdiction so as to affect through increased
regulations, liability, or otherwise, BBDC's fulfillment operations or the
Internet sale of Products, then either party may terminate this Agreement upon
thirty (30) days' written notice to the other without further obligation.
10.3 Licenses. If any required licenses, permits or registrations of BBDC
--------
or IR are revoked or suspended so as to materially impair such party's ability
to perform under this Agreement, BBDC or IR may terminate this Agreement upon
thirty (30) days' written notice without further obligation.
10.4 Effect of Termination or Expiration. Upon termination or expiration of
-----------------------------------
this Agreement for any reason, BBDC will be entitled to payment of any amounts
owed to it by IR for Products ordered prior to termination or expiration and
shipped to IR's consumers. The obligations of the parties described in
12
<PAGE>
Sections 4, 5, 6, 7 (except the license granted thereunder), 8, 11, 12, 13, 14,
15 and 16 and any provision the context of which shows that the parties intended
the provision to survive will remain in effect notwithstanding the expiration or
termination of this Agreement. Additionally, termination of this Agreement will
have no effect upon the obligation of the parties under the terms of any other
agreements entered into between the parties, except as set forth otherwise in
such other agreements.
11. CONFIDENTIALITY.
11.1 "Confidential Information". "Confidential Information" will mean any
------------------------
and all information disclosed in writing or orally by either party to the other
party, which is either confidential or proprietary in nature. "Confidential
Information" will not include: (i) information that is or will become generally
available to the public through no fault of the receiving party; (ii)
information that was known to the receiving party before that party received it
under this Agreement and was free of any obligation of nondisclosure; or (iii)
information that is disclosed in good faith to the receiving party by a third
party lawfully in possession of such information and who is not under an
obligation of nondisclosure with respect to such information.
11.2 Nondisclosure. During the Term and for ten (10) years thereafter,
-------------
neither party will, without the prior written consent of the other party,
disclose to any third party (unless such disclosures are required by law) or use
for its own purposes (except as contemplated by this Agreement) this Agreement
or any other Confidential Information concerning the other party's business,
operations, or products that is obtained in the course of performing this
Agreement. Notwithstanding the foregoing, the parties may issue a joint press
release as promptly as practicable after the execution of this Agreement and may
continue to communicate with employees, customers, suppliers, lenders,
shareholders and others as may be legally required or appropriate and not
inconsistent with the best interests of the other party or the prompt
consummation of the activities contemplated by this Agreement.
11.3 Customer Lists. BBDC and IR will each retain ownership of its own
--------------
customer lists.
12. NON-SOLICITATION.
12.1 Covenant Not to Solicit. Each party agrees that neither it nor its
-----------------------
employees, agents, or representatives will, during the ("Non-Solicitation
Period") without the other party's prior written consent, solicit for hire any
person who is employed by the other party or any of its subsidiaries or
affiliates
12.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of any of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which the other party
would have no other adequate remedy, each party agrees that, in the event of a
breach by it of any of the covenants set forth in this Section, the other party
or its subsidiary or affiliate may, at its option, in addition to obtaining any
other remedy or relief available to them (including damages at law), enforce the
provisions of this Section by injunction and other equitable relief.
12.3 Reasonable Restraint. Each party agrees that the covenants contained
--------------------
in this Section impose a reasonable restraint in light of the other party's
activities, business and future plans.
12.4 Severability; Reformation. The covenants in this Section are severable
-------------------------
and separate, and the unenforcability of any specific covenant will not affect
the provisions of any other covenant in this Section or in this Agreement. In
the event any court of competent jurisdiction will determine that the scope,
time or territorial restrictions set forth in this Section are unreasonable,
then it is the intention of the parties that such restrictions be enforced to
the fullest extent which the court deems reasonable, and the provisions of this
Section will thereby be reformed.
12.5 Independent Covenant. Each of the covenants in this Section will be
--------------------
construed as a covenant independent of any other provision of this Agreement,
and the existence of any claim or cause
13
<PAGE>
of action of one party against the other, or any of its subsidiaries or
affiliates, whether predicated on this Agreement or otherwise, will not
constitute a defense to the enforcement by such party or such subsidiaries or
affiliates of such covenants.
12.6 Computation of the Non-Solicitation Period. The Non-Solicitation
------------------------------------------
Period will be computed by excluding from such computation any time during which
either party is in violation of any provision of this Section and any time
during which there is pending in any court of competent jurisdiction any action
(including any appeal from any judgment) in which a party seeks to enforce the
covenants contained in this Section or in which the other party contests the
validity or enforceability of any such covenant or seeks to avoid the
performance or enforcement of any such covenant.
12.7 Materiality. Each party acknowledges and agrees that the covenants
-----------
set forth in this Section are a material and substantial part of this Agreement.
13. INSURANCE.
During the Term and for two (2) years thereafter, IR will maintain at its
own cost and expense the following insurance together with such other insurance
as reasonably requested by BBDC in light of experience and changing risk
exposure:
(a) Commercial General Liability Insurance covering its premises, including
bodily injury, property damage, broad form contractual liability, independent
contractors and products liability/completed operations coverages, with limits
of not less than [**] per occurrence and [**] aggregate or [**] single limit.
(b) Workers' Compensation Insurance as mandated or allowed by all states in
which IR's business is being performed, including at least $1,000,000 coverage
for Employer's Liability.
(c) All Risk Property Insurance in an amount adequate to cover the cost of
replacement of all equipment, improvements, and betterments at IR locations in
the event of loss or damage.
(d) Errors and Omissions Insurance in the amount of [**], naming BBDC as an
additional insured.
All such policies will be written by a carrier or carriers rated "A" or
above by Best, will contain a clause requiring the carrier to give BBDC at least
thirty (30) days' prior written notice of any material change or cancellation of
coverage for any reason, and simultaneously with IR's execution of this
Agreement and annually thereafter, IR will deliver to BBDC original Certificates
of Insurance evidencing coverage required by this Section.
14. INDEMNIFICATION.
14.1 Indemnification by IR. IR will indemnify, defend, and hold harmless
---------------------
BBDC and its officers, directors, agents and affiliates from and against any and
all claims, demands, actions, causes of action, losses, judgments, damages,
costs and expenses (including, but not limited to, attorneys' fees, court costs,
and costs of settlement) ("Claim") to the extent arising out of claims against
BBDC for: (1) the death of, or bodily injury to, any person on account of the
use of a Product that results from IR's sale of such Product; or (2) any breach
by IR of any of its representations, warranties or covenants in this Agreement.
14.1.1 Notice by BBDC. Upon receipt of any notice of a Claim, BBDC
--------------
will promptly notify IR in writing of any such Claim; provided, however, any
failure to so notify IR will not relieve BBDC of any liability it may have to IR
except to the extent such liability was caused by such failure.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
14
<PAGE>
14.1.2 Retention of Counsel. IR will retain counsel at its expense to
--------------------
act as lead counsel in the defense of all Claims against BBDC. The Indemnified
Party may retain counsel. BBDC may retain counsel of its own choice at BBDC's
expense to the extent necessary to protect BBDC's interests and to act as co-
counsel in the litigation or settlement of any Claim or threatened Claim. So
long as IR does not enter into any settlement agreement or consent judgment that
admits liability on the part of BBDC or that fails to include an unconditional
release of BBDC from all liability from all asserted or threatened Claims, IR
will have the right to control the defense, settlement, and prosecution of any
litigation.
14.2 Indemnification by BBDC. BBDC will indemnify, defend, and hold
-----------------------
harmless IR and its officers and directors from and against any and all Claims
to the extent arising out of claims against IR for: (1) the dishonest,
fraudulent, negligent, willful, or criminal acts of BBDC or BBDC's employees,
agents, or representatives acting alone or in collusion with others; or (2) any
breach by BBDC of any of its representations, warranties or covenants in this
Agreement.
14.2.1 Notice by IR. Upon receipt of any notice of a Claim, IR will
------------
promptly notify BBDC in writing of any such claim; provided, however, any
failure to so notify BBDC will not relieve IR of any liability it may have to
BBDC except to the extent such liability was caused by such failure or as
provided in Section 7.8.
14.2.2 Retention of Counsel. BBDC will retain counsel at its expense
--------------------
to act as lead counsel in the defense of all Claims against IR. IR may retain
counsel of its own choice at IR's expense to the extent necessary to protect
IR's interests and to act as co-counsel in the litigation or settlement of any
Claim or threatened Claim. So long as BBDC does not enter into any settlement
agreement or consent judgment that admits liability on the part of IR or that
fails to include an unconditional release of IR from all liability from all
asserted or threatened Claims, BBDC will have the right to control the defense,
settlement, and prosecution of any litigation.
15. LIMIT ON LIABILITY.
NEITHER PARTY WILL BE LIABLE FOR ANY CLAIM ARISING OUT OF THIS
AGREEMENT FOR INDIRECT, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES, WHETHER OR
NOT IT KNEW OR HAD REASON TO KNOW OF THE POSSIBILITY OF SUCH DAMAGES AND, EXCEPT
FOR PAYMENT OF MONEY DUE UNDER THIS AGREEMENT AND EXCEPT AS PROVIDED IN SECTION
14.1 OR SECTION 14.2, NEITHER PARTY'S AGGREGATE LIABILITY TO THE OTHER UNDER
THIS AGREEMENT FOR ANY AND ALL CLAIMS, WHETHER IN CONTRACT, TORT, OR OTHERWISE,
WILL EXCEED $1,000,000.
16. INDEPENDENT CONTRACTOR.
Each party is an independent contractor and is solely responsible for
all taxes, withholdings, and other similar statutory obligations, including, but
not limited to, workers' compensation insurance. None of a party's employees,
agents, or associates are employees the other party and each party agrees to
defend, indemnify and hold the other harmless from any and all claims made by
any of its employees, agents, or associates, or by any entity or agency on
account of an alleged failure to satisfy any such tax or withholding
obligations. Neither party has authority to act on behalf of or to enter into
any contract, incur any liability, or make any representation on behalf of the
other.
17. MISCELLANEOUS.
17.1 Extraordinary Events. In the event BBDC's delivery or arranging for
--------------------
delivery of Products under this Agreement is prevented, impaired, reduced or
restricted by reason of force majeure, labor disputes, fire, acts of God, or any
other similar or dissimilar cause beyond its control, including but not limited
to the unavailability of such Products, transportation, shortage of materials or
fuel, delay in delivery or failure to deliver by BBDC's suppliers, loss of
facilities of distribution, the voluntary foregoing of the right
15
<PAGE>
to acquire or use any materials in order to accommodate or comply with the
orders, requests, regulations, recommendation or instructions of any
governmental authority (whether in furtherance of national defense or war
activities or to meet any other emergency), or the compliance with any law,
order, ruling, regulation, instruction or requirements of any governmental
authority or any political subdivision or agency thereof, or for any other cause
whether of the same or different character than specified in this Agreement,
beyond the reasonable control of the affected party, BBDC, without liability or
obligation, may reduce or eliminate Products during the period of any such
disability. In any such case, Products that BBDC is unable to supply will be
eliminated from this contract by written notice describing the amounts
eliminated and the estimated time period during which deliveries are to be
suspended; and BBDC will be relieved of any liability with respect to such
Products during the time BBDC may be unable to deliver such Products.
17.2 Severability. In the event that any provision in this Agreement is
------------
held to be invalid, unenforceable, void or illegal, in whole or in part, by any
court of competent jurisdiction, it will be deemed severable from the remainder
of this Agreement and will in no way affect, impair or invalidate any other
provision in this Agreement. If such provision will be deemed invalid due to its
scope or breadth, such provision will be deemed valid to the extent of the scope
of breadth permitted by law.
17.3 Governing Law, Choice of Forum and Time for Bringing Action. The
-----------------------------------------------------------
validity, construction and performance of this Agreement will be governed by and
construed in accordance with the internal laws of the State of California
without regard to its choice of laws provisions and, if applicable, the laws of
the United States. In the event any legal action is necessary to enforce or
interpret the terms of this Agreement, the parties agree that such action will
be brought in Superior Court for the State of California, and the parties hereby
submit to exclusive jurisdiction of such courts. Each party further agrees that
personal jurisdiction over it may be effected by service of process by
registered or certified mail, return receipt requested, and that when so made
will be as if served upon it personally within the State of California. Any
action for a breach of this Agreement must commence within two (2) year after
the cause of action has accrued.
17.4 Entire Agreement. This Agreement and all exhibits and schedules and
----------------
related agreements incorporated by reference constitute the complete agreement
between IR and BBDC with respect to the subject matter of this Agreement and
replace and supersede all prior written and oral agreements or statements by and
among the parties concerning the subject matter. No representation or warranty
concerning the subject matter not contained in this Agreement will be binding on
the parties or have any force or effect whatsoever.
17.5 Amendments. This Agreement may not be amended, modified or waived in
----------
any respect without further written agreement of both parties, signed by their
respective authorized representatives.
17.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, which will together constitute but one and the same instrument.
17.7 Waivers. Neither party's failure to insist, in one or more instances,
-------
upon the performance of any term of this Agreement will be construed as a waiver
or relinquishment of its right to such performance or other performance of such
term, and the other party's obligations will continue in full force. Either
party's consent to any act by the other party on any one occasion will not be
deemed a consent of the same act on any other occasion.
17.8 Time Is of the Essence. Time is of the essence in each provision of
----------------------
this Agreement.
17.9 Captions. The captions and heading in this Agreement are for
--------
convenience only and will not affect in any way the meaning or interpretation of
this Agreement.
16
<PAGE>
17.10 Assignment. Neither party may assign any rights or delegate any
----------
duties under this Agreement without the prior written consent of the other
party, which will not be unreasonably withheld or delayed, which consent will be
based on the financial capability and business reputation of the proposed
assignee, or in the case of IR, a proposed assignment to any affiliate of a
major national pharmaceutical wholesale distributor that competes with BBDC.
Notwithstanding the foregoing, IR acknowledges that BBDC has affiliates and
subsidiaries and may assign performance of some or all of the terms of this
Agreement to one or more such related entities. For purposes of this Section,
any transfer, sale, merger or consolidation of IR, or a substantial portion of
IR's assets, whether by contract or operation of law, or any other transaction
or series of related transactions transferring all or substantially all of IR's
business, assets (including this Agreement), stock or control will be deemed an
assignment and require such prior written consent by BBDC, but will not modify,
supplement or terminate the rights or obligations of the parties under this
Agreement. For purposes of the preceding sentence, "control" means, with respect
to a corporation or limited liability company, the right to exercise, directly
or indirectly, more than fifty percent (50%) of the voting rights attributable
to the controlled corporation or limited liability company and, with respect to
any individual, partnership, trust, other entity or association, the possession,
directly or indirectly, of the power to direct or cause the direction of any
management or policies of the controlled entity. Subject to the foregoing, the
provisions of this Agreement will be binding upon and will inure to the benefit
of the successors and assigns of the respective parties, including without
limitation any partnerships, corporations, or other entities in which the
parties may have a controlling interest or position. Except as expressly
provided, this Section will not be construed as a consent by either party to an
assignment of this Agreement or any interest in it by either party.
17.11 Further Assurances. Each party, at its own cost and expense, and at
------------------
the reasonable request of the other party, agrees to undertake all such further
acts and to execute all such further documents as may be necessary and
reasonably requested by either party to effectuate the performance of this
Agreement in accordance with the parties' intentions.
17.12 Affiliate Companies. In order to better serve the needs of IR,
-------------------
Products may, from time to time, be provided by an affiliate company of BBDC. IR
hereby acknowledges this fact and expressly consents to this distribution
arrangement. IR further agrees to be liable for all payments due under this
Agreement to any such affiliate.
17.13 Interpretation. In the event of any claimed conflict, omission or
--------------
ambiguity in this Agreement, no presumption or burden of proof or persuasion
will be implied by virtue of the fact that this Agreement was prepared by or at
the request of a particular party. This Agreement will be interpreted equally as
to both parties and not against the party that drafted it. Whenever the context
requires, the gender of all words will include the masculine, feminine and
neuter, and the number of all words will include the singular and plural. The
word "and" includes the word "or". The word "or" is disjunctive but not
necessarily exclusive.
17.14 Parties in Interest. Nothing in this Agreement will confer any rights
-------------------
on any third parties other than IR and BBDC and their respective successors and
assigns, nor will any provision give any third person any right of subrogation
or action over or against any party to this Agreement.
17.15 Information Reviewed. IR has received and reviewed all information it
--------------------
considers necessary or appropriate for deciding whether to purchase Products
from BBDC. IR has had an opportunity to ask questions and receive answers from
BBDC regarding the terms of the purchase of the Products and has further had the
opportunity to obtain all information which it deems necessary to evaluate the
purchase of the Products and to verify the accuracy of information otherwise
provided to IR by BBDC.
17.16 Reliance on Authority of Person Signing Agreement. Neither IR nor
-------------------------------------------------
BBDC will be required to determine the authority of the individual signing this
Agreement to make any commitment or
17
<PAGE>
undertaking on behalf of such entity or to determine any fact or circumstance
bearing upon the existence of the authority of such individual.
