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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1999
REGISTRATION NO. 333-XXXXX
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PETS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 5999 95-4730753
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
435 BRANNAN STREET
SUITE 100
SAN FRANCISCO, CA 94107
(415) 222-9999
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JULIA L. WAINWRIGHT
CHIEF EXECUTIVE OFFICER
PETS.COM, INC.
435 BRANNAN STREET
SUITE 100
SAN FRANCISCO, CA 94107
(415) 222-9999
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JOHN V. BAUTISTA, ESQ. KEVIN P. KENNEDY, ESQ.
FRANCES JOHNSTON, ESQ. SHEARMAN & STERLING
JOHN DUGAN, ESQ. 1550 EL CAMINO REAL
VENTURE LAW GROUP MENLO PARK, CA 94025
A PROFESSIONAL CORPORATION (650) 330-2200
2800 SAND HILL ROAD
MENLO PARK, CA 94025
(650) 854-4488
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, par value
$0.001(2)........................ $100,000,000 $26,400
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
(2) The amount of shares registered also includes any shares initially ordered
or sold outside the United States that are thereafter sold or resold in the
United States. Offers and sales of shares outside the United States are
being made pursuant to the exemption afforded by Rule 901 of Regulation S
and this Registration Statement shall not be deemed effective with respect
to such offers and sales.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY 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 PRELIMINARY 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 DECEMBER 9, 1999
PROSPECTUS
SHARES
LOGO
COMMON STOCK
------------------------
This is Pets.com's initial public offering of common stock. The U.S.
underwriters are offering shares in the U.S. and Canada and the
international managers are offering shares outside the U.S. and
Canada.
We expect the public offering price to be between $ and
$ per share. After pricing this offering, we expect that the common
stock will be quoted on the Nasdaq National Market under the symbol "IPET."
INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Pets.com, Inc................. $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional
shares from Pets.com at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional shares from Pets.com.
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 of common stock will be ready for delivery in New York, New
York on or about , 2000.
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
WARBURG DILLON READ LLC
------------------------
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 18
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Information.............................. 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 27
Management.................................................. 43
Related Party Transactions.................................. 55
Principal and Selling Stockholders.......................... 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 62
Underwriting................................................ 64
Legal Matters............................................... 68
Experts..................................................... 68
Additional Information...................................... 68
Index to 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 as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operation and prospects may have changed since that date.
Pets.com(TM), the Pets.com logo, Because Pets Can't Drive(TM), Keep It
Comin'(TM), More Products Than A Superstore Delivers(TM), People Helping
Animals, Animals Helping People(TM), and Pets.commitment(TM) are trademarks of
Pets.com and Pets.com has the right to use Pets.complete(TM). All other brand
names or trademarks appearing in this prospectus are the property of their
respective holders. Use or display by Pets.com of other parties' trademarks,
trade dress or products is not intended to and does not imply a relationship
with, or endorsement or sponsorship of, Pets.com by the trademark or trade dress
owners.
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and financial statements appearing elsewhere
in this prospectus.
PETS.COM, INC.
We are a leading online retailer of pet products, integrating product sales
with expert information on pets and their care. We are committed to serving pets
and their owners with the best care possible through a broad product selection,
expert information and superior service. We seek to address the entire pet
products market, transcending the limited product selection of superstores,
specialty stores and grocery stores. Our broad selection of approximately 12,000
SKUs is integrated with extensive pet-related information and resources designed
to help consumers make informed purchasing decisions. We designed our Web store
to provide our customers with a convenient, one-stop shopping experience that is
organized to reflect how consumers think about shopping for their pets. Our Web
store addresses the needs of many of the most popular pets, including dogs,
cats, birds, fish, reptiles, ferrets, and other small pets. We provide quality
customer service through our in-house distribution, fulfillment, customer
service, and technology operations. Furthermore, we encourage participation in
the pet community both through our Web store and through Pets.commitment, our
charitable foundation that supports the role that pets and people play in each
others' lives.