17.17 Attorneys' Fees. In the event that any dispute between IR and
---------------
BBDC should result in litigation, arbitration, or mediation the prevailing party
in such dispute will be entitled to recover from the other party all reasonable
fees, costs and expenses of enforcing any right of the prevailing party,
including reasonable attorneys' fees and expenses, all of which will be deemed
to have accrued upon the commencement of such action and will be paid whether or
not such action is prosecuted to judgment. Any judgment or order entered in such
action will contain a specific provision providing for the recovery of
attorneys' fees and costs incurred in enforcing such judgment and an award of
prejudgment interest from the date of the breach at the maximum rate of interest
allowed by law. "Attorneys' fees" include (1) post-judgment motions; (2)
contempt proceedings; (3) garnishment, levy, and debtor and third party
examinations; (4) discovery; and (5) bankruptcy litigation. "Prevailing party"
means the party who is determined in the proceeding to have prevailed or who
prevails by dismissal, default or otherwise.
17.18 Notices. All notices must be given in writing and be personally
-------
delivered or delivered by facsimile or by certified or registered mail, return
receipt requested, postage prepaid, addressed to the parties as set forth
opposite their respective names below:
IR: To the address set forth on the cover page of this
Agreement.
BBDC: Bergen Brunswig Drug Company
4000 Metropolitan Drive
Orange, CA 92868
Attn: Vice President, eCommerce Sales & Marketing
Fax: (714) 385-6826
with a copy to: Bergen Brunswig Corporation
4000 Metropolitan Drive
Orange, CA 92868
Attn: Executive Vice President,
Chief Legal Officer & Secretary
Fax: (714) 978-1148
Items delivered personally will be deemed delivered on the date of
actual delivery. Items sent electronically or by facsimile will be deemed
delivered on the first business day after the date of transmission. Items sent
by certified or registered mail will be deemed delivered three (3) business days
after mailing. A party may change the foregoing information or notices by
notifying the other party of such change in writing in accordance with the
foregoing.
[END OF TERMS AND CONDITIONS]
18
<PAGE>
Exhibit 10.12
PRESCRIPTION PHARMACEUTICALS
INTERNET FULFILLMENT SERVICES AGREEMENT
This Internet Fulfillment Services Agreement ("Agreement") is made as of August
18, 1999, by and between Medi-Mail, Inc., a Nevada corporation ("MM"), and
more.com, Inc., a Delaware corporation ("IR").
RECITALS
A. IR is an Internet retailer and has created a marketing and sales program
designed to supply pharmaceutical products and related services to individuals
utilizing an Internet web site;
B. MM is a licensed mail-order pharmacy providing certain prescription
pharmaceutical drugs and related products ("Products") to consumers across the
United States;
C. IR wishes to contract with a fulfillment service provider to dispense the
Products and provide related services, including pharmacist counseling about
medication as needed, to IR's consumers in the United States;
D. MM wishes to provide the services described herein to IR; and
E. The parties wish to enter into this Agreement in order to set forth their
obligations to each other.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the parties agree as follows:
1. TERMS AND CONDITIONS.
Terms and conditions in Exhibit 1 as modified by Exhibit 2 (collectively,
--------- ---------
"Terms and Conditions") are incorporated by this reference. Capitalized terms
used without definition have meanings in the Terms and Conditions. All
references to BBDC in Exhibit 1 will mean MM for purposes of this Agreement.
---------
2. PRODUCTS.
A list of Products maintained by MM has been provided to IR for IR's
initial selection, which selection may be revised by IR from time to time as
provided in this Agreement. MM will, from time to time, update the specific
products to be included as Products under this Agreement. MM may add or delete
available Products upon ten (10) days' prior written notice to IR; provided,
however, IR may elect not to offer added Products, in which case any deleted
product will no longer be considered a Product.
3. TERM.
Subject to Sections 9 and 10 of the Terms and Conditions, the Term of this
Agreement will be until June 30, 2009.
4. FEES.
In addition to payment for Products, IR will pay MM the following service
fees for MM's
1
<PAGE>
fulfillment services, including dispensing Products and providing pharmacist
counseling about medication as needed and other related services to IR's
consumers pursuant to this Agreement.
4.1 Dispensing Fees. [**]
4.2 Favorable Pricing. [**]
4.3 Third Party Payer Pricing. [**]
4.4 Niche Products Storage Fee. At IR's reasonable request, MM will
provide storage space for additional items not generally stocked by MM ("Niche
Products"), subject to available suitable warehouse space and terms.
4.5 Early Termination Fee. In addition to the provisions of Section 10 of
the Terms and Conditions, IR may terminate this Agreement during the Term
without cause effective upon sixty (60) days prior written notice to MM and
payment of an early termination fee with such notice in the amount set forth
below.
[**]
5. SERVICE LEVELS.
In dispensing prescriptions under this Agreement, MM will comply with the
service levels in Exhibit A. Those service levels associated with pharmacy
---------
operations (but not other customer service) will be deemed a material term of
this Agreement and any failure to comply with them will entitle IR to suspend
the exclusivity provisions under Section 1.4 of the Terms and Conditions. Final
service levels will be adopted by the parties within ninety (90) days after MM's
call center system is enhanced and programmed for interactive voice response
capability (IVR) and such function is tested, for call center service levels;
within ninety (90) days after MM's
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
2
<PAGE>
Pfastship shipping system is operation, integrated and tested, for shipping
service levels; and within sixty (60) days after MM's HBS system is operational
and implementation has been fully tested, for drug furnishing irregularity
service levels.
6. ACCESS TO MM'S PAYERS.
IR does not have access to MM's payers and/or third-party plans outside the
scope of the PlusCare network.
7. AUDIT AND INSPECTION.
During the Term, upon reasonable prior notice and during normal business
hours, each party will be entitled to audit and inspect those relevant records
maintained by the other in direct connection with its performance under this
Agreement.
8. VIPPS CERTIFICATION.
MM will assist IR at IR's expense in obtaining its VIPPS certification from
the National Association of Boards of Pharmacy.
9. TOLL-FREE TELEPHONE LINES.
MM will provide a toll-free telephone line for IR consumers, which will be
a direct pass through expense to IR billed on a monthly basis. Consumer calls
will be answered with an IR greeting.
10. PHARMACY AND CUSTOMER SERVICE SUPPORT.
If any of IR's consumers require pharmacist counseling in connection with
any Products, MM will provide such services to each such consumer from Monday
through Friday, 7:00 a.m. through 5:00 p.m. (Pacific Time). MM will also provide
customer service from Monday through Friday, 6:00 a.m. through 5:00 p.m.
(Pacific Time) to respond to inquiries from IR consumers. IR may, at its sole
discretion, determine to contract with MM to hire additional pharmacists or
personnel on staff to provide additional functions or to provide similar
functions during expanded hours and days. [**]
11. COLLATERAL MATERIAL.
IR will also be permitted to include in each shipment up to two (2) pieces
of advertising materials, coupons or other promotional materials ("Collateral
Materials") that are printed material no bigger than 8 1/2 inches by 11 inches,
each at no additional charge so long as such Collateral Materials are to be
included in all IR shipments. Order-specific Collateral Materials, or
Collateral Materials in excess of, or exceeding the dimensions of, the allowable
pieces of Collateral Materials described above will be subject to additional
charges to be agreed upon by the parties. All Collateral Materials described
above will be paid for by IR.
12. NOTICES.
Subject to Section 17.19 of the Terms and Conditions, notices to IR under this
Agreement will be
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
3
<PAGE>
sent to:
more.com, Inc.
520 Third Street, Suite 245
San Francisco, California 94107
Attn: Brad Oberwager
Fax: (415) 979-9598
with a copy to: Howard, Rice et al.
3 Embarcadero Center, 7/th/ Floor
San Francisco, California 94111
Attn: Ronald Star, Esq.
Fax: (415) 217-5910
13. EXHIBITS.
All exhibits to this Agreement listed below are incorporated by this
reference.
Exhibit Number Exhibit Name
1 Terms and Conditions
2 Prescription Pharmaceuticals Addendum
A Service Levels
IN WITNESS WHEREOF, the parties have executed this Internet Fulfillment
Services Agreement as of the date first written above.
IR: more.com, Inc.
By: /s/ Laureen De Buono
Name: Laureen De Buono
Title: CFO
MM:
Medi-Mail, Inc.
By:/s/ Carol E. Scherman
Name: Carol E. Scherman
Title: Chief Executive Officer
4
<PAGE>
EXHIBIT 1
TO
PRESCRIPTION PHARMACEUTICALS
INTERNET FULFILLMENT SERVICES AGREEMENT
TERMS AND CONDITIONS
1. PRODUCTS AND TERRITORY.
1.1 Products. A list of the categories of the Products ("Product
--------
Categories") is set forth in Schedule 1.1. BBDC will provide IR a list of
------------
specific products ("Products") and related information ("Item Catalog
Information" [EDI 832 Transaction Set]) from time to time. BBDC may add or
delete available Products upon two (2) days' notice to IR; provided, however, IR
may elect not to offer added Products.
1.2 Niche Products. BBDC may elect to store and ship additional products
--------------
requested by IR, including private label products and other products that BBDC
does not otherwise carry, upon payment of the Niche Product fees set forth on
the cover page.
1.3 Territory. BBDC will provide fulfillment services for the Products in
---------
the Unites States of America and its territories and possessions and each other
territory listed on Schedule 1.3 ("Territory"). In no event will BBDC provide
------------
or ship Products to IR's consumers outside the Territory.
1.4 Exclusivity. [Omitted]
-----------
1.5 Right of First Refusal. [Omitted]
----------------------
2. ORDERS; SHIPPING; RETURNS.
2.1 Operations Manual. The Operations Manual in Schedule 2.1 ("Operations
----------------- ------------
Manual") is incorporated by this reference.
2.2 Orders. Orders for Products will be initially placed by IR's
------
consumers using IR's Internet web site. IR will forward all orders for Products
to BBDC by electronic data interchange ("EDI") pursuant to Section 3.8 at least
four (4) times per day ("Orders"). Orders will set forth a description of the
Products, SKU designations, quantities, requested method of delivery, the
designated delivery locations and other required information as agreed upon by
the parties from time to time.
2.3 Inventory. Subject to Section 4.2, BBDC will maintain sufficient
---------
inventory of the Products in an effort to facilitate the delivery of all Orders
for the Products. Inquiries by IR to BBDC's customer service representatives
concerning any Products must reference BBDC's Product number.
2.4 Shipping. BBDC will cause all lawful Orders to be shipped in
--------
accordance with the Operations Manual. Shipping guidelines may change due to
legal and product shipping requirements. Certain Products may be subject to
special shipping and handling fees. Title to, and risk of loss of, all Products
will pass from BBDC to IR upon BBDC's delivery of the Products to the shipper
for delivery to IR's consumer. [**] will use commercially reasonable efforts to
ensure that all Orders for Products received before the daily "cut-off time"
will be shipped by the corresponding shipping time for such day. Out-of-stock or
back-ordered Products will be shipped promptly after BBDC's receipt of such
Products from the manufacturer or other supplier. Inquiries about shipping
status will be first directed to the shipper and any such initial inquires to
BBDC's customer service representatives where BBDC has provided IR with a
shipper's tracking number will be subject to an additional charge. BBDC will not
process any of the following shipments of Products: (i) international shipments,
(ii) COD shipments, (iii) shipments requiring a declared value, (iv) shipments
to freight
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
5
<PAGE>
forwarding agents, (v) shipments of hazardous materials or other products
requiring specialized shipping that shipper and/or BBDC are not prepared to
provide, and (vi) Drug Enforcement Administration ("DEA") Schedule II controlled
substances.
2.5 Labels and Invoices. Unless modified by Exhibit 2, if any, IR will
------------------- ---------
provide BBDC standard packaging (standard size cardboard boxes, plain colored
plastic tape and plain bubble/paper packing material), labels and invoice forms
bearing IR's, and not BBDC's, name, logo and telephone number for BBDC's use in
shipping Products. IR may select from BBDC's standard invoice formats (inserting
IR's logo and return address) at no additional charge. Modifications and custom
work is subject to an additional charge at BBDC's then-current rates. If IR's
standard packaging, labels and invoice forms are not ordered through BBDC's
designated vendor (or IR uses non-standard packaging, labels or forms), IR will
be subject to additional charges for handling, storage and administration.
2.6 Returns. The Returned Goods Policy in Schedule 2.6 is incorporated by
------- ------------
this reference.
3. PRICING; PAYMENT.
3.1 Pricing and Fees. [**]
----------------
3.2 Price Adjustments. BBDC may change the pricing of any Product at any
-----------------
time; provided, however, any such change will not be effective with respect to
Products ordered by IR's consumers within twenty-four (24) hours of BBDC's
electronic notice to IR.
3.3 Rebates. [**]
-------
3.4 Taxes. IR will obtain and maintain a resale tax certificate in
-----
Kentucky and each other jurisdiction in which BBDC delivers Products to IR's
shipper. IR will collect and remit all applicable sales taxes and other taxes
on the sale or provision of Products to IR's consumers. IR will be responsible
for and will pay any excise, sales or use tax or other similar charge in the
nature of a tax imposed with respect to transactions under this Agreement (other
than income or other taxes on BBDC's net income) and, if paid or required to be
paid by BBDC, such amount will be added to and become part of the amount payable
by IR.
3.5 Timing of Payment. BBDC will submit invoices for the Products to IR
-----------------
on a per-Order basis for each Order received from IR's consumer. [**] IR's
obligation to pay for all purchases invoiced will be absolute and unconditional
and will not be subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever,
and such payments will be and continue to be payable in all events.
3.6 Late Payment. If payment is not received as described in Section 3.5,
------------
a late payment penalty of the lower of [**]
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
6
<PAGE>
[**]. The right of BBDC to assess penalties for IR's payment delays will not
relieve IR of its obligation to make prompt payment in accordance with this
Section 3.
3.7 Financial Reconciliation. The Financial Reconciliation Process in
------------------------
Schedule 3.7 ("Financial Reconciliation Process") is incorporated by this
- ------------
reference.
3.8 EDI/EFT. The EDI/EFT Agreement in Schedule 3.8 is incorporated by
------- ------------
this reference. All Orders, IR sales reports, BBDC invoices and remittance
detail information will be transmitted by EDI. All funds will be transferred
between the parties by electronic funds transfers ("EFT"). All data files
transmitted over the public Internet will be encrypted in adherence with EDIINT
standards.
4. IR'S COVENANTS.
4.1 Web Site. IR will, at its cost, develop, produce, implement and test
--------
its web site and supporting electronic commerce enabling software, as well as
provide technical support, including developing and procuring credit card
processing and encryption software, subject, however, to the reasonable approval
of BBDC in relation to its fulfillment responsibilities under this Agreement.
In addition, IR will, at its cost, develop and procure all software interfaces
or programs necessary to enable IR to connect with BBDC's systems and operations
facilities. All software and hardware developed or purchased by IR to support
BBDC under this Agreement will remain the property of IR. Each screen
accessible to consumers on IR's web site will clearly identify IR. Unless
modified by Exhibit 2, if any, no content on IR's web site will directly or
---------
indirectly (a) identify BBDC or (b) lead any consumer or potential consumer to
believe that IR or its web site is the manufacturer of a Product. IR will
update its web site to indicate that a Product is unavailable or subject to
other special conditions based upon BBDC's Product notices and any failure to do
so that results in additional handling, storage, administrative or other costs
to BBDC will subject IR to an additional charge.
4.2 Marketing. [**]. BBDC acknowledges that IR has sole authority and
---------
control over each stage of marketing for its program; provided however, if IR is
prohibited by law from performing any contemplated marketing activities, BBDC
may perform such functions at IR's expense to the extent BBDC may lawfully do
so. IR will provide reasonable advance notice of special offers, such as bundled
items, featured items and sales, advertising campaigns and other events that can
be reasonably expected to generate unusual volume (either overall or for
specific Products) in order to allow BBDC to have adequate inventory, staff and
other resources available to handle such volume.
4.3 Consumer Enrollment. IR will have sole responsibility for soliciting
-------------------
orders from consumers under this Agreement.
4.4 Records. IR will retain all documentation required by federal and
-------
state statutes and regulations.
4.5 License Revocation. IR will inform BBDC in writing within three (3)
------------------
business days after receiving notice of any action or proceeding from any
federal, state, or local agency to restrict, suspend, or revoke any of IR's
required licenses, permits or registrations or any other approval required to
supply the services described in this Agreement.
4.6 Compliance with Law. IR will perform all of its duties under this
-------------------
Agreement in full compliance with all applicable federal, state, and local laws
and regulations.
4.7 Adequate Space and Personnel. IR represents and warrants it has, and
----------------------------
agrees that it will continue to maintain or enlarge, as appropriate, such space,
equipment, resources, and personnel at its sole cost and expense necessary to
promote its web site and perform under this Agreement.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
7
<PAGE>
4.8 Prohibition Against Publication of Certain Materials. IR will not
----------------------------------------------------
knowingly or unknowingly incorporate in IR's web site any of the following
material (including pictures, links, or any other content, whether visible or
invisible with a web browser):
4.8.1 any material which violates or infringes any national or
international copyright, trademark, trade secret, patent, statutory, common law
or other proprietary rights of others, including any party's privacy right or
right of publicity, in effect or which may hereafter be enacted and applicable
to this Agreement or web sites;
4.8.2 any material that is libelous, slanderous, harmful, abusive,
threatening, obscene or pornographic; or
4.8.3 distribution lists to be used for unsolicited electronic mail
or other mass electronic mailings.
4.9 Adverse Event Reporting. IR will report all adverse events relating
-----------------------
to the Products pursuant to the requirements of the Food and Drug
Administration.
4.10 Listed Chemicals. IR will obtain and maintain a Listed Chemicals
----------------
license from the DEA and will report the sale and shipment of all Products
pursuant to the requirements of the DEA and comply with all comparable state
requirements.
4.11 Product Recalls. IR acknowledges and agrees that BBDC will not be
---------------
obligated to recall any Product which is the subject of a manufacturer or
supplier recall but that either party may elect to do so from time to time in
its sole discretion, provided that any recall undertaken by BBDC at the request
of IR will be at IR's sole cost and expense.
4.12 Support. BBDC and IR will jointly evaluate which party will provide
-------
other support functions relating to the Products.
5. BBDC'S COVENANTS.
5.1 Records. BBDC agrees that it will retain all documentation required
-------
by federal and state statutes and regulations. If and to the extent required by
Section 1395x(v) (1) of Title 42 of the United States Code, as subsequently
amended from time to time, until the expiration of four (4) years after the
termination of this Agreement, BBDC will make available upon written request to
the Secretary of the United States Department of Health and Human Services, or
upon request to the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, a copy of this
Agreement and such books, documents, and records as are adequate to certify the
nature and extent of the costs of the goods and services provided by BBDC under
this Agreement. BBDC further agrees that in the event BBDC carries out any of
its duties under this Agreement through a subcontract, with a value or cost of
Ten Thousand Dollars ($10,000) or more over a twelve (12) month period, with a
related organization, such contract will contain a clause to the effect that
until the expiration of four (4) years after the furnishing of such services
pursuant to such subcontract, the related organization will make available, upon
written request to the Secretary of the United States Department of Health and
Human Services, or upon request to the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of such subcontract and such books, documents and records of such
organizations as are necessary to verify the nature and extent of such costs.
Notwithstanding anything set forth in this Agreement to the contrary, BBDC will
have no obligation under this Agreement to make public attorney-client
privileged documents.
5.2 Records. BBDC will retain all documentation required by federal and
-------
state statutes and regulations.
8
<PAGE>
5.3 License Revocation. BBDC agrees that it will inform IR promptly after
------------------
receiving notice of any action or proceeding from any federal, state, or local
agency to restrict, suspend, or revoke any of BBDC's required licenses, permits
or registrations or any other approval required to supply the services described
in this Agreement.
5.4 Compliance with Law. BBDC agrees that it will perform all of its
-------------------
duties under this Agreement in full compliance with all applicable federal,
state, and local laws and regulations.
5.5 Adequate Space and Personnel. BBDC represents and warrants it has,
----------------------------
and agrees that it will continue to maintain or enlarge, as appropriate, such
space, equipment, resources, and personnel at its sole cost and expense
necessary to promote its web site and perform under this Agreement.
6. REPRESENTATIONS OF THE PARTIES.
6.1 Representations and Warranties of BBDC. BBDC hereby represents and
--------------------------------------
warrants to IR that (i) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was organized; (ii) the
person executing this Agreement on its behalf is duly authorized to bind it to
all terms of this Agreement; (iii) it will have good title to all Products
delivered pursuant to this Agreement (unless such Product is subject to a
chargeback agreement); (iv) except as otherwise provided, all such Products will
be free from any security interest or other lien (unless such Product is subject
to a chargeback agreement); (v) all Products will be delivered without damage to
IR's shipper for delivery to IR's consumer; (vi) this Agreement, when executed
and delivered by it, will be its legal, valid, and binding obligation,
enforceable against it in accordance with its terms; and (vii) its execution,
delivery and performance of this Agreement will not conflict with or breach its
charter documents, delegations of authority or any material agreement to which
it is a party, or require the consent of or notice to any third party or
governmental authority.
6.2 No Representations or Warranties Regarding Products. BBDC makes, and
---------------------------------------------------
will be deemed to make, no representations or warranties, express or implied,
written or oral, as to the value, absence of defect, absence of infringement, or
the absence of any obligation based on strict liability in tort, or any other
representation or warranty whatsoever, express or implied, with respect to the
Products and services provided in this Agreement. BBDC EXPRESSLY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING BUT NOT LIMITED TO
THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING THE
PRODUCTS AND SERVICES PROVIDED IN THIS AGREEMENT. IR understands that BBDC is
not the manufacturer of any Products and agrees that IR will settle all claims,
defenses, set-offs and counterclaims it may have with or against any
manufacturer directly with the manufacturer and will not assert any such claims,
defenses, set-offs or counterclaims against BBDC. IR agrees BBDC has made no
such representations or warranties, written or oral, express or implied, about
the Products or their fitness for any purpose. Accordingly, IR agrees that BBDC,
its subsidiaries and affiliates and the directors, officers, shareholders and
agents of each will not be liable to IR for any liability, claim, loss, damage
(consequential or otherwise) or expense of any kind caused, directly or
indirectly by (i) the inadequacy of the Products for any purpose, (ii) any
deficiency or defect, (iii) any delay in providing the Products, (iv) failure to
provide the Products, or (v) death or bodily injury which may be caused by the
Products.
6.3 Representations and Warranties of IR. IR hereby represents and
------------------------------------
warrants to BBDC that (i) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was organized; (ii) the
person executing this Agreement on behalf of IR is duly authorized to bind IR to
all terms of this Agreement; (iii) this Agreement, when executed and delivered
by IR, will be the legal, valid, and binding obligation of IR, enforceable
against IR in accordance with its terms; (iv) its execution, delivery and
performance of this Agreement will not conflict with or breach its charter
documents, delegations of authority or any material agreement to which it is a
party, or require the consent of or notice to any third party or governmental
authority; and (v) IR holds all valid licenses, permits and registrations in
appropriate jurisdictions to permit IR to operate its Internet services.
9
<PAGE>
7. SOFTWARE AND DATABASE LICENSE.
7.1 Grant of License. For BBDC's Consumer Image and Ingredient Database
----------------
and each software application and/or database BBDC may provide to IR, to the
extent of BBDC's legal capacity to do so, grants IR a non-exclusive,
nontransferable and revocable license for the use of such software and/or
database ("Software") and its related documentation ("Documentation") subject to
payment by IR of the applicable licensing fee established by BBDC from time to
time. Each license is granted solely during the Term. BBDC does not grant to IR
any rights to any copyright, patent, trademark, trade name or similar rights
with respect to any Software or Documentation or any other information provided
to IR by BBDC. IR will not use the name, trade name, trademarks, service marks,
trade dress, logos or other intellectual property of BBDC, Product manufacturers
or suppliers or any of BBDC's affiliates in its web site, publicity releases,
advertising, sales literature or materials, or in any similar activity without
BBDC's prior written consent.
7.2 No Sublicense. IR may not sublicense, lease, distribute or otherwise
-------------
transfer Software or Documentation or IR's right to use the Software or
Documentation.
7.3 No Copies. IR may not make, or allow anyone else to make, copies of
---------
the Software or related Products, beyond one copy for backup and archival
purposes, except as BBDC may otherwise agree in writing. IR may not remove,
obscure, or deface any proprietary notices contained in the Software or
Documentation, and IR must include such notices in any permitted copy of the
Software.
7.4 No Alterations. IR may not alter, modify or adapt any Software or
--------------
Documentation or create derivative works from them. IR may not translate,
reverse engineer, disassemble or decompile the Software. BBDC will have no
liability for any claims by third parties or IR based upon altered Software or
Documentation.
7.5 Termination of License. The license to any part of the Software and
----------------------
Documentation will terminate automatically if IR fails to comply with the terms
of this license or any other material provision in this Agreement, or if the
Products for which IR is using the Software are discontinued. Upon termination
of a license, IR must cease using the Software and Documentation and, at BBDC's
election, return or destroy all copies of the Software and Documentation IR may
have in its possession or under its control, and certify to BBDC that IR has
done so. All of IR's obligations in this Agreement will survive termination of
any license.
7.6 Disclaimer. BBDC disclaims any representation or warranty regarding
----------
the Software and Documentation. IR acknowledges the possibility that (i) the
Software may not operate in combination with other software or hardware or in
the manner IR or its consumers may select for use and (ii) Software may not
operate without interruption or be error-free.
7.7 No Rights in Data. All files, input materials and output materials,
-----------------
the media upon which they are located (including cards, tapes, discs and other
storage facilities), and all Software (together with any Documentation, source
codes, object codes, upgrades, revisions, modifications and any related
materials) which are utilized by or developed for IR in connection with this
Agreement will be the property of BBDC.
7.8 Notice of Claims; Removal of Products and Content. Notwithstanding
-------------------------------------------------
Section 14.2.1, IR will immediately notify BBDC of any written or oral claim
that any Software or Documentation used by IR in its web site or otherwise
infringes on the rights of any third party. Immediately upon notice from BBDC,
IR will discontinue the offering of any Product and the use of any Software and
Documentation that BBDC determines may subject BBDC or IR to liability to any
third party. Failure to notify BBDC in writing within three (3) business days
of the receipt of an oral or written claim that any Software or Documentation
used by IR in its web site or otherwise infringes on the rights of any third
party will terminate and rescind all of BBDC's representations, warranties, and
indemnification obligations with respect to the subject matter of the claim.
10
<PAGE>
8. [Omitted]
9. TERM.
Unless terminated earlier pursuant to Section 10, the term of this
Agreement will be for the period years set forth on the cover page of this
Agreement from the date of this Agreement and will be automatically extended for
additional, successive one (1) year terms (collectively, the "Term") unless
either party gives written notice to the other of its intention to not extend at
least ninety (90) days prior to the end of the then current Term.
10. TERMINATION OF AGREEMENT.
10.1 Default. This Agreement may be terminated by IR by providing written
-------
notice of termination to BBDC upon a default by BBDC under this Agreement. This
Agreement may be terminated by BBDC by providing written notice of termination
to IR upon a default by IR under this Agreement. For purposes of this
provision, a default will be deemed to have occurred upon the happening of any
of the following:
10.1.1 With respect to either party (A) filing an application by
such party for, or consent to, appointment of a trustee, receiver, or custodian
of its assets; (B) entry of an order for relief in proceedings under the United
States Bankruptcy Code, as amended or superseded from time to time; (C) making a
general assignment for the benefit of creditors; (D) entry of an order by any
court of competent jurisdiction appointing a trustee, receiver, or custodian of
its assets unless the proceedings and the person appointed are dismissed within
ninety (90) days; or (E) failure generally to pay its debts as the debts become
due within the meaning of Section 303(h)(1) as amended or superseded from time
to time, of the United States Bankruptcy Code, as determined by a Bankruptcy
Court, or in the event of a party's admission in writing of its inability to pay
its debts as they become due.
10.1.2 A party's failure to pay any amount that is due to the other
party under this Agreement or a consistent failure to make timely payments or
shipments under this Agreement and such failure continues for ten (10) days
after written notice from the other party; or
10.1.3 A party's failure to perform any other material obligation
under this Agreement, and such failure continues for thirty (30) days after such
party receives written notice of such breach from the non-breaching party;
provided, however, if the breaching party has commenced to cure such breach
within such thirty (30) days, but such cure is not completed within the thirty
(30) days, such party will be afforded the amount of additional time reasonably
necessary to complete its cure, provided it diligently pursues doing so until
completion.
10.2 Adverse Regulatory Changes. In the event of a material adverse
--------------------------
change in the laws of any jurisdiction so as to affect through increased
regulations, liability, or otherwise, BBDC's fulfillment operations or the
Internet sale of Products, then either party may terminate this Agreement upon
thirty (30) days' written notice to the other without further obligation.
10.3 Licenses. If any required licenses, permits or registrations of BBDC
--------
or IR are revoked or suspended so as to materially impair such party's ability
to perform under this Agreement, BBDC or IR may terminate this Agreement upon
thirty (30) days' written notice without further obligation.
10.4 Effect of Termination or Expiration. Upon termination or expiration
-----------------------------------
of this Agreement for any reason, BBDC will be entitled to payment of any
amounts owed to it by IR for Products ordered prior to termination or expiration
and shipped to IR's consumers. The obligations of the parties described in
Sections 4, 5, 6, 7 (except the license granted thereunder), 8, 11, 12, 13, 14,
15 and 16 and any provision the context of which shows that the parties intended
the provision to survive will remain in effect notwithstanding the expiration or
termination of this Agreement. Additionally, termination of this
11
<PAGE>
Agreement will have no effect upon the obligation of the parties under the terms
of any other agreements entered into between the parties, except as set forth
otherwise in such other agreements.
11. CONFIDENTIALITY.
11.1 "Confidential Information". "Confidential Information" will mean any
-------------------------
and all information disclosed in writing or orally by either party to the other
party, which is either confidential or proprietary in nature. "Confidential
Information" will not include: (i) information that is or will become generally
available to the public through no fault of the receiving party; (ii)
information that was known to the receiving party before that party received it
under this Agreement and was free of any obligation of nondisclosure; or (iii)
information that is disclosed in good faith to the receiving party by a third
party lawfully in possession of such information and who is not under an
obligation of nondisclosure with respect to such information.
11.2 Nondisclosure. During the Term and for ten (10) years thereafter,
-------------
neither party will, without the prior written consent of the other party,
disclose to any third party (unless such disclosures are required by law) or use
for its own purposes (except as contemplated by this Agreement) this Agreement
or any other Confidential Information concerning the other party's business,
operations, or products that is obtained in the course of performing this
Agreement. Notwithstanding the foregoing, the parties may issue a joint press
release as promptly as practicable after the execution of this Agreement and may
continue to communicate with employees, customers, suppliers, lenders,
shareholders and others as may be legally required or appropriate and not
inconsistent with the best interests of the other party or the prompt
consummation of the activities contemplated by this Agreement.
11.3 Customer Lists. BBDC and IR will each retain ownership of its own
--------------
customer lists.
12. NON-SOLICITATION.
12.1 Covenant Not to Solicit. Each party agrees that neither it nor its
-----------------------
employees, agents, or representatives will, during the ("Non-Solicitation
Period") without the other party's prior written consent, solicit for hire any
person who is employed by the other party or any of its subsidiaries or
affiliates
12.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of any of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which the other party
would have no other adequate remedy, each party agrees that, in the event of a
breach by it of any of the covenants set forth in this Section, the other party
or its subsidiary or affiliate may, at its option, in addition to obtaining any
other remedy or relief available to them (including damages at law), enforce the
provisions of this Section by injunction and other equitable relief.
12.3 Reasonable Restraint. Each party agrees that the covenants contained
--------------------
in this Section impose a reasonable restraint in light of the other party's
activities, business and future plans.
12.4 Severability; Reformation. The covenants in this Section are
-------------------------
severable and separate, and the unenforcability of any specific covenant will
not affect the provisions of any other covenant in this Section or in this
Agreement. In the event any court of competent jurisdiction will determine that
the scope, time or territorial restrictions set forth in this Section are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
provisions of this Section will thereby be reformed.
12.5 Independent Covenant. Each of the covenants in this Section will be
--------------------
construed as a covenant independent of any other provision of this Agreement,
and the existence of any claim or cause of action of one party against the
other, or any of its subsidiaries or affiliates, whether predicated on this
Agreement or otherwise, will not constitute a defense to the enforcement by such
party or such subsidiaries or affiliates of such covenants.
12
<PAGE>
12.6 Computation of the Non-Solicitation Period. The Non-Solicitation
------------------------------------------
Period will be computed by excluding from such computation any time during which
either party is in violation of any provision of this Section and any time
during which there is pending in any court of competent jurisdiction any action
(including any appeal from any judgment) in which a party seeks to enforce the
covenants contained in this Section or in which the other party contests the
validity or enforceability of any such covenant or seeks to avoid the
performance or enforcement of any such covenant.
12.7 Materiality. Each party acknowledges and agrees that the covenants
-----------
set forth in this Section are a material and substantial part of this Agreement.
13. INSURANCE.
During the Term and for two (2) years thereafter, IR will maintain at its
own cost and expense the following insurance together with such other insurance
as reasonably requested by BBDC in light of experience and changing risk
exposure:
(a) Commercial General Liability Insurance covering its premises,
including bodily injury, property damage, broad form contractual liability,
independent contractors and products liability/completed operations coverages,
with limits of not less than [**] per occurrence and [**] aggregate or [**]
single limit.