The pet products industry in the United States is a large and growing
market characterized by a loyal and emotion-driven customer base. According to
the Pet Industry Joint Advisory Council, U.S. consumer spending on pet products
and services grew at an annual rate of approximately 9% per year between 1993
and 1997, totaling approximately $23 billion at the end of 1997. Today, more
than 60% of U.S. households own a pet and 40% of those households own more than
one pet, according to a recent American Pet Products Manufacturers Association
study. The pet products market has traditionally been served by a combination of
traditional store-based retailers, including superstores, independent specialty
stores and grocery stores. This market is highly fragmented, and generally
requires consumers to expend considerable time and effort shopping for pet
products in multiple stores to meet all their needs.
We provide consumers with one-stop shopping for their pet care needs. We
seek to attract and retain consumers by emphasizing the following key
attributes:
Extensive Product Selection. With only one distribution center at this
time, our SKU count is currently equivalent to the number available at the
largest pet superstores, and by the middle of 2000 we expect our SKU count will
increase to approximately two times the SKUs available at these stores.
Expert Information and Professional Resources. We provide consumers
extensive pet and pet care information integrated throughout our Web store
through our in-house staff of pet experts and strategic relationships.
Superior Shopping Experience. We believe that we provide an intuitive,
easy-to-use Web store, categorized and organized the way people think about
shopping for their pets. We also offer our customers a highly streamlined
checkout experience and direct delivery to their doors.
Quality Customer Service. We have invested significant resources to create
our own fulfillment, distribution, and both online and in-person help service
functions to enable us to better control all aspects of the customers' shopping
experience.
Community. Visitors to our Web store can participate online in 60 different
pet discussion forums, sign up for our online newsletter and get information on
our Pets.commitment charitable foundation.
Our objective is to become one of the world's leading retailers of pet
products. Key elements of our strategy include:
- Building enduring brand equity through an advertising strategy which
includes our Pets.com sock puppet brand icon, relationships with select
online companies, and support for national events and pet-related local
market activities;
- Offering the broadest possible pet product selection available to our
customers at competitive prices;
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- Establishing our private label brands for pet products marketed under the
Pets.complete and Pets.com brand names;
- Providing increasingly comprehensive and relevant content in conjunction
with a range of consumer and veterinary care partners;
- Delivering superior customer service and promoting repeat purchases
through investments in people, technology and distribution facilities;
- Continuing to maintain and expand our relationship with Amazon.com which
is currently our largest stockholder; and
- Expanding internationally in order to capitalize on the global market.
OTHER INFORMATION
Unless otherwise noted, this prospectus assumes:
- the automatic conversion of our outstanding convertible preferred stock
into common stock on a one-for-one basis upon the closing of this
offering;
- our reincorporation in Delaware and the filing of our amended and
restated certificate of incorporation authorizing 150,000,000 shares of
common stock and a class of 5,000,000 shares of undesignated preferred
stock upon the closing of the offering; and
- no exercise by the underwriters of their options to purchase additional
shares of our common stock in the offering.
Our net sales were $0.6 million for the period from February 1999
(inception) through September 30, 1999. Our net losses were $19.4 million for
the same period.
We were formed in February 1999 and reincorporated in Delaware in
2000. Our principal executive offices are located at 435 Brannan
Street, Suite 100, San Francisco, California 94107. Our telephone number is
(415) 222-9999. Our Web store address is www.pets.com. Information contained in
our Web store does not constitute part of this prospectus.
2
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THE OFFERINGS
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Shares offered by Pets.com
U.S. offering.......................... shares
International offering............... shares
-----------------
Total........................ shares
</TABLE>
Shares outstanding after the
offering..................... shares
Use of proceeds.............. We estimate that our net proceeds from this
offering without exercise of the over-allotment
options will be approximately $79.9 million. We
intend to use these net proceeds for general
corporate purposes, including expansion of our
marketing and brand building efforts, expansion
and building of distribution centers, and working
capital. See "Use of Proceeds."
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 the common stock.