(b) Workers' Compensation Insurance as mandated or allowed by all states
in which IR's business is being performed, including at least [**] coverage for
Employer's Liability.
(c) All Risk Property Insurance in an amount adequate to cover the cost
of replacement of all equipment, improvements, and betterments at IR locations
in the event of loss or damage.
(d) Errors and Omissions Insurance in the amount of [**], naming BBDC as
an additional insured.
All such policies will be written by a carrier or carriers rated "A" or
above by Best, will contain a clause requiring the carrier to give BBDC at least
thirty (30) days' prior written notice of any material change or cancellation of
coverage for any reason, and simultaneously with IR's execution of this
Agreement and annually thereafter, IR will deliver to BBDC original Certificates
of Insurance evidencing coverage required by this Section.
14. INDEMNIFICATION.
14.1 Indemnification by IR. IR will indemnify, defend, and hold harmless
---------------------
BBDC and its officers, directors, agents and affiliates from and against any and
all claims, demands, actions, causes of action, losses, judgments, damages,
costs and expenses (including, but not limited to, attorneys' fees, court costs,
and costs of settlement) ("Claim") to the extent arising out of claims against
BBDC for: (1) the death of, or bodily injury to, any person on account of the
use of a Product that results from IR's sale of such Product; or (2) any breach
by IR of any of its representations, warranties or covenants in this Agreement.
14.1.1 Notice by BBDC. Upon receipt of any notice of a Claim, BBDC
--------------
will promptly notify IR in writing of any such Claim; provided, however, any
failure to so notify IR will not relieve BBDC of any liability it may have to IR
except to the extent such liability was caused by such failure.
14.1.2 Retention of Counsel. IR will retain counsel at its expense
--------------------
to act as lead counsel in the defense of all Claims against BBDC. The
Indemnified Party may retain counsel. BBDC may retain counsel of its own choice
at BBDC's expense to the extent necessary to protect BBDC's interests and to act
as co-counsel in the litigation or settlement of any Claim or threatened Claim.
So long as IR does not enter into any settlement agreement or consent judgment
that admits liability on the part of BBDC or that
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
13
<PAGE>
fails to include an unconditional release of BBDC from all liability from all
asserted or threatened Claims, IR will have the right to control the defense,
settlement, and prosecution of any litigation.
14.2 Indemnification by BBDC. BBDC will indemnify, defend, and hold
-----------------------
harmless IR and its officers and directors from and against any and all Claims
to the extent arising out of claims against IR for: (1) the dishonest,
fraudulent, negligent, willful, or criminal acts of BBDC or BBDC's employees,
agents, or representatives acting alone or in collusion with others; or (2) any
breach by BBDC of any of its representations, warranties or covenants in this
Agreement.
14.2.1 Notice by IR. Upon receipt of any notice of a Claim, IR will
------------
promptly notify BBDC in writing of any such claim; provided, however, any
failure to so notify BBDC will not relieve IR of any liability it may have to
BBDC except to the extent such liability was caused by such failure or as
provided in Section 7.8.
14.2.2 Retention of Counsel. BBDC will retain counsel at its expense
--------------------
to act as lead counsel in the defense of all Claims against IR. IR may retain
counsel of its own choice at IR's expense to the extent necessary to protect
IR's interests and to act as co-counsel in the litigation or settlement of any
Claim or threatened Claim. So long as BBDC does not enter into any settlement
agreement or consent judgment that admits liability on the part of IR or that
fails to include an unconditional release of IR from all liability from all
asserted or threatened Claims, BBDC will have the right to control the defense,
settlement, and prosecution of any litigation.
15. LIMIT ON LIABILITY.
NEITHER PARTY WILL BE LIABLE FOR ANY CLAIM ARISING OUT OF THIS
AGREEMENT FOR INDIRECT, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES, WHETHER OR
NOT IT KNEW OR HAD REASON TO KNOW OF THE POSSIBILITY OF SUCH DAMAGES AND, EXCEPT
FOR PAYMENT OF MONEY DUE UNDER THIS AGREEMENT AND EXCEPT AS PROVIDED IN SECTION
14.1 OR SECTION 14.2, NEITHER PARTY'S AGGREGATE LIABILITY TO THE OTHER UNDER
THIS AGREEMENT FOR ANY AND ALL CLAIMS, WHETHER IN CONTRACT, TORT, OR OTHERWISE,
WILL EXCEED $1,000,000.
16. INDEPENDENT CONTRACTOR.
Each party is an independent contractor and is solely responsible for
all taxes, withholdings, and other similar statutory obligations, including, but
not limited to, workers' compensation insurance. None of a party's employees,
agents, or associates are employees the other party and each party agrees to
defend, indemnify and hold the other harmless from any and all claims made by
any of its employees, agents, or associates, or by any entity or agency on
account of an alleged failure to satisfy any such tax or withholding
obligations. Neither party has authority to act on behalf of or to enter into
any contract, incur any liability, or make any representation on behalf of the
other.
17. MISCELLANEOUS.
17.1 Extraordinary Events. In the event BBDC's delivery or arranging for
--------------------
delivery of Products under this Agreement is prevented, impaired, reduced or
restricted by reason of force majeure, labor disputes, fire, acts of God, or any
other similar or dissimilar cause beyond its control, including but not limited
to the unavailability of such Products, transportation, shortage of materials or
fuel, delay in delivery or failure to deliver by BBDC's suppliers, loss of
facilities of distribution, the voluntary foregoing of the right to acquire or
use any materials in order to accommodate or comply with the orders, requests,
regulations, recommendation or instructions of any governmental authority
(whether in furtherance of national defense or war activities or to meet any
other emergency), or the compliance with any law, order, ruling, regulation,
instruction or requirements of any governmental authority or any political
subdivision or agency thereof, or for any other cause whether of the same or
different character than specified in this Agreement, beyond the reasonable
control of the affected party, BBDC, without liability or obligation, may
14
<PAGE>
reduce or eliminate Products during the period of any such disability. In any
such case, Products that BBDC is unable to supply will be eliminated from this
contract by written notice describing the amounts eliminated and the estimated
time period during which deliveries are to be suspended; and BBDC will be
relieved of any liability with respect to such Products during the time BBDC may
be unable to deliver such Products.
17.2 Severability. In the event that any provision in this Agreement is
------------
held to be invalid, unenforceable, void or illegal, in whole or in part, by any
court of competent jurisdiction, it will be deemed severable from the remainder
of this Agreement and will in no way affect, impair or invalidate any other
provision in this Agreement. If such provision will be deemed invalid due to
its scope or breadth, such provision will be deemed valid to the extent of the
scope of breadth permitted by law.
17.3 Governing Law, Choice of Forum and Time for Bringing Action. The
-----------------------------------------------------------
validity, construction and performance of this Agreement will be governed by and
construed in accordance with the internal laws of the State of California
without regard to its choice of laws provisions and, if applicable, the laws of
the United States. In the event any legal action is necessary to enforce or
interpret the terms of this Agreement, the parties agree that such action will
be brought in Superior Court for the State of California, and the parties hereby
submit to exclusive jurisdiction of such courts. Each party further agrees that
personal jurisdiction over it may be effected by service of process by
registered or certified mail, return receipt requested, and that when so made
will be as if served upon it personally within the State of California. Any
action for a breach of this Agreement must commence within two (2) year after
the cause of action has accrued.
17.4 Entire Agreement. This Agreement and all exhibits and schedules and
----------------
related agreements incorporated by reference constitute the complete agreement
between IR and BBDC with respect to the subject matter of this Agreement and
replace and supersede all prior written and oral agreements or statements by and
among the parties concerning the subject matter. No representation or warranty
concerning the subject matter not contained in this Agreement will be binding on
the parties or have any force or effect whatsoever.
17.5 Amendments. This Agreement may not be amended, modified or waived in
----------
any respect without further written agreement of both parties, signed by their
respective authorized representatives.
17.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, which will together constitute but one and the same instrument.
17.7 Waivers. Neither party's failure to insist, in one or more
-------
instances, upon the performance of any term of this Agreement will be construed
as a waiver or relinquishment of its right to such performance or other
performance of such term, and the other party's obligations will continue in
full force. Either party's consent to any act by the other party on any one
occasion will not be deemed a consent of the same act on any other occasion.
17.8 Time Is of the Essence. Time is of the essence in each provision of
----------------------
this Agreement.
17.9 Captions. The captions and heading in this Agreement are for
--------
convenience only and will not affect in any way the meaning or interpretation of
this Agreement.
17.10 Assignment. Neither party may assign any rights or delegate any
----------
duties under this Agreement without the prior written consent of the other
party, which will not be unreasonably withheld or delayed, which consent will be
based on the financial capability and business reputation of the proposed
assignee, or in the case of IR, a proposed assignment to any affiliate of a
major national pharmaceutical wholesale distributor that competes with BBDC.
Notwithstanding the foregoing, IR acknowledges that BBDC has affiliates and
subsidiaries and may assign performance of some or all of the terms of this
Agreement to one or more such related entities. For purposes of this Section,
any transfer, sale, merger or consolidation of IR, or a substantial portion of
IR's assets, whether by contract or operation of law, or
15
<PAGE>
any other transaction or series of related transactions transferring all or
substantially all of IR's business, assets (including this Agreement), stock or
control will be deemed an assignment and require such prior written consent by
BBDC, but will not modify, supplement or terminate the rights or obligations of
the parties under this Agreement. For purposes of the preceding sentence,
"control" means, with respect to a corporation or limited liability company, the
right to exercise, directly or indirectly, more than fifty percent (50%) of the
voting rights attributable to the controlled corporation or limited liability
company and, with respect to any individual, partnership, trust, other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of any management or policies of the controlled entity.
Subject to the foregoing, the provisions of this Agreement will be binding upon
and will inure to the benefit of the successors and assigns of the respective
parties, including without limitation any partnerships, corporations, or other
entities in which the parties may have a controlling interest or position.
Except as expressly provided, this Section will not be construed as a consent by
either party to an assignment of this Agreement or any interest in it by either
party.
17.11 Further Assurances. Each party, at its own cost and expense, and at
------------------
the reasonable request of the other party, agrees to undertake all such further
acts and to execute all such further documents as may be necessary and
reasonably requested by either party to effectuate the performance of this
Agreement in accordance with the parties' intentions.
17.12 Affiliate Companies. In order to better serve the needs of IR,
-------------------
Products may, from time to time, be provided by an affiliate company of BBDC.
IR hereby acknowledges this fact and expressly consents to this distribution
arrangement. IR further agrees to be liable for all payments due under this
Agreement to any such affiliate.
17.13 Interpretation. In the event of any claimed conflict, omission or
--------------
ambiguity in this Agreement, no presumption or burden of proof or persuasion
will be implied by virtue of the fact that this Agreement was prepared by or at
the request of a particular party. This Agreement will be interpreted equally
as to both parties and not against the party that drafted it. Whenever the
context requires, the gender of all words will include the masculine, feminine
and neuter, and the number of all words will include the singular and plural.
The word "and" includes the word "or". The word "or" is disjunctive but not
necessarily exclusive.
17.14 Parties in Interest. Nothing in this Agreement will confer any
-------------------
rights on any third parties other than IR and BBDC and their respective
successors and assigns, nor will any provision give any third person any right
of subrogation or action over or against any party to this Agreement.
17.15 Information Reviewed. IR has received and reviewed all information
--------------------
it considers necessary or appropriate for deciding whether to purchase Products
from BBDC. IR has had an opportunity to ask questions and receive answers from
BBDC regarding the terms of the purchase of the Products and has further had the
opportunity to obtain all information which it deems necessary to evaluate the
purchase of the Products and to verify the accuracy of information otherwise
provided to IR by BBDC.
17.16 Reliance on Authority of Person Signing Agreement. Neither IR nor
-------------------------------------------------
BBDC will be required to determine the authority of the individual signing this
Agreement to make any commitment or undertaking on behalf of such entity or to
determine any fact or circumstance bearing upon the existence of the authority
of such individual.
17.17 Attorneys' Fees. In the event that any dispute between IR and BBDC
---------------
should result in litigation, arbitration, or mediation the prevailing party in
such dispute will be entitled to recover from the other party all reasonable
fees, costs and expenses of enforcing any right of the prevailing party,
including reasonable attorneys' fees and expenses, all of which will be deemed
to have accrued upon the commencement of such action and will be paid whether or
not such action is prosecuted to judgment. Any judgment or order entered in
such action will contain a specific provision providing for the recovery of
attorneys' fees and costs incurred in enforcing such judgment and an award of
prejudgment interest from
16
<PAGE>
the date of the breach at the maximum rate of interest allowed by law.
"Attorneys' fees" include (1) post-judgment motions; (2) contempt proceedings;
(3) garnishment, levy, and debtor and third party examinations; (4) discovery;
and (5) bankruptcy litigation. "Prevailing party" means the party who is
determined in the proceeding to have prevailed or who prevails by dismissal,
default or otherwise.
17.18 Notices. All notices must be given in writing and be personally
-------
delivered or delivered by facsimile or by certified or registered mail, return
receipt requested, postage prepaid, addressed to the parties as set forth
opposite their respective names below:
IR: To the address set forth on the cover page of this
Agreement.
BBDC: Bergen Brunswig Drug Company
4000 Metropolitan Drive
Orange, CA 92868
Attn: Vice President, eCommerce Sales & Marketing
Fax: (714) 385-6826
with a copy to: Bergen Brunswig Corporation
4000 Metropolitan Drive
Orange, CA 92868
Attn: Executive Vice President,
Chief Legal Officer & Secretary
Fax: (714) 978-1148
Items delivered personally will be deemed delivered on the date of actual
delivery. Items sent electronically or by facsimile will be deemed delivered on
the first business day after the date of transmission. Items sent by certified
or registered mail will be deemed delivered three (3) business days after
mailing. A party may change the foregoing information or notices by notifying
the other party of such change in writing in accordance with the foregoing.
[END OF TERMS AND CONDITIONS]
17
<PAGE>
EXHIBIT 2
TO
PRESCRIPTION PHARMACEUTICALS
INTERNET FULFILLMENT SERVICES AGREEMENT
PRESCRIPTION PHARMACEUTICALS ADDENDUM
1. PRODUCTS AND TERRITORY.
1.1 Products. Section 1.1 of Exhibit 1 is hereby deleted and superseded
by Section 2 of the cover page of this Agreement.
1.2 Territory. Notwithstanding Section 1.3 of Exhibit 1, MM will provide
fulfillment services for prescription Products shipped only to consumers
located in a jurisdiction to which MM is authorized to dispense and deliver
prescription Products (the "MM Territory"). The MM Territory as of the
date this Agreement is signed is set forth in Schedule 1.3-A to Exhibit 1.
1.3 [**]
1.4 Medi-care/Medicaid Services. The parties acknowledge and agree that MM
will not be required to dispense pursuant to any Medicare or Medicaid
programs under this Agreement and IR may contract with other providers for
such services. Should IR consider doing so, it will provide MM Notice
pursuant to Section 1.5 of Exhibit 1, including either a copy of the
proposed contract or a written summary of its relevant terms including
pricing. If MM wishes to match such terms, it will notify IR within thirty
(30) days of MM's receipt of the Notice and enter into an amendment to this
Agreement with IR with respect to such services within ninety (90) days of
its receipt of the Notice. Otherwise, IR may enter into an agreement
immediately thereafter with a third party for such services on terms and
conditions no less favorable to IR than those in the Notice.
1.5 In the event IR identifies new Products or obtains more favorable
pricing on existing Products, MM will request that its distributor stock
such Products, subject to the supplier of such Products complying with the
distributor's standard procurement approval process, including meeting its
standard requirements for suppliers.
2. SHIPPING AND LABELS.
2.1 Shipping. Notwithstanding Section 2.4 of Exhibit 1, MM will ship all
Products to IR's consumers prepaid and will bill IR for such shipping
charges, including any volume discount normally given to MM by IR's
shipper.
2.2 Title to Prescription Products. The fourth (4/th/) sentence of
Section 2.4 of Exhibit 1 is amended to read: "Title to, and risk of loss
of, all Products for purposes of payment will pass from MM to IR upon MM's
delivery of the Products to the shipper for delivery to IR's
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
18
<PAGE>
consumer."
2.3 Labels. Notwithstanding Section 2.5 of Exhibit 1, MM and IR will
jointly develop, at IR's cost, standard packaging labels and invoice forms
bearing both MM's and IR's name, logo and telephone number, if permitted or
required by applicable federal or state law, for MM's use in shipping the
Products. The last two sentences of Section 2.5 are deleted.
3. PRICING; PAYMENT.
3.1 Pricing Protocol. [**]
3.2 Taxes. Notwithstanding Section 3.4 of Exhibit 1, IR will obtain and
maintain a resale tax certificate in Nevada in addition to any other such
certificates.
3.3 Timing of Payment. [**]
3.4 Reimbursement. To the extent required by third party payers or
applicable law, reimbursement for Product will be directly to MM.
4. IR'S COVENANTS.
4.1 Web Site. Notwithstanding Section 4.1 of Exhibit 1, each screen
applicable to dispensing prescription Products and accessible to consumers
through IR's web site will clearly identify MM as the dispensing pharmacy.
4.2 Consumer Enrollment. Notwithstanding Section 4.3 of Exhibit 1, IR
will not collect consumer prescriptions nor dispense any prescription
Products.
4.3 Patient Confidentiality. Notwithstanding Section 4.4 of Exhibit 1, MM
is obligated pursuant to Section 5.4 of Exhibit 1 to maintain and protect
the confidentiality of all confidential patient information and records,
including protected health care information, and pursuant to Section 14.1
of Exhibit 1, IR hereby indemnifies MM for any Claim arising from any
unauthorized use of protected confidential patient information or its
unauthorized re-disclosure to any person not bound by ethical and legal
obligations to protect its confidentiality and use. "Protected health care
information" is any information or data, whether oral or recorded in any
form, that identifies or can be readily associated with an identifiable
patient or other record subject and (i) relates to a patient's health care
or (ii) is obtained in the course of a patient's health care from a health
care provider, including MM, from the patient, from a member of the
patient's family or an individual with whom the patient has a close
personal relationship or from the patient's legal representative. The
definition of "Confidential Information" under Section 11.1 of Exhibit 1 is
hereby amended to include protected health care information and any
protected confidential patient information under all applicable federal and
state laws.
4.4 Adverse Event Reporting. Notwithstanding Section 4.9 of Exhibit 1,
each party will report all adverse events relating to the Products pursuant
to the requirements of the Food and Drug Administration.
4.5 Pharmacist Support. In connection with pharmacist support and
customer service, IR will develop and maintain on its web site consumer
accessible electronic information,
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
19
<PAGE>
including frequently asked questions (FAQs) and other information that will
minimize routine consumer inquires to MM's pharmacist support and customer
service desk.
5. REPRESENTATIONS OF THE PARTIES.
5.1 Licenses. MM represents that it holds valid pharmacy licenses for
each location from which it will operate during the Term and that these
licenses permit it to dispense and deliver the Products to consumers with
valid prescriptions in the MM Territory.
5.2 NCPDP Number. MM will utilize its identification number ("NCPDP
Number") issued by the National Association of Boards of Pharmacy ("NABP")
for adjudicating and filling prescription Products to IR's consumers.
6. SOFTWARE AND DATABASE LICENSE.
Section 7 of Exhibit 1 is hereby deleted in its entirety.
7. NOTICES.
Notwithstanding Section 17.19 of Exhibit 1, MM's address is:
Medi-Mail, Inc.,
871-C Grier Drive
Las Vegas, Nevada 89119
Attn: Chairman & CEO
Fax: (702) 361-2422
with a copy to: Bergen Brunswig Corporation
4000 Metropolitan Drive
Orange, CA 92868
Attn: Executive Vice President,
Chief Legal Officer & Secretary
Fax: (714) 978-1148
20
<PAGE>
EXHIBIT 10.13
Service Mark License and Access Agreement
-----------------------------------------
This Service Mark License and Access Agreement ("Agreement") is made as of
this 18/th/ day of August, 1999 ("Effective Date"), between more.com, Inc., a
Delaware corporation ("Licensee") and Bergen Brunswig Drug Company, a California
corporation ("Licensor").
1. License to Service Marks. Licensor hereby grants to Licensee, during
------------------------
the term of the Internet Fulfillment Services Agreement dated July 1, 999
between the parties ("Fulfillment Agreement"), unless sooner terminated in
accordance with this Agreement, a non-exclusive, revocable (as expressly set
forth herein) license ("License") for the use of the Service Marks "Good
Neighbor", "Good Neighbor Pharmacy" and "PlusCare", and their associated
goodwill, which Licensor owns (collectively, "Licensed Marks") solely in
connection with Licensee's business, subject to the terms and conditions
contained in this Agreement on a royalty-free basis. Licensee acknowledges that
Licensor is the owner of all proprietary rights in and to the Licensed Marks and
that Licensee acquires no right, title or interest in and to the same
whatsoever, other than the right to use the Licensed Marks in accordance with
the terms of this Agreement. Licensee will immediately notify Licensor in
writing of any infringement or limitation of the Licensed Marks that may come to
Licensee's attention.
2. Quality Specifications. Since the activities of Licensee will reflect
----------------------
on the Licensed Marks, Licensee will operate its business with diligence and
vigor, will maintain the highest possible ethics and will maintain its
operations in a manner that will reflect the high standards and quality
attributable to the Licensed Marks. Licensee will fully comply in all material
respects with all laws, rules and regulations applicable to Licensee's business
and the conduct thereof. Except as otherwise set forth in this Agreement,
Licensee will use the Licensed Marks only in accordance with Licensor's
reasonable specifications regarding the Licensed Marks, including without
limitation, specifications concerning standards of quality, use, advertising and
promotion, as such specifications may be modified from time to time in the sole
discretion of Licensor but on reasonable prior notice to Licensee before
Licensee is required to comply ("Quality Specifications"). If at any time
services provided by Licensor fail to conform to the Quality Specifications,
Licensor will so notify Licensee of such non-conformance. Upon such
notification, Licensor will promptly cease the services provided by it which do
not adhere to the Quality Specifications, until such time as the standards of
quality contained in the applicable Quality Specifications have been met to the
reasonable satisfaction of Licensor.
3. Conditions Applicable to Appearance of Licensed Marks.
-----------------------------------------------------
(a) Use Specifications. Licensee will comply with conditions set
------------------
forth in any prior written notice provided to Licensee from time-to-time by
Licensor with respect to the style, appearance and manner of use of the Licensed
Marks ("Use Specifications"). Any use of the Licensed Marks not specifically
provided for by such Use Specifications
1
<PAGE>
will be adopted by Licensee only upon prior written approval of Licensor not to
be unreasonably withheld or delayed. In addition, Licensor may request that
notices reasonably acceptable to Licensor be used on or with Licensee's services
and marketing materials (which marketing materials are subject to Licensor's
prior written consent, which consent will not be unreasonably withheld) bearing
the Licensed Marks to identify the licensed use under this Agreement.
(b) Co-Branding. All future marketing activities by Licensee may,
-----------
upon the express agreement of the parties, feature a co-branded service mark
agreeable to the parties. Licensee will seek approval from Licensor, which
approval may not be unreasonably withheld or delayed, prior to (i) launching any
online or offline advertising or marketing campaign using the Licensed Marks, or
(ii) posting any Good Neighbor Pharmacy related material on Licensee's web site,
or other advertiser web sites.
(c) Licensor's Approval. In addition, prior to any application of the
-------------------
Licensed Marks to any of Licensee's related marketing materials (as permitted
under this Agreement), Licensee will provide any samples of such marketing
materials (including web site designs) to Licensor for final review and
approval, such approval to be not unreasonably withheld or delayed. Marketing
material which uses any of the Licensed Marks or which refers to Licensor or any
parent or other affiliate of Licensor will conform to the Use Specifications, as
amended from time to time on prior written notice to Licensee. All such
Licensee-initiated marketing material is expressly subject to prepublication
review and approval not to be unreasonably withheld or delayed with respect to,
but not limited to, content, style, appearance, composition, timing, and media.
One copy of all such marketing material will be provided to Licensor at least
thirty (30) days prior to anticipated publication. The parties acknowledge and
agree, however, that Licensee will not be required to seek the prior approval of
Licensor in connection with the day-to-day operation of the Licensee web sites,
and changes thereto, provided that the operations of the web sites at all times
substantially comply with the then-current Use Specifications and any other
relevant policies or designs pre-approved by Licensee pursuant to this
Agreement.
4. Protection of Licensed Marks.
----------------------------
(a) Validity. Licensee admits the validity of, and agrees not to
--------
challenge the Licensed Marks. Licensee also agrees that any and all rights that
may be acquired by the use of the Licensed Marks by Licensee will inure to the
sole benefit of Licensor. Licensee agrees to execute all papers reasonably
requested by Licensor at Licensor's expense to effect the recording of Licensee
as a registered user of the Licensed Marks. Licensee may not use any of the
Licensed Marks or any part thereof as part of its corporate name nor use any
name or mark confusingly similar to the Licensed Marks.
(b) Confusing Marks. Licensee further agrees not to register in any
---------------
country any name or mark resembling or confusingly similar to the Licensed
Marks. If any application for registration is or has been filed in any country
by Licensee which relates
2
<PAGE>
to any name or mark which, in the sole opinion of Licensor, is confusingly
similar, deceptive or misleading with respect to any of the Licensed Marks,
Licensee will immediately abandon any such application or registration or, at
Licensor's sole discretion, assign it to Licensor. Licensee will reimburse
Licensor for all reasonable costs and expenses of any opposition, cancellation
or related legal proceedings, including attorney's fees, instigated by Licensor
or its authorized representative, in connection with any such registration or
application.
(c) Third Party Infringement. In the event that Licensee learns of
------------------------
any infringement or threatened infringement of the Licensed Marks or any
passing-off or learns that any third party claims any Licensed Mark is liable to
cause deception or confusion to the public, Licensee will promptly notify
Licensor, giving particulars and providing necessary information and assistance
to Licensor at Licensor's expense in the event that Licensor decides that
proceedings should be commenced or defended. Any such proceedings will be at
Licensor's expense and any recoveries will be Licensor's sole property. Nothing
in this Agreement, however, will be deemed to require Licensor to enforce the
Licensed Marks against others.
(d) Compliance with Laws. In addition to Licensee's compliance with
--------------------
all laws and regulations applicable to Licensee's performance of this Agreement,
Licensee will comply in all material respects with all laws applicable to proper
use and designation of trademarks and service marks in the countries in which
Licensee uses the Licensed Marks. If Licensee becomes aware of any laws
applicable to Licensed Marks that are inconsistent with this Agreement, Licensee
will promptly notify Licensor of such inconsistency. Licensor may, at its
option, either waive the performance of such inconsistent provisions or
terminate the license and rights granted under this Agreement to the extent in
conflict with such laws.
5. No Assignment or Sublicense. The benefit of the service mark licenses
---------------------------
granted under this Agreement are personal to Licensee and Licensee may not,
without the prior written consent of Licensor, assign the Licensed Marks, nor
part with any of its rights or obligations under this Agreement, nor grant or
purport to grant any sublicense in respect to the Licensed Marks.
6. Term and Termination of License.
-------------------------------
(a) Term. Unless sooner terminated in accordance with the terms of
----
this Agreement or the Fulfillment Agreement, the service mark license granted
under this Agreement will commence on the Effective Date and will continue in
effect for the duration of the Fulfillment Agreement, including any extensions
and renewals. Notwithstanding any provision of this Agreement to the contrary,
this Agreement will immediately terminate upon termination or expiration of the
Fulfillment Agreement.
(b) Rights Upon Termination. Upon termination or expiration of the
-----------------------
licenses and rights granted under this Agreement, by operation of law or
otherwise, all rights (including the right to use the Licensed Marks),
privileges and obligations arising under
3
<PAGE>
this Agreement (except the obligations in Section 4) will cease to exist and
Licensee will immediately discontinue completely all further use of the Licensed
Marks.
(c) Material Breach. In the event of a material breach of this
---------------
Agreement by either party, the non-breaching party may terminate this Agreement
upon thirty (30) days written notice to the breaching party and such termination
will be effective on the thirty-first (31st) day after receipt of an express
written notice of breach if (a) the breaching party does not correct such
material breach within such thirty (30) day cure period, or (b) in the case of a
material breach that is correctable but is not reasonably capable of being
corrected within such thirty (30) day cure period, the breaching party does not
take reasonably practicable steps to correct such breach and to prevent a
recurrence. The following will be considered to be material breaches:
1. Licensee using any trademarks, services marks, trade or
business names contrary to the provisions of this Agreement;
or
2. Licensee offering services bearing any of the Licensed Marks
in which such service fails in a material fashion to meet any
of the standards set forth in the applicable Quality
Specifications or Use Specifications; or
3. Licensee refusing or neglecting any request by Licensor for
marketing materials, advertising copy, stationary or other
materials as provided under this Agreement; or
4. Licensee using the Licensed Marks with services or on
marketing materials or referencing Licensor or its parent or
other affiliates, without conforming to Licensor's written
instructions; or
5. Licensee assigning or purporting to assign any of the rights
granted in this Agreement to others without Licensor's express
prior written consent.
7. Certain Representations and Covenants. Licensor is the true and
--------------------------------------
lawful owner of and has the right to use and license the Licensed Marks.
Licensor has no knowledge of any third party claim to the effect that any aspect
of the Licensed Marks infringes any other trademark, service mark or trade name.
The Licensed Marks are registered in the U.S. Patent and Trademark Office and
such registrations are valid, subsisting and have not been cancelled and are
registered in the categories/classes shown in Exhibit A.
8. Networks Access.
---------------
(a) Access. Licensor will provide Licensee with access to Licensor's
------
network of independently owned and operated Good Neighbor Pharmacies and
"PlusCare" network and the covered lives in the PlusCare network to facilitate
the ordering, adjudication, if applicable, and in-store pick up of prescription
medicine by the Licensee's consumers ("GNP/PlusCare Access"). The parties will
work together in
4
<PAGE>
good faith to provide for GNP/PlusCare Access and to pursue the resolution of
any logistical issues with respect to the integration with Licensee's web site
and e-commerce services.
1. GNP & Pharmacy Access. Specifically, Licensor will work to
---------------------
make available and create on an as-needed basis the ability
for Licensee to accept and fulfill orders for prescription
products through GNP and PlusCare pharmacies, with a consumer
able to pick-up such an order within [**] or, if such service
is available from the local pharmacy, to have it delivered
locally. Licensor will be Licensee's exclusive pharmaceutical
provider for such services and, in the event Licensee proposes
a specific need for similar services from additional locations
or from stores with different capabilities, Licensor will have
thirty (30) days from receipt of such specific criteria to
propose a plan to meet such need. If Licensor's proposed plan,
including proposed timelines, does not reasonably meet
Licensee's needs, Licensee may utilize alternate resources. In
providing such services, the parties will strive for the
broadest possible national coverage.
2. Managed Care Organization Access. The parties will work
--------------------------------
diligently to develop a strategic business plan to expand
beyond Licensor's current PlusCare network participation by
managed care organizations ("MCO"), including insurers, third
party payers, healthcare maintenance organizations (HMOs),
pharmaceutical benefit managers (PBMs), third party
administrators (TPAs), pharmaceutical service administrative
organizations (PSAOs), employers, coalitions and others. The
parties will designate specific resources to develop such
strategic plan. The plan will identify specific geographic
areas, demographic groups and types of MCOs to target, will
delegate specific actions between the parties and will set
goals and timelines. The parties will jointly implement the
plan, including presentations, bid responses and proposals,
and RFP responses and Licensor will be Licensee's exclusive
provider for such implementation with MCOs. Licensee will
coordinate all such interactions with Licensor and will not
enter into any agreements with MCOs without Licensor's prior
written consent. In the event Licensee identifies a need for
new or additional services for an existing MCO or the need to
establish a relationship with a new MCO, Licensor will have
sixty (60) days from receipt of such specific criteria to
propose a plan to meet such need. If Licensor's proposed plan,
including proposed timelines, does not reasonably meet
Licensee's needs, Licensee may utilize alternate resources.
(b) Representations. Licensor's Good Neighbor Pharmacy
Network has 4,000 independent pharmacies (more than 1,800 Level I and 2,500
Level II Stores) and Licensor's PlusCare Provider Network has approximately 75
million PBM covered
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
5
<PAGE>
lives. Licensor will not grant GNP/PlusCare Access to certain of Licensee's
competitors for a period ending August 17, 2000. Such competitors are Rx.com,
Soma.com and Drugstore.com and, until September 30, 1999, to PlanetRx.com.
9. Notices. Any notices must be in writing and will be valid if sent by
-------
registered or certified mail, postage prepaid, in any post office in the United
States, or by confirmed facsimile, hand delivery or overnight courier, addressed
as follows:
If to Licensor: With a Copy to:
- -------------- --------------
Bergen Brunswig Drug Company Bergen Brunswig Corporation
4000 Metropolitan Drive 4000 Metropolitan Drive
Orange, CA 92868 Orange, CA 92868
Attn: E.V.P. Sales & Marketing Attn: E.V.P., Chief Legal Officer
Facsimile: (714) 385-8879 & Secretary
Facsimile: (714) 948-1148
If to Licensee:
- --------------
more.com, Inc.
520 Third Street, Suite 245
San Francisco, California 94107
Attn: Brad Oberwager
Facsimile: (415) ____________
All notices sent by confirmed facsimile will be deemed to be effective on
the date of transmission. All notices sent by courier will be deemed to be
effective on the date of receipt or refusal. In case either party changes its
address to which notice is to be received, written notice of such change will be
given without delay to the other party. Notice may be given by any authorized
representative including counsel.
10. Section Headings. The headings as to the contents of particular
----------------
Sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular Sections to
which they refer.