Proposed Nasdaq National
Market symbol................ "IPET"
In addition, the information above excludes, as of December 9, 1999,
1,335,250 shares issuable upon exercise of options granted under our stock
plans, and 2,500,000 shares available for grant under our stock plans. This
number assumes that the underwriters' over-allotment option is not exercised. If
the over-allotment options are exercised in full, we will issue and sell an
additional shares.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth a summary of our statement of operations
data for the periods presented. The pro forma net loss per share for the period
from February 17, 1999 (inception) through September 30, 1999 reflects the
conversion of our convertible preferred stock upon completion of this offering.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 17, 1999
(INCEPTION)
QUARTER ENDED THROUGH
QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1999 1999 1999
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 39 $ 568 $ 619
Gross margin..................................... (37) (1,198) (1,223)
Total operating expenses......................... 3,584 15,231 18,832
---------- ---------- -----------
Operating loss................................... (3,621) (16,429) (20,055)
Net loss......................................... $ (3,498) $ (15,852) $ (19,355)
========== ========== ===========
Basic and diluted net loss per share............. $ (1.93) $ (8.75) $ (10.84)
Weighted average shares outstanding used to
compute basic and diluted net loss per share... 1,811,837 1,811,837 1,786,156
Pro forma basic and diluted net loss per share... $ (1.24)
Weighted average shares outstanding used to
compute pro forma basic and diluted net loss
per share...................................... 15,636,001
</TABLE>
The following data sets forth a summary of our balance sheet data as of
September 30, 1999
- On an actual basis;
- On a pro forma basis to give effect to the automatic conversion of all of
the outstanding shares of our convertible preferred stock into shares of
common stock upon the closing of this offering; and
- On a pro forma as adjusted basis to reflect the automatic conversion of
all of the outstanding shares of our convertible preferred stock and our
receipt of the estimated net proceeds from the sale of
shares of common stock in this offering at an estimated price of
$ per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $36,231 $36,231 $116,101
Working capital............................................. 34,913 34,913 114,783
Total assets................................................ 48,399 48,399 128,269
Convertible preferred stock and related paid-in capital..... 60,382 -- --
Total stockholders' equity.................................. 42,584 42,584 122,454
</TABLE>
4
<PAGE> 8
RISK FACTORS
You should carefully consider the following risks before making an
investment in our company. You should also refer to the other information set
forth in this prospectus, including the discussions set forth in "Special Note
Regarding Forward-Looking Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as our
financial statements and the related notes. Our business, financial condition,
or results of operations could be harmed as a result of any of the following
risks. In such case, the trading of our common stock could decline, and you
could lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE ONLY BEGAN SELLING OUR PRODUCTS IN FEBRUARY 1999 AND WE OPERATE IN A NEW
AND RAPIDLY EVOLVING MARKET, WHICH MAKES IT DIFFICULT FOR INVESTORS TO
DETERMINE WHETHER WE WILL ACCOMPLISH OUR OBJECTIVES
Because we were formed in February 1999 and we have yet to achieve
meaningful revenues, we have a limited operating history on which investors and
securities analysts can base an evaluation of our business and prospects. We
have limited insight into trends that may emerge and affect our business.
Accordingly, you must consider the risks and difficulties we face as an early
stage company with limited operating history in a new and rapidly evolving
market. We cannot be certain that our business strategy will be successful.
CONSUMERS OF PET PRODUCTS MAY NOT CHOOSE TO SHOP IN OUR WEB STORE AND
PURCHASE OUR PRODUCTS, WHICH WOULD REDUCE OUR REVENUES AND PREVENT US FROM
BECOMING PROFITABLE
We may not be able to attract a large number of potential customers who
shop in traditional retail stores to shop in our Web store. Furthermore, we may
incur significantly higher and more sustained advertising and promotional
expenditures than we currently anticipate to attract online shoppers to our Web
store and to convert those shoppers to purchasing customers. As a result, we may
not be able to achieve profitability, and even if we are successful at
attracting online customers, we expect it will take several years to build a
critical mass of these customers. Specific factors that could prevent widespread
customer acceptance of our online solution include:
- Shipping charges, which do not apply to shopping at traditional
retail stores;
- Delivery time associated with Internet orders, as compared to the
immediate receipt of products at a physical store;
- Pricing that does not meet customer expectations of "finding the
lowest price on the Internet;"
- Customer concerns about buying products without first seeing them in