11. Entire Agreement. This Service Mark License and Access Agreement,
----------------
together with the Quality Specifications and Use Specifications, constitutes the
entire agreement between the parties with respect to its subject matter and
merges and supersedes all previous communications, warranties, representations,
and agreements, oral or written, between the parties with respect to such
subject matter. No amendment or modification of this Agreement will be binding
on either party unless reduced to writing and duly executed by an authorized
representative of both parties. Failure to enforce or any delay in enforcing
any right under this Agreement by any party will not be construed as a waiver
nor will it be deemed a waiver of any other right such party may otherwise have
at law or in equity.
6
<PAGE>
In Witness Whereof, this Agreement has been executed on behalf of each of
the parties by their duly authorized representatives as of the Effective Date.
Bergen Brunswig Drug Company
By: /s/ Brent Martini
----------------------------------------------
more.com, Inc.
By: /s/ Laureen De Buono
----------------------------------------------
7
<PAGE>
Exhibit 10.14
ADVERTISING REPRESENTATIVE AGREEMENT
This Advertising Representative Agreement ("Agreement") is made
effective as of the 30/th/ day of September 1999 between more.com, Inc.
("more.com") and Bergen Brunswig Drug Company ("BBDC").
WHEREAS, more.com owns and operates an online drugstore ("more.com
Site");
WHEREAS, BBDC is a leading distributor of health and beauty aids,
prescription and non-prescription medicines; and
WHEREAS, subject to the terms and conditions set forth in this
Agreement, more.com wishes to appoint BBDC as its exclusive sales representative
for the marketing and sales of certain advertising for placement on the more.com
Site during the Term.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Sales Representation.
--------------------
a. more.com hereby appoints BBDC as its sole and exclusive
(subject to Sections 1.d and 9.b below) agent for the purpose of marketing and
selling of any and all product specific advertising and manufacturer promotional
advertising ("Covered Advertising") on the more.com Site during the term of this
Agreement (as defined in Section 9.a below, the "Term"). BBDC hereby accepts
such appointment, and will use its best efforts to market and sell Covered
Advertising during the Term. Covered Advertising will include, but not be
limited to, banner ads, text links, graphics links, branded buttons,
infomercials, manufacturer sponsored surveys, manufacturer sponsored trials,
promotions, or other manufacturer advertising activities promoted in conjunction
with more.com for products that are stocked and inventoried by BBDC.
b. more.com will identify BBDC on rate cards and applicable
promotional literature as more.com's advertising representative for the sale of
Covered Advertising.
c. more.com and BBDC will jointly create and mutually agree to a
manufacturer advertising plan ("Advertising Plan") for Covered Advertising,
including the amount of advertising space available for Covered Advertising and
its price, duration and rotation schedules. The Parties will use commercially
reasonable efforts to have the Advertising Plan completed and approved by both
Parties prior to actual sales of Covered Advertising. The Advertising Plan will
include a planned promotional calendar, including manufacturers, products,
product categories, and special events. The Advertising Plan and promotional
calendar will reflect the parties' agreed-upon strategic approach and will be
revised and updated no less than annually. more.com and BBDC agree to identify
individuals within their respective companies who will be responsible for
implementation and maintenance of the Advertising Plan.
d. For products not stocked and inventoried by BBDC that more.com
would like to sell via the more.com Site, and potentially obtain advertising
revenues for, BBDC
1
<PAGE>
will have 30 days after receipt of a request from more.com that BBDC supply it
such product, to begin to stock and inventory such product. In the event that
BBDC refuses or is otherwise unable to stock and inventory any such products
within the foregoing 30 day period, more.com will have the right to purchase and
seek manufacturer advertising revenue for those products on its own with no
obligation to BBDC.
2. Duties of BBDC -- General. At its expense, BBDC will:
-------------------------
a. conduct all marketing and sales activities relating to the
Covered Advertising;
b. be responsible for the design, layout, and production of the
advertisements (subject to joint approval by both more.com and BBDC);
c. jointly with more.com manage the relationship with purchasers
of Covered Advertising;
d. for purchasers of Covered Advertising whose credit limits are
exceeded, require prepayment to more.com of amounts due for Covered Advertising;
and
3. Sales Price of Media Units.
---------------------------
a. more.com and BBDC will mutually agree upon rates ("Published
Rates") at which Covered Advertising will be sold. more.com will publish such
rates in its rate card. The first such rate card will be published within ten
(10) days after execution of this Agreement. The Published Rates will be
inclusive of advertising agency commissions (that is, the Published Rates will
be "gross" rates). more.com and BBDC may from time to time, mutually agree upon
adjustments to the Published Rates.
b. [**]
c. No less than monthly, more.com will provide BBDC current
advertisement performance measurements as reasonably required to demonstrate
value to advertisers, including, as reasonably available, measures for use
volume and loyalty (hit rates, unique visitors, repeat visitors, average length
of stay, average sales per buyer, etc.), user demographics (visitors and
buyers), usage levels by day/time segment (e.g. busy and off-peak hours) and
affiliations and connectivity (including cooperative ventures and links to and
from third party sites).
d. Upon request, more.com will provide BBDC with marketing and
promotional material ("Marketing Package") suitable for presentation to
manufacturers and other potential advertisers. The Marketing Package will
include a letter of agency and general information about more.com and the
more.com Site, including types of available advertising, information about the
Advertising Plan and promotional calendar, and general demographic information,
usage levels and affiliations and connectivity information suitable for
disclosure to potential advertisers on a non-confidential basis.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
2
<PAGE>
4. Acceptance of Orders.
--------------------
a. For each new advertiser, BBDC will obtain and promptly forward
to more.com a completed, signed "New Customer Information" form.
b. more.com and BBDC will jointly evaluate each advertiser's
creditworthiness.
c. more.com reserves the right to determine, in the exercise of
its reasonable discretion, not to accept a potential advertiser or
advertisement.
d. BBDC will sell Covered Advertising only pursuant to written
Insertion Orders in the form approved by more.com, and only to advertisers
jointly approved by more.com and BBDC. BBDC will not accept any advertiser's
Insertion Order if such order is inconsistent with the Parties' credit
determination for such advertiser, unless such advertiser prepays in full.
more.com reserves the right, in its reasonable discretion, to reject any
Insertion Order.
e. BBDC will accept Insertion Orders only from advertisers whom
BBDC believes in good faith to be legitimate businesses operating in compliance
with applicable laws.
f. BBDC will submit to more.com a monthly sales report on or
before the fifth business day of the following month. BBDC will furnish to
more.com copies of all signed Insertion Orders within 24 hours of BBDC's receipt
thereof.
g. BBDC will not, without more.com's prior approval, accept
payments or other valuable consideration related to Covered Advertising from
advertisers other than the payments to more.com specified in more.com's rate
card or the applicable Insertion Order. BBDC will report to more.com all
payments and other valuable consideration related to Covered Advertising
received from advertisers, specifying the value of any such payments and
consideration. In the event that such consideration (or the agreed upon value
thereof) is not remitted to more.com, more.com will deduct from commissions
otherwise owed BBDC hereunder [**] the value of any Covered Advertising provided
in exchange for such consideration as more.com's Net Revenue (as defined below)
in connection therewith.
h. more.com will use its best efforts to make available
sufficient advertising space to permit BBDC to perform its obligations under
this Agreement, and to provide the technical capability for links from Covered
Advertising to the applicable manufacturer's web site.
5. Production.
----------
a. BBDC will be responsible for the layout, design, and
production of all advertising sold by BBDC or, at its election may delegate such
responsibility to more.com, provided that BBDC will remain responsible for any
out-of-pocket costs incurred by more.com in connection therewith. BBDC will use
best efforts to comply with such schedules and guidelines as more.com may adopt
from time to time with respect thereto.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
3
<PAGE>
b. BBDC will submit each advertisement to more.com for approval.
Consistent with legal requirements for pharmaceuticals, foods and dietary
supplements and other similar products, neither party will modify manufacturer-
approved and provided text and layout in any manner so as to affect its
compliance with legal and regulatory requirements without subsequent re-approval
by the manufacturer.
c. more.com and BBDC will jointly agree to guidelines for
advertising content and content quality for Covered Advertising, such guidelines
to be set forth in the Advertising Plan, and will jointly approve or disapprove
the content and quality of all Covered Advertising before insertion in the
more.com Site.
d. more.com will provide to BBDC advertising schedules for each
Insertion Order as soon as practicable after each such schedule is prepared.
Within ten (10) days following completion of an Insertion Order and at the end
of each month for advertising running more than one month, more.com will provide
to the advertiser(with a copy to BBDC) an appropriate certificate of insertion
(proof of performance) in a form mutually agreed upon by the Parties
6. Invoicing, Collections and Remittances; Records.
-----------------------------------------------
a. more.com will be responsible for promptly invoicing
advertisers with respect to the sale of Covered Advertising.
b. BBDC will cooperate with more.com to facilitate the collection
for more.com of payments for Covered Advertising. [**}
c. The Parties will use diligent and reasonable commercial
efforts to ensure that all payments resulting from sale of Covered Advertising
are made to more.com on a timely basis. more.com reserves the right to take
whatever collection activity it deems appropriate including the institution of
suit to effect payment.
d. The Parties will consult from time to time regarding aging of
receivables and collection problems. BBDC will cooperate, at more.com's
expense, in all respects with more.com in the collection of receivables. BBDC's
commission, if any, will be paid from any such amounts collected by more.com and
any such amounts, less out-of-pocket collection expenses, will be credited to
any applicable Guaranteed Minimum (as set forth on EXHIBIT A attached hereto)
owed by BBDC to more.com.
e. Within 15 days after the last day of each calendar month
during the Term, more.com will provide BBDC with information on an advertiser-
by-advertiser, Insertion Order-by-Insertion Order basis, Net Revenue during the
prior calendar month ("Monthly Report") and on each Wednesday will provide a
similar report with respect to the prior week. In the event that the sum of (i)
all Make-Up Payments (as defined below) previously paid by BBDC and (ii)
aggregate Net Revenue from the date hereof, for any period set forth on Exhibit
A attached hereto ("Prior Payments") is less than the Guaranteed Minimum set
forth for such period on Exhibit A, the applicable Monthly Report will include
an invoice for the difference
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
4
<PAGE>
between the applicable Guaranteed Minimum and the Prior Payments ("Make-Up
Payment"). BBDC will be entitled to use advertising on the more.com Site in an
amount equal to any Make-Up Payments paid hereunder for its own benefit or the
benefit of any of its affiliates or the benefit of its Good Neighbor Pharmacy
network of independent stores. Make-Up Payments will be reduced to the extent
payment for any Covered Advertising is uncollectable due to more.com's failure
to comply with a valid Insertion Order.
f. BBDC will remit any Make-Up Payments within [**] days after
receipt of the applicable invoice.
7. Audit. Each party will have the right, upon reasonable notice and
-----
during business hours, to audit the other party's books and records relating to
the other party's duties and amounts due and payable hereunder.
8. Commissions. To the extent that the sum of aggregate Net Revenue
-----------
and Make-Up Payments through July 31, 2000 [**] and with respect to the sale of
all Covered Advertising after such date (excluding in each case sales of Covered
Advertising by more.com pursuant to Section 1.d above), [**] of the sum or such
Net Revenue and Make-Up Payments. Following the expiration or earlier
termination of this Agreement, BBDC will be entitled to such commissions for any
Covered Advertising sold during the Term as would have been payable had this
Agreement not expired or been terminated.
9. Term and Termination.
--------------------
a. Subject to Sections 1.d and 9.b hereof, BBDC will remain the
exclusive sales representative for Covered Advertising for a period of ten years
from the date hereof, at which time this Agreement will terminate unless prior
to that time the parties have agreed in writing to extend the term of the
Agreement. Notwithstanding the foregoing, the parties at any time during the
Term may mutually agree to terminate BBDC's exclusivity hereunder.
b. BBDC may elect, by written notice anytime prior to August 1,
2000, to terminate its exclusivity hereunder. In the event that BBDC elects at
such time to not terminate its exclusivity, it shall within thirty (30) days
after the end of the second year of this Agreement ("Year Two"), [**]. In the
event that during any one year period after Year Two the aggregate Net Revenue
for such year [**] Notwithstanding the foregoing, on or about February 1, 2001,
the Parties shall meet to discuss in good faith the feasibility of retaining
BBDC's exclusivity for the Term of this Agreement.
c. Either party may terminate this Agreement upon written notice
if the other party fails to cure a material breach of any obligation hereunder
within 30 days after written notice specifying such breach. If, because of the
nature of such breach, the breaching
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
5
<PAGE>
party cannot effect a cure thereof within such 30 day period, it may have such
additional time as will be reasonably necessary to do so, provided it
immediately commences diligently to cure such breach upon notice thereof from
the noticing party and continues thereafter to use its best efforts to do so.
d. Upon the termination of this Agreement for any reason, each
party will discontinue the use of any trademarks of the other party and any item
containing such trademarks, such as signs, logos, stationery, or business cards,
and shall return to its owner all materials otherwise identifying or relating to
its business; cease representing itself in any fashion as a representative of
the other party; and return all documents, records or other materials
(including, without limitation, all copies thereof regardless of the storage
media) which were provided in connection herewith. Upon request, each party
will promptly provide the other with documentation relating to any agreements
with advertisers or sales orders submitted by advertisers.
e. Obligations that have accrued prior to the effective date of
termination will survive termination.
10. Indemnity; Insurance.
--------------------
a. more.com will defend, indemnify, and hold BBDC and its
directors, officers, shareholders, employees, agents, and affiliates ("BBDC
Indemnitees") harmless from and against any claims by third parties (including
governmental authorities) and any losses, damages, settlements, fines,
penalties, liabilities or expenses resulting therefrom (collectively, "Claims"),
to the extent such Claims arise out of, relate to, or are based on the content
of the more.com Site, or actions undertaken by BBDC pursuant to more.com's
express instructions.
b. BBDC will defend, indemnify, and hold more.com and its
directors, officers, shareholders, employees, agents, and affiliates ("more.com
Indemnitees") harmless from and against any Claims, to the extent such Claims
arise out of, relate to, or are based on actions or omissions of BBDC taken in
connection with or pursuant to this Agreement, except to the extent that such
actions or omissions are based on express instructions given by more.com.
c. more.com will obtain and maintain during the Term the
insurance coverage described on EXHIBIT B attached hereto with carriers
reasonably acceptable to BBDC and upon BBDC's request will provide BBDC evidence
of such insurance in the form of certified copies of the applicable policies or
an appropriate certificate of insurance in form reasonably acceptable to the
parties. Each such policy will name BBDC as an additional insured and provide
that BBDC is to be notified at least 30 days prior to any cancellation thereof.
d. Under no circumstances will either party be liable to the
other or to any third party for loss of profits, or incidental or consequential
damages, sustained or incurred in any manner in connection with this Agreement,
even if such party has been advised of the possibility of such damages.
6
<PAGE>
11. Arbitration.
-----------
a. For any dispute or controversy between the parties which
arises out of or relates to this Agreement or the grounds for its termination,
the parties agree to meet to try to resolve the dispute. Such meeting will be
attended by individuals with decision-making authority to attempt in good faith,
to negotiate a resolution of the dispute prior to pursuing other available
remedies. If, within thirty days after the date set for such meeting, the
parties have not succeeded in negotiating a resolution of the dispute, either
party may request that such dispute be resolved through final and binding
arbitration. Such arbitration will be conducted in English by three arbitrators
familiar with the health care industry, in accordance with the then-current
Rules of Conciliation and Arbitration of the American Arbitration Association.
Such arbitrators will be selected by mutual agreement of the parties, or failing
such agreement, each party will select one arbitrator and the two selected
arbitrators will mutually agree upon the selection of a third arbitrator. This
Agreement will be governed by and construed according to the laws of the State
of California. The arbitrators will be bound to apply such California law, and
where applicable, federal statutory law. The parties will be afforded a
reasonable period of time to conduct discovery prior to the arbitration. A court
reporter will be present at all arbitration proceedings in order to transcribe
them and such transcription will be the official record of such proceedings for
purposes of any judicial enforcement or review proceeding. The arbitrators'
decision will specify the basis for any award and the types of damages awarded.
The parties will bear the cost of such arbitration equally and the prevailing
party in any such arbitration will be entitled to reasonable attorney's fees, in
addition to any other award ordered by the arbitrators. The prevailing party in
any judicial enforcement or review proceeding will also be entitled to
reasonable attorney's fees and costs, in addition to any other award ordered by
the court. If judicial enforcement or review is sought by either party, judgment
may be entered in any court of competent jurisdiction. This Section will survive
any expiration or termination of this Agreement and will continue to be
enforceable in the event of the bankruptcy of a party.
b. Notwithstanding the foregoing, a request by either party for
preliminary or permanent injunctive relief, whether prohibitive or mandatory, or
provisional relief such as writs of attachments or possession, shall not be
subject to arbitration and may be adjudicated only before a court of competent
jurisdiction.
12. Confidentiality. As used in this Section, "Confidential
---------------
Information" means trade secrets, operating manuals, customer or client lists,
business information, marketing programs, plans and strategies, financial
information, memoranda, work papers, notes, reports and any sales information
which either party ("disclosing party") makes available, or has previously made
available, to the other ("receiving party") in connection with this Agreement,
as well as this Agreement itself. Unless otherwise set forth in this Agreement,
the receiving party: (i) will not disclose Confidential Information to any third
party without first obtaining the express written permission of the disclosing
party, (ii) will use Confidential Information only as is necessary to fulfill
its obligations pursuant to this Agreement, and (iii) will limit such disclosure
to any of its officers, employees or agents on a need-to-know basis for purposes
of fulfilling its obligations under this Agreement. Notwithstanding anything to
the contrary in this Section, Confidential Information will not include: (a)
information that is approved for public release by the written authorization of
the disclosing party; (b) information that was disclosed to the receiving party
by a third party having legal right to make such disclosure; (c) information
7
<PAGE>
that is or becomes in the public domain; (d) information that the receiving
party can establish was independently developed without breaching this
Agreement; (e) information that the receiving party is required to disclose
pursuant to law, regulation, rule, act, or court order of any governmental
authority or agency.
13. General.
-------
a. Attorney's Fees. The prevailing party in any dispute over the
---------------
performance or construction of this Agreement will be entitled to recover its
reasonable attorney's fees and costs.
b. Compliance with Laws. Each party shall comply with all laws,
--------------------
rules and regulations, whether local, state, or federal, applicable to its
activities hereunder, but only to the extent such laws, rules and regulations
are applicable to such party.
c. Relationship of the Parties. Except as expressly set forth in
---------------------------
this Agreement, nothing contained in this Agreement will be construed to create
an agency relationship or a joint venture or partnership between the Parties and
neither party will have any right, power or authority to act on behalf of or
bind the other party.
d. Choice of Law. This Agreement will be construed under the
-------------
laws of the State of California, as applied to contracts entered into and
performed completely within California.
e. Non-Solicitation. For the Term and for one year after the
----------------
termination of this Agreement, each party agrees not to directly or indirectly
solicit employees of the other party.
f. Waivers. The rights of the parties under this Agreement are
-------
cumulative. The waiver by any party of any term, condition or breach hereof
shall not constitute a waiver of any other such matter.
g. Force Majeure. Neither party shall be liable for loss or
-------------
damage or be deemed to be in breach of this Agreement if its failure to perform
its obligations results from: (1) compliance with any law, ruling, order,
regulation, requirement or instruction of any federal, state or municipal
government or any department or agency thereof or any court of competent
jurisdiction; (2) acts or omissions of the other party in violation of this
Agreement; or (3) acts of God, fires, strikes, embargoes, war, insurrection,
riot, and other causes beyond the reasonable control of the party. Any delay
resulting from any said causes shall extend performance accordingly or excuse
performance, in whole or in part, as may be reasonable.
h. Assignability. Either party may assign this Agreement,
-------------
without consent, upon 30 days' written notice to the other party, to a parent,
or to a subsidiary. Either party may assign the Agreement to an affiliated
company, or to an entity in connection with any merger, consolidation or
reorganization with, or the sale of all of the party's assets to, such entity,
so long as the assignee is financially secure. Except to the extent set forth
above, neither party may assign this Agreement or any of its obligations
hereunder without the other party's prior written
8
<PAGE>
consent, which consent may not be unreasonably withheld, and any assignment
without such consent shall be null and void.
i. Survivability. All representations, warranties, covenants and
-------------
obligations of either party set forth herein shall survive the expiration or
termination of this Agreement and the performance by either party hereunder and
shall continue in full force and effect notwithstanding such expiration or
termination or performance until they are satisfied in full or by their nature
expire.
j. Captions, Interpretation. Section headings are for
------------------------
convenience of reference only, do not form a part of this Agreement and will not
affect the meaning of this Agreement. Words used, regardless of the number and
gender specifically used, will be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context requires. Any reference to a "person" will include an
individual, firm, corporation, partnership, trust, governmental authority or
body, association, unincorporated organization or any other entity. The word
"and" includes the word "or." The word "or" is disjunctive but not necessarily
exclusive.
k. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed given upon
receipt or three days after mailing, whichever is sooner, if personally
delivered or mailed, certified mail return receipt requested, or sent by
overnight carrier to the following addresses:
If to more.com:
more.com, Inc.
520 Third Street, Suite 245
San Francisco, CA 94107
Attn: Brad Oberwager
Telephone: (415) 979-9597
Facsimile: (415) 979-9598
with a copy to
Howard, Rice, et al
3 Embarcadero Center, 7th Floor
San Francisco CA 94111
Attn: Ronald Star, Esq.
If to BBDC:
Bergen Brunswig Drug Company
4000 Metropolitan Drive
Orange, California 92868
Attn: President
Telephone: (714) 385-4000
Facsimile: (714) 385-8879
9
<PAGE>
with a copy to:
Bergen Brunswig Corporation
4000 Metropolitan Drive
Orange, California 92868
Attn: E.V.P., Chief Legal Officer & Secretary
Telephone: (714) 385-4000
Facsimile: (714) 978-1148
l. Entire Agreement. This Agreement represents the entire
----------------
agreement of the parties and expressly supersedes and replaces in full any prior
agreements between the parties relating to the subject matter hereof. This
Agreement may only be amended or superseded by written agreement executed by
both parties.
IN WITNESS WHEREOF, intending to be legally bound, the parties
have executed this Agreement by their duly authorized representatives as of the
date first above written.
MORE.COM, INC. BERGEN BRUNSWIG DRUG COMPANY
By: /s/ Laureen De Buono By: /s/ Brent Martini
Its: CFO Its: President
10
<PAGE>
Exhibit 10.15
DATABASE LICENSE AND
SUPPLY AND PURCHASE AGREEMENT
THIS DATABASE LICENSE AND SUPPLY AND PURCHASE AGREEMENT, dated as of January
17, 2000, is made by and between More.com, a Delaware corporation ("More.com"),
--------
and Lens Express, Inc., a Florida corporation ("Lens Express").
------------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, More.com, among other things, sells and provides information
regarding medicines, face and body care products, nutritional supplements and
related products on its site located at the URL http://www.more.com on the
World Wide Web (the "More.com Site");
-------------
WHEREAS, Lens Express, among other things, sells contact lenses ("Contact
-------
Lenses") on its site located at the URL http://www.lensexpress.com on the World
- ------
Wide Web (the "Lens Express Site"), and has compiled an electronic
-----------------
product/pricing database containing information pertaining to a variety of
brands and types of Contact Lenses (the "Lens Express Database"); and
---------------------
WHEREAS, More.com wishes to offer Contact Lenses for sale on the More.com
Site, and Lens Express wishes to make available to More.com the Lens Express
Database and certain order processing, fulfillment, shipping and customer
service functions, such that that More.com users may search for and purchase
Contact Lenses on and through the More.com Site, all in accordance with the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Grant of Rights. During the Term (as defined below), Lens Express
---------------
hereby grants to More.com the worldwide, non-exclusive right and license to use
all or any portion of the Lens Express Database on or in connection with the
More.com Site, solely in accordance with the terms and conditions of this
Agreement. Such right shall be limited to making the Lens Express Database
available to users of the More.com Site ("More.com Users") as necessary to allow
--------------
them to determine the availability of and to purchase Contact Lenses as
contemplated hereunder, and to using the Lens Express Database, in whole or in
part, in ways which effectuate the terms and conditions of this Agreement. The
license granted hereunder includes a license under any and all intellectual
property rights that Lens Express may presently have or may acquire in the
future with respect to the Lens Express Database.
2. Roles and Responsibilities; Cooperation
---------------------------------------
a. The parties agree that the intent of this Agreement is to make
all Contact Lenses offered for sale on the Lens Express Database available to
More.com Users on a continuous basis (subject to limited downtime as described
in Section 9(a)(vii)) in a seamless manner which does not alter the look, feel
or functionality of the More.com Site and to allow More.com Users who search the
More.com Site for Contact Lenses to be provided results from
<PAGE>
the Lens Express Database. The More.com Site shall be the host site, and the
participation of Lens Express shall be invisible to the More.com Users except to
the extent determined by More.com. The customer experience of such More.com
Users utilizing the Lens Express Database shall be branded as "More.com,"
including, without limitation, the more.com Contact Lens Department, the
transaction shopping cart, the customer's credit card invoice, customer service,
invoices and packaging. Notwithstanding the foregoing, More.com at any time may
agree, in its sole discretion, to co-brand the customer experience of such
More.com Users (e.g., through a banner stating "More.com powered by Lens
----
Express" or similar means), provided that More.com shall have no obligation to
do so.
b. Lens Express shall provide at no charge customized template pages
for use by More.com and More.com Users with respect to inquiries and orders,
order processing, order status, product descriptions and any other pages
reasonably deemed necessary by More.com from the existing Lens Express Site.
Lens Express shall be solely responsible for prescription verification and
prescription file maintenance with respect to More.com Users purchasing Contact
Lenses via the Lens Express Database. In addition, Lens Express shall provide
and maintain the Lens Express Database and provide services with respect to
fulfillment, shipping, customer service and other matters as set forth herein.
c. More.com and Lens Express agree to work together in good faith,
and to devote such resources as may reasonably be required, to implement the
terms of this Agreement. The parties agree to exchange all necessary
technological information (subject to appropriate restrictions on use and
disclosure by the recipient) in order to carry out the intent of this Agreement.
3. Orders; Fulfillment and Shipping.
--------------------------------
a. If a More.com User purchases Contact Lenses through the Lens
Express Database (a "Contact Lens Order") through the More.com Site (each such
------------------
purchaser, a "Purchaser"), More.com shall, as promptly as is technically
---------
feasible, [**], notify Lens Express of such Contact Lens Order. Following such
notification, Lens Express shall, as promptly as is technically feasible, notify
More.com if such Contact Lens Order is not available for purchase. If such
Contact Lens Order is available for purchase, then Lens Express shall, as
promptly as is technically feasible and commercially reasonable, cause such
Contact Lens Order to be shipped, as directed by More.com, either: (i) directly
to the Purchaser at the address specified by More.com in such notification; or
(ii) to the More.com distribution center. More.com and Lens Express hereby agree
to the standards for quality control, which will at a minimum dictate that Lens
Express cannot fulfill with contracts that are labeled as samples or "not for
resale" of all services and timeliness of order fulfillment set forth on
Schedule 3(a), which is attached hereto and made a part hereof.
- -------------
b. Lens Express shall be responsible for the shipment of, and shall
cause to be shipped, each Contact Lens Order purchased by a Purchaser pursuant
to the terms of this Agreement, regardless of whether or not such Contact Lens
Order is filled by Lens Express from inventory or available to Lens Express from
a third party. Lens Express shall provide shipping
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
<PAGE>
of Contact Lens Orders by Priority Mail at no charge to More.com or the
Purchaser. Upon request by a Purchaser, Lens Express shall provide overnight
shipping by Federal Express at Lens Express' best negotiated rate with Federal
Express.
c. With respect to the supply of Contact Lenses for fulfillment of
Contact Lens Orders, Lens Express shall treat More.com no less favorably than it
treats any other third party. To the extent that Lens Express has any shipping
backlog or is suffering any delays with respect to shipping Contact Lenses, Lens
Express shall use its commercially reasonable efforts so that Contact Lens
Orders to be shipped pursuant to this Agreement shall have shipping priority at
least equal to other Lens Express Contact Lens shipments.
d. Lens Express shall comply with all reasonable More.com invoicing
requirements which do not materially increase Lens Express' handling costs.
Fees to be charged by Lens Express as a result of More.com requirements which
materially increase Lens Express' handling costs shall be mutually agreed on by
the parties. Shipments of Contact Lens Orders directly to a Purchaser shall be
shipped in Standard USPS priority mail packaging provided to Lens Express by the
USPS. The package may include up to three (3) package inserts (not to exceed
one ounce in weight), that will be provided by More.com at its cost, but will
not contain any materials promoting or referencing Lens Express.
e. Other than with respect to More.com invoicing requirements Lens
Express may not, pursuant to this Agreement, use the More.com name, or any
More.com logos, trade names or trademarks, without the prior written consent of
More.com. During the Term, Lens Express hereby grants to More.com the
worldwide, non-exclusive right and license to use, subject to the prior written
consent of Lens Express, which consent shall not be unreasonably withheld, the
Lens Express name and Lens Express logos and trademarks as provided by Lens
Express to More.com for use on the More.com site. Other than as provided in
this Section 3(e), More.com may not use the Lens Express name, or any Lens
Express logos, trade names or trademarks, without the prior written consent of
Lens Express.
f. [**] Purchasers located in the United States shall, to the extent
such orders are sourced by Lens Express within the United States, have their
Contact Lens Orders picked, packed and ready to be shipped, by whichever of the
shipping options offered by More.com chosen, at the docking station within 24
hours of the corresponding order confirmation and/or prescription verification
whichever occurs later. [**]
4. Pricing and Payment Terms.
-------------------------
a. More.com shall be responsible for the credit card billing and
collections with respect to Contact Lens Orders. Each Purchaser shall pay
More.com, in accordance with the pricing and payment terms set forth on the
More.com Site, for each Contact Lens Order purchased by them.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
<PAGE>
b. [**]
c. Lens Express shall invoice More.com [**], or at such other times
as mutually agreed upon by the parties, for each shipped Contact Lens Order,
including amounts, if any, to be reimbursed for shipping, and More.com shall pay
such invoices [**] by More.com. Lens Express shall provide More.com with
electronic files for billing and payment coordination. [**]
d. [**] following the date that an Contact Lens Order was shipped by
Lens Express pursuant to the terms of this Agreement, More.com may notify Lens
Express that it shall be returning such Contact Lens Order to Lens Express. Upon
such notification, Lens Express shall credit More.com's account in an amount
equal to the price paid by More.com for such Contact Lens Order. More.com may
wait a reasonable amount of time to physically return any returned Contact Lens
Order to Lens Express so that it can ship returns back to Lens Express in bulk.
More.com shall pay all shipping costs for returning such returned Contact Lenses
to Lens Express. Additionally, any significant customer returns that are the
result of a mispick on Lens Express's part will be credited, along with Lens
Express covering the full cycle of shipping costs that such a return and
reshipment necessitates.
e. After the first year of the Term, the parties shall assess actual
sales and cost data and shall commence good faith negotiations regarding pricing
based on such actual data. If at such time the parties are unable to reach
mutually agreeable terms regarding pricing, then this Agreement shall continue
with its current pricing terms.
f. [**]
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
<PAGE>
5. Customer Service; Reporting.
---------------------------
a. All customer service calls from More.com Users and Purchasers
shall go directly to More.com customer service agents. Such More.com customer
service agents shall answer questions regarding navigation of the More.com Site
and the pre-delivery status of Contact Lens Orders. Questions that refer to
specific product information regarding Contact Lenses or that require the
specific expertise of Lens Express with respect thereto shall be forwarded to
Lens Express' customer service agents. Lens Express and More.com agree to
jointly create customer service scripts and escalation criteria to ensure a high
level of service while taking advantage of More.com's existing customer service
capacity and making best efforts to use More.com's software at More.com's
expense.
b. No less than once per day, Lens Express shall provide reports, in
form and substance and by means reasonably acceptable to More.com, with respect
to the status of orders, shipment, delivery, and returns.
6. Maintaining and Updating the Lens Express Database.
--------------------------------------------------
a. Lens Express shall have the sole responsibility for maintaining
and updating the Lens Express Database. Lens Express shall update the Lens
Express Database as promptly as is technically feasible and commercially
reasonable.
b. Contact Lens listings in the Lens Express Database shall include
condition abbreviations and identity SKUs in all cases using ISBN, LoC or other
identifiers, to be mutually agreed upon. In addition the Lens Express Database
shall permit confirmation of availability of each Contact Lens Order.
7. Non-Exclusive Arrangement; Future Arrangements.
----------------------------------------------
a. The provision of services to More.com by Lens Express pursuant to
the terms and conditions of this Agreement is non-exclusive. Lens Express may
enter into similar arrangements with other parties. Pursuant to the binding LOI
by and between More.com and Lens Express dated December 8, 1999 (made a part
hereof by reference), More.com agrees to integrate back-end systems only with
Lens Express in the contact space and More.com agrees that it will send all
orders for contact lenses to Lens Express for fulfillment. Within the confines
and limitations of the foregoing More.com may incorporate any other database
(including any database developed by More.com or any of its affiliates) into the
More.com Site for the sale of contact lenses.
8. Policies and Customer Information. All More.com Users, including
---------------------------------
Purchasers, shall be deemed to be customers of More.com. Accordingly, all
More.com rules, policies and operating procedures concerning customer orders,
customer service and product sales shall apply to More.com Users and Purchasers.
More.com may change its policies and operating procedures at any time. More.com
shall determine the prices to be charged for products, including Contact Lenses,
and/or other merchandise sold in accordance with its own pricing policies.