person or physically handling them;
- Lack of consumer awareness of our Web store;
- Differentiating our Web store from those of our competitors;
- Customer concerns about the security of online transactions and the
privacy of their personal information;
- Product damage from shipping, delayed shipments, or shipments of
wrong or expired products, resulting in a failure to establish
customers' trust in buying pet store items online; and
- Difficulties in returning or exchanging items purchased in our Web
store.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT SIGNIFICANT INCREASES IN OUR
COSTS AND EXPENSES TO RESULT IN CONTINUING LOSSES FOR AT LEAST THE NEXT
FOUR YEARS
We incurred net losses of $15.9 million for the three-month period ended
September 30, 1999 and cumulative losses of $19.4 million from our inception
through September 30, 1999. We have not achieved profitability. We only began
selling products in February 1999 and have yet to achieve meaningful revenue,
and cannot be certain that we will obtain enough customer traffic or a high
enough volume of purchases to
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generate sufficient revenues and achieve profitability. We believe that we will
continue to incur operating and net losses for at least the next four years, and
possibly longer, and that the rate at which we will incur such losses will
increase significantly from current levels. We intend to increase our costs and
expenses substantially as we:
- Increase our sales and marketing activities, such as increasing
advertising expenses and entering into strategic marketing agreements
with third parties;
- Open additional distribution centers and expand our existing
distribution center;
- Provide our customers with shipping below our actual costs to attract
customers;
- Increase our general and administrative functions to support our
growing operations;
- Expand our customer support organization to better serve customer
needs; and
- Develop or license from third parties enhanced technologies and
features to improve our Web store.
Because we will spend these amounts before we receive any incremental
revenues from these efforts, our losses will be greater than the losses we would
incur if we developed our business more slowly. In addition, we may find that
these efforts are more expensive than we currently anticipate or that these
efforts may not result in proportionate increases in our revenues, which would
further increase our losses. We may also engage in promotional efforts such as
coupons or discounts that would reduce our revenues.
WE MAY NOT SUCCEED IN ESTABLISHING THE PETS.COM BRAND, WHICH WOULD
ADVERSELY AFFECT CUSTOMER ACCEPTANCE AND OUR REVENUES
Due to the early stage and competitive nature of the online market for pet
products, information and services, if we do not establish our brand quickly, we
may lose the opportunity to build a critical mass of customers. Promoting and
positioning our brand will depend largely on the success of our marketing
efforts and our ability to provide consistent, high quality customer
experiences. To promote our brand, we will incur substantial expense in our
advertising efforts on television, radio, magazines and other forms of
traditional media, along with advertising on Web sites that we believe our
customers are likely to visit. We will also incur substantial expense in our
efforts to enter into strategic alliances with, including making investments in,
online and more traditional companies that we believe will promote our brand and
drive customers to our Web store. To provide a high quality customer experience,
we will also need to spend money to attract and train customer service
personnel. We also will incur substantial expenses to develop content to help
build our brand and attract customers to our Web store. If these brand promotion
activities do not yield increased revenues, we will incur additional losses.
Beginning in the first half of 2000, we intend to introduce a line of
private label pet products. We may not achieve consumer acceptance of these
products. Further, we may be forced to incur higher expenses in order to produce
or market our private label product lines, which could negatively affect our
financial condition or operating results.
INCREASING OUR PRODUCT DISTRIBUTION CAPACITY IS AN IMPORTANT PART OF OUR
BUSINESS STRATEGY AND WILL REQUIRE SIGNIFICANT INVESTMENTS IN CASH AND
MANAGEMENT RESOURCES. IF WE DO NOT SUCCESSFULLY BUILD ADDITIONAL
DISTRIBUTION CENTERS, WE WILL FACE DIFFICULTIES IN INCREASING OUR REVENUES
AND WE MAY LOSE CUSTOMERS TO OUR COMPETITORS
We currently have one distribution center in Union City, California which
has a satellite operation in Hayward, California. We expect to begin operating a
second distribution center in the first half of 2000, and a third distribution
center within twenty-four months thereafter. Our success depends on our ability
to build additional distribution centers to accommodate increases in customer
demand, reduce our shipping costs, reduce shipping times to customers, provide
for a large product selection and increase our gross margins. If we do not
successfully build additional distribution centers in time to accommodate
increases in customer demand, we may not be able to increase our revenues and we
may lose customers to our competitors.
Opening additional distribution centers will require significant capital
investments in facilities and equipment, will require us to hire and train a
significant number of new employees, and could divert
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management attention from other issues. We expect to invest from $7 million to
$9 million in facilities and equipment in connection with opening an additional
distribution center during the first half of 2000. For additional information
relating to the risks we may face in obtaining additional financing, see "We may
need to raise additional funds and these funds may not be available to us when
we need them. If we cannot raise additional funds when we need them, our
business could fail."
SINCE WE CURRENTLY OPERATE ONLY ONE DISTRIBUTION CENTER LOCATED IN THE SAN
FRANCISCO BAY AREA, WE ARE SUSCEPTIBLE TO THE RISK OF DAMAGE TO OUR
DISTRIBUTION CENTER
Since we currently only operate one distribution center out of which we
ship products to nearly all of our customers, we are susceptible to power and
equipment failures, disruptions in our order fulfillment and delivery systems,
and fires, floods and other disasters. Furthermore, since our distribution
center is located in the San Francisco Bay Area, which is an
earthquake-sensitive area, we are particularly susceptible to the risk of damage
to, or total destruction of, our distribution center and the surrounding
transportation infrastructure caused by earthquakes. We cannot assure you that
we are adequately insured to cover the total amount of any losses caused by any
of the above events. In addition, we are not insured against any losses due to
interruptions in our business due to damage to or destruction of our
distribution center caused by earthquakes or to major transportation
infrastructure disruptions or other events that do not occur on our premises.
WE HAVE ONLY BEEN SELLING PRODUCTS FOR TWO FULL QUARTERS. WE EXPECT OUR
QUARTERLY FINANCIAL RESULTS TO FLUCTUATE AND OUR EARLY STAGE OF DEVELOPMENT
LIMITS OUR ABILITY TO PREDICT REVENUES AND EXPENSES PRECISELY
We have only been selling products for two full quarters and, as a result,
we have insufficient financial data on which to forecast our revenues and
operating expenses. In addition, we have insufficient results for investors and
securities analysts to use in order to identify historical trends or even to
make quarter to quarter comparisons of our operating results. To the extent our
revenues and operating results fall below the expectations of investors and
securities analysts, the trading price of our common stock may fall
significantly. We expect that our revenues and operating results will vary
significantly from quarter to quarter due to a number of factors, including:
- Consumer traffic to our Web store may fluctuate depending on the
effectiveness of our sales and marketing campaign, the timing and
level of promotion support we receive from Amazon.com and the
effectiveness of content on our Web store and other factors;
- The level of repeat purchases by customers, average order size and
mix of products sold may fluctuate as a result of the experience
consumers have on our Web store, the availability of products we have
for sale, seasonal factors and other factors;
- Our revenues may decline as a result of promotional offers made by
our competitors, the introduction of products or services offered by
our competitors, or the introduction of new competitors into our
market;
- We may experience consumer dissatisfaction with our Web store as we
add or change features, or as a result of technical difficulties on
our Web store that do not permit a consumer to access our Web store
or to complete a shopping session;
- Our expenses will also fluctuate depending on the timing and nature
of expansion of our distribution center; and our ability to achieve
efficiencies and lower shipping costs as a result of this expansion;
- Changes in government regulation of the Internet, particularly the
imposition of sales tax for online transactions, may discourage
online shopping and result in decreased revenues; and
- We may incur costs related to potential acquisitions of technology or
businesses.
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 result in
substantial additional operating losses. The volume and timing of orders of pet
products on our Web store are difficult to predict because the online market for
such products is in its infancy. Due to the limited operating history of our Web
store, we do not have a material amount of
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repeat business from regular customers. Because our Web store is designed to
encourage repeat business and we do not yet have sufficient historical data on
how successful this strategy will be, we cannot currently forecast revenue from
regular customers or overall anticipated revenue trends.
Furthermore, as a result of our limited operating history, it is difficult
to predict the volatility associated with the nature and timing of special
promotional offers, such as reducing the price on selected products, providing
redeemable coupons to customers, or offering shipping below our actual costs,
and our advertising efforts. For example, our revenues may decrease
significantly after a promotional offer has expired or prior to an expected
offer. In addition, our advertising expenses may be disproportionately higher
than our anticipated revenues from these advertising efforts.