Prices and availability may vary from time to time. More.com shall use
commercially reasonable efforts to
<PAGE>
present accurate information, but More.com cannot guarantee the availability or
price of any particular item. The parties hereto hereby agree that title to any
information collected by More.com with respect to More.com Users and Purchasers,
including the names, addresses, and e-mail addresses thereof, shall be owned by
More.com, and More.com shall have the sole and exclusive right to send re-order
reminders and other marketing materials to such More.com Users and Purchasers.
More.com shall have no obligation to share such information with Lens Express;
provided, however, that Lens Express shall have the right to receive such
information about Purchasers as is needed to satisfactorily complete its duties
hereunder, but provided further that Lens Express shall hold and use such
information only as necessary to perform its obligations of this Agreement and
will under no circumstances share this information with any third parties.
9. Representations and Warranties.
------------------------------
a. Lens Express hereby represents and warrants to More.com as
follows:
i. This Agreement has been duly and validly executed and
delivered by Lens Express and constitutes the legal, valid and binding
obligation of Lens Express, enforceable against Lens Express in accordance with
its terms.
ii. Lens Express is duly incorporated, validly existing and in
good standing under the laws of the State of Florida, and has full corporate
power and authority to execute, deliver and perform this Agreement.
iii. The execution, delivery and performance by Lens Express of
this Agreement and the consummation by it of the transactions contemplated
hereby shall not, with or without the giving of notice, the lapse of time or
both, conflict with or violate (A) any provision of law, rule or regulation to
which Lens Express is subject, (B) any order, judgment or decree applicable to
Lens Express or binding upon its assets or properties, (C) any provision of the
by-laws or certificate of incorporation of Lens Express or (D) any agreement or
other instrument applicable to Lens Express or binding upon its assets or
properties.
iv. To the best of its knowledge, no consent, approval or
authorization of, or exemption by, or filing with, any governmental authority or
any third party is required to be obtained or made by Lens Express in connection
with the execution, delivery and performance of this Agreement or the taking by
Lens Express of any other action contemplated hereby.
v. There is no pending or, to the best knowledge of Lens
Express, threatened claim, action or proceeding against Lens Express, or any
affiliate thereof, with respect to the execution, delivery or consummation of
this Agreement and, to the best knowledge of Lens Express, there is no basis for
any such claim, action or proceeding.
vi. It is the sole and exclusive owner of the Lens Express
Database and/or has the right to license the Lens Express Database to More.com
in accordance with, and in the manner contemplated by, the terms and conditions
of this Agreement; the license granted by Lens Express to More.com hereby does
not and shall not breach, conflict with or constitute a
<PAGE>
default under any agreement or other instrument applicable to Lens Express or
binding upon its assets or properties; and the Lens Express Database does not
and shall not infringe upon any rights, including any trademark, trade name,
service mark, copyright or other personal or proprietary right, of any other
person or entity.
vii. It shall make the most current operating version of the Lens
Express Database available to More.com in accordance with the terms and
conditions of this Agreement on a continuous basis; provided, that the parties
shall mutually agree upon limited scheduled downtime of the Lens Express
Database for maintenance, which downtime shall be scheduled only during
More.com's lowest usage times.
viii. To the best of its knowledge, the information included in the
Lens Express Database is accurate in all material respects.
ix. There is no material contained in the Lens Express Database that
is libelous or violative of the right of privacy or publicity of any person,
firm, corporation or other entity, and the utilization of the Lens Express
Database by More.com pursuant to and in accordance with this Agreement shall not
violate the rights of any person, firm, corporation or other entity.
x. To the best of its knowledge, the Lens Express Database does not
contain any infection, viruses worms, Trojan horses or other code that manifests
contaminating or destructive properties.
xi. It is the sole and exclusive owner of the Lens Express name and
the Lens Express logos and trademarks provided or to be provided by Lens Express
to More.com for use on the More.com Site in accordance with the terms of Section
3(e) of this Agreement and/or has the right to license such name and logos and
trademarks to More.com in accordance with, and in the manner contemplated by,
the terms and conditions of this Agreement; such license granted by Lens Express
to More.com does not and shall not breach, conflict with or constitute a default
under any agreement or other instrument applicable to Lens Express or binding
upon its assets or properties; and the use of the Lens Express name and such
logos and trademarks by More.com as contemplated by Section 3(e) of this
Agreement does not and shall not infringe upon any rights, including any
trademark, trade name, service mark, copyright or other personal or proprietary
right, of any other person or entity.
b. More.com hereby represents and warrants to Lens Express as
follows:
i. This Agreement has been duly and validly executed and delivered
by More.com and constitutes the legal, valid and binding obligation of More.com,
enforceable against More.com in accordance with its terms.
ii. More.com is duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has full power and authority to
execute, deliver and perform this Agreement.
<PAGE>
iii. The execution, delivery and performance by More.com of this
Agreement and the consummation by it of the transactions contemplated hereby
shall not, with or without the giving of notice, the lapse of time or both,
conflict with or violate (A) any provision of law, rule or regulation to which
More.com is subject, (B) any order, judgment or decree applicable to More.com or
binding upon its assets or properties, (C) any provision of the organizational
documents of More.com or (D) any agreement or other instrument applicable to
More.com or binding upon its assets or properties.
iv. To the best of its knowledge, no consent, approval or
authorization of, or exemption by, or filing with, any governmental authority or
any third party is required to be obtained or made by More.com in connection
with the execution, delivery and performance of this Agreement or the taking by
More.com of any other action contemplated hereby.
v. There is no pending or, to the best knowledge of More.com,
threatened claim, action or proceeding against More.com, or any affiliate
thereof, with respect to the execution, delivery or consummation of this
Agreement and, to the best knowledge of More.com, there is no basis for any such
claim, action or proceeding.
vi. It is the sole and exclusive owner of all logos, trademarks and
service marks provided or to be provided by More.com to Lens Express to
facilitate the performance of Lens Express' obligations under this Agreement
and/or has the right to license such name and logos and trademarks to license to
Lens Express in accordance with, and in the manner contemplated by, the terms
and conditions of this Agreement; and any such license does not and shall not
breach, conflict with or constitute a default under any agreement or other
instrument applicable to More.com or binding upon its assets or properties; and
to the best of its knowledge, the use of any such logos, trademarks and service
marks by Lens Express as contemplated by this Agreement does not and shall not
infringe upon any rights, including any trademark, trade name, service mark,
copyright or other personal or proprietary right, of any other person or entity.
10. Term; Termination.
-----------------
a. The term of this Agreement (the "Term") shall commence on the
----
date hereof and shall continue through December __, 2002, unless earlier
terminated as provided in clauses (b) and (c) below.
b. Either party shall have the right to terminate this Agreement by
delivery of written notice of termination to the other party hereto in the event
such other party materially breaches any representation, warranty, covenant or
agreement made by it hereunder or otherwise fails to perform any of its material
obligations hereunder and such breach or failure is not cured within thirty (30)
days after delivery of such notice; provided, however, that each party shall be
entitled to terminate this Agreement effective upon delivery of notice in the
event of a breach by the other party of the provisions of Sections 12 and 13
hereof.
c. If any law prohibits online commerce such as that conducted by
More.com, this Agreement shall automatically terminate.
<PAGE>
d. Except as otherwise provided in this Agreement, upon such
effective date of termination, each party's rights and obligations hereunder
shall terminate; provided, however, that the rights and obligations of the
parties hereto under Sections 4d, 8, 9, 10, 12, 13, 14, 15 and 16 hereof shall
survive such expiration and termination.
11. Audit Rights. Lens Express shall maintain true and correct books of
------------
account containing a record of all information necessary to calculate the price
paid by More.com for Lens Express Contact Lenses and corresponding Lens
Express published prices, for the term and for a period of three (3) years
following the term. More.com or its independent outside auditors shall be
entitled to review, at its cost, during Lens Express' regular business hours and
upon not less than ten (10) business days prior notice, such books and records
for the purpose of verifying the accuracy of such information and calculations.
Any such review shall be made not more than twice in any twelve (12) month
period. In the event that in the course of or as a result of any such review
More.com or its agent discovers any discrepancy from information previously
distributed to More.com, then, such discrepancy shall be remedied and, if such
discrepancy resulted in overpayments by More.com during the relevant period in
an amount exceeding 5% of the amount actually paid, Lens Express shall bear the
cost of such audit.
12. Confidentiality. The existence and terms of this Agreement, and any
---------------
other information pursuant to or in connection with this Agreement which would
be deemed "Confidential Information" under the Confidentiality Agreement dated
September 28, 1999 between More.com and Lens Express (the "NDA Agreement") shall
-------------
be treated as Confidential Information under the NDA Agreement and shall, during
the term of this Agreement and for the three (3) year period following the date
of this Agreement, be governed by the confidentiality provisions of the NDA
Agreement. Notwithstanding the foregoing, with respect to filing obligations
under the securities laws, each party shall, to the extent that it is required
to file this Agreement, file this Agreement in redacted form reasonably approved
by the other party prior to such filing.
13. Publicity.
---------
a. Notwithstanding the provisions of Section 12 hereof, promptly
after the execution of this Agreement, More.com shall have the right, but not
the obligation, to issue a press release describing the terms of the
relationship between the parties that has been established by this Agreement;
provided, that Lens Express shall have the right to review such document prior
to release.
b. Subject to Section 12 hereof and clause (a) above, neither party
shall (i) create, publish, distribute or permit any written material which makes
reference to the other party hereto without first submitting such material to
the other party and receiving the prior written consent of such party, which
consent shall not be unreasonably withheld or delayed, nor (ii) disclose to the
public or any third party (other than such party's attorneys, accountants and
prospective investors) the relationship between them or the transactions
contemplated by this Agreement without receiving the prior written consent of
the other party, which consent shall not be unreasonably withheld or delayed.
In furtherance of, and in no way limiting the foregoing,
<PAGE>
the parties agree to refrain from using each other's names, trademarks or logos
on any outside communications, including correspondence to dealers, press
releases, advertisements, and marketing materials without the prior written
consent of the other party. The parties shall work together to develop
pre-approved "talking points" to facilitate consistent messages and responses to
dealers and the press inquiring about the Lens Express-More.com relationship
14. Indemnification.
---------------
a. Each party (an "Indemnifying Party") hereby agrees to indemnify
------------------
and hold harmless the other party and its subsidiaries and affiliates, and their
respective directors, officers, employees, agents, shareholders, partners,
members and other owners, against any and all claims, actions, demands,
liabilities, losses, damages, judgments, settlements, costs and expenses
(including reasonable attorneys' fees) (any or all of the foregoing hereinafter
referred to as "Losses") insofar as such Losses (or actions in respect thereof)
------
arise out of or are based on any claim that, if true, would constitute a breach
of any representation or warranty made by the Indemnifying Party.
b. Lens Express hereby agrees to indemnify and hold harmless
more.com and its subsidiaries and affiliates, and their respective directors,
officers, employees, agents, shareholders, partners, members and other owners,
from and against any and all Losses insofar as such Losses (or actions in
respect thereof) arise out of or are related to any third party claim relating
to Contact Lenses and any other products or services supplied by Lens Express,
including, but not limited to, any claim (whether based on strict liability, in
tort, negligence, breach of express or implied warranty or other legal theory)
that personal injury, death or property damage was caused by a defect in design,
material or manufacture of any such Contact Lenses, products or services.
15. Disclaimers. More.com makes no representation that the operation of
-----------
the More.com Site shall be uninterrupted or error free, and More.com shall not
be liable in any way for any damages relating to, or the consequences of, any
such interruptions or errors. Lens Express makes no representations that the
Lens Express Database shall uninterrupted or error free, and Lens Express shall
not be liable in any way for any damages relating to, or the consequences of,
any such interruptions or errors.
16. Miscellaneous.
-------------
a. This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without giving effect to the conflict
of law principles thereof.
b. This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes any and all
prior agreement, written and oral, with respect thereto. No change, amendment
or modification of any provision of this Agreement shall be valid unless set
forth in a written instrument signed by both parties.
c. The failure of either party to exercise any right or remedy
provided for herein shall not be deemed a waiver of any right or remedy
hereunder.
<PAGE>
d. Any and all notices and other communications to either party
hereunder shall be in writing and deemed delivered (i) upon receipt if by hand,
overnight courier or telecopy (provided that in the event of a telecopy,
concurrently therewith a copy is mailed in accordance with clause (ii) hereof)
and (ii) three days after mailing by first class, certified mail, postage
prepaid, return receipt requested (1) if to Lens Express to 350 SW 12th Avenue,
Deerfield Beach, Florida 33442, attention: Brian O'Neill, telecopier no.: 954-
246-2017, and (2) if to More.com to 520 Third Street, Suite 245, San Francisco,
CA 94107, attention: Eric Budin, telecopier no.: 415-__________, or to such
other address for a party as shall be specified by like notice.
e. This Agreement does not constitute either party an agent, legal
representative, joint venturer, partner or employee of the other for any purpose
whatsoever and neither party is in any way authorized to make any contract,
agreement, warranty or representation or to create any obligation, express or
implied, on behalf of the other party hereto.
f. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and together which shall constitute
one and the same instrument.
g. The section headings used herein are for the convenience of the
parties only, are not substantive and shall not be used to interpret or construe
any of the provisions contained herein. All references to the term "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation"
h. This Agreement and the provisions hereof shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
successors and permitted assigns; provided, however, that neither party shall
have the right to assign its rights or obligations hereunder to any other person
or entity without the prior written consent of the other party; but further
provided, that such consent shall not be required for a transfer of this
Agreement pursuant to the sale of all or substantially all of such party's
business. Notwithstanding the foregoing, this Agreement shall continue in full
force and effect following a Change of Control (as defined below). For purposes
of this Section, the term "Change of Control" with respect to either party means
the occurrence of one or more of the following events: (i) after the date of
this Agreement, any person or entity (other than any person or entity who is the
beneficial owner of such party's voting securities as of the date of this
Agreement) becomes a beneficial owner (as such term is defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) directly or
indirectly of securities representing 50% or more of the total number of voting
securities of such party; or (ii) persons who constitute such party's board of
directors prior to any transaction or series of transactions cease to constitute
at least 50% of such party's board of directors as a result of such transaction
or series of transactions; or (iii) any merger, consolidation, liquidation or
sale of assets involving such party where an unaffiliated third party is the
surviving entity of such transaction, or any combination of the foregoing.
<PAGE>
i. Each provision of this Agreement shall be considered severable
and if, for any reason, any provision hereof is determined to be invalid and
contrary to, or in conflict with, any existing or future law or regulation by
any court or agency having valid jurisdiction, such provision shall be given the
maximum permissible effect, and such invalidity or illegality shall not impair
the operation or affect the remaining provisions of this Agreement; and the
latter shall continue to be given full force and effect and bind the parties
hereto and such invalid provisions shall be deemed not to be a part of this
Agreement.
j. Neither party shall be liable for failure to fulfill its
obligations hereunder, or for delays in performance, due to causes beyond its
reasonable control, including acts of God, acts or omissions of civil or
military authority, fires, strikes, floods, epidemics, riots or acts of war.
k. With respect to each new item or product category added to the
Lens Express Database or offered for sale by Lens Express, the parties hereto
agree that prior to such addition or offering they shall enter into good faith
negotiations regarding the sale of such products or items on the More.com Site.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
LENS EXPRESS, INC.
By: /s/ Brian O'Neill
Name: Brian O'Neill
Title:Executive Vice President
MORE.COM
By: /s/ Eric Budin
Name: Eric Budin
Title: Vice President of Corporate Development
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
("Registration Statement") of our report dated February 4, 2000, relating to
the consolidated financial statements of more.com, Inc., and of our report
dated January 27, 2000, relating to the financial statements of Comfort Living,
Inc., both of which appear in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
San Jose, California
February 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-09-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 8,549 24,655
<SECURITIES> 1,003 0
<RECEIVABLES> 23 603
<ALLOWANCES> 0 (12)
<INVENTORY> 22 175
<CURRENT-ASSETS> 9,769 26,062
<PP&E> 0 0
<DEPRECIATION> (129) (1,682)
<TOTAL-ASSETS> 11,541 40,161
<CURRENT-LIABILITIES> 1,172 8,486
<BONDS> 225 1,376
13,481 58,064
10 10
<COMMON> 3 5
<OTHER-SE> (6,988) (27,780)
<TOTAL-LIABILITY-AND-EQUITY> 11,541 40,161
<SALES> 99 2,520
<TOTAL-REVENUES> 99 2,923
<CGS> 143 3,753
<TOTAL-COSTS> 143 3,753
<OTHER-EXPENSES> 5,192 33,982
<LOSS-PROVISION> 0 12
<INTEREST-EXPENSE> 40 355
<INCOME-PRETAX> (5,169) (34,685)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,169) (34,685)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,169) (34,685)
<EPS-BASIC> (5.90) (15.74)
<EPS-DILUTED> (5.90) (15.74)
</TABLE>