WE WILL NEED TO RAISE ADDITIONAL FUNDS AND THESE FUNDS MAY NOT BE AVAILABLE
TO US WHEN WE NEED THEM. IF WE CANNOT RAISE ADDITIONAL FUNDS WHEN WE NEED
THEM, OUR BUSINESS COULD FAIL
Based on our current projections, we will need to raise funds over time
through the issuance of equity, equity-related or debt securities or through
obtaining credit from financial institutions in addition to the funds we are
raising in this offering. We cannot be certain that additional funds will be
available to us on favorable terms when required, or at all. If this additional
financing is not available to us we may need to dramatically change our business
plan, sell or merge our business, or face bankruptcy. In addition, our issuance
of equity or equity-related securities will dilute the ownership interest of
existing stockholders and our issuance of debt securities could increase the
risk or perceived risk of our company. Any of these actions could cause our
stock price to fall.
A PORTION OF OUR REVENUES MAY BE SEASONAL, WHICH COULD CAUSE OUR QUARTERLY
FINANCIAL RESULTS TO FLUCTUATE. THE FACT THAT WE HAVE NOT YET GENERATED
REVENUE FOR A FULL YEAR AND THE RAPID GROWTH IN OUR REVENUES SINCE OUR
INCEPTION MAKE IT IMPOSSIBLE TO ASSESS THE IMPACT OF THESE FACTORS
A portion of our revenues may be seasonal in nature, associated with the
sale of gift products for pets during the holiday season, the sale of outdoor
and activity-related pet products during the Spring season and the sale of flea
and tick products for pets during the Summer season. In addition, consumer fads
and other changes in consumer trends may cause shifts in purchasing patterns,
resulting in significant fluctuations in our operating results from one quarter
to the next. The fact that we have not yet generated revenue for a full year and
the rapid growth in our revenues since our inception make it impossible to
assess the impact of these factors.
WE DEPEND ON OUR ADVERTISING AGREEMENT WITH AMAZON.COM TO ATTRACT CUSTOMERS
TO OUR WEB STORE AND BUILD OUR BRAND. IN THE EVENT OUR ADVERTISING
AGREEMENT WITH AMAZON.COM WERE TO TERMINATE, WE COULD FACE SIGNIFICANTLY
HIGHER COSTS AND SIGNIFICANTLY MORE DIFFICULTY IN ATTRACTING CUSTOMERS
We have entered into an advertising agreement with Amazon.com whereby
Amazon.com provides us with online promotions mutually agreed upon, such as
emails about Pets.com, and one or more links from different locations on its Web
site to our Web store, consistent with Amazon.com's other marketing
arrangements. We experienced increases in traffic to our Web store after the
initiation of these promotions and have begun to derive traffic from the
Amazon.com Web site. Although our current agreement with Amazon.com expires in
October 2000, Amazon.com could terminate most of these online promotions at any
time. We cannot be certain that our relationship with Amazon.com will be
available to us in the future on acceptable commercial terms, if at all. If we
are unable to maintain our relationship with Amazon.com or agree upon the terms
and conditions of continuing the agreement beyond October 2000, our customer
traffic could fall and our brand identity could be adversely impacted resulting
in decreased revenues, and our marketing expenses could increase as we are
forced to incur higher costs to attract customers. In addition, our relationship
with Amazon.com is not exclusive. Amazon.com could partner with any of our
competitors or offer competing products, information or services directly from
its Web site. Furthermore, by virtue of the fact that we derive traffic directly
from the Amazon.com Web site, any interruption in service of Amazon.com's Web
site or the distribution of products to its customers could reduce the number of
customers to our Web store and reduce our revenues. Because we depend on the
brand awareness of Amazon.com to help build our brand, negative publicity about
Amazon.com or a reduction of the effectiveness of its brand could also have a
negative impact on our brand and reduce our revenues.
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WE UTILIZE CONSULTING ADVICE AND SUPPORT FROM AMAZON.COM FOR OPERATIONAL
AND STRATEGIC EXPERTISE. AMAZON.COM HAS NO CONTRACTUAL OBLIGATION TO
PROVIDE THIS SUPPORT. IF AMAZON.COM DOES NOT CONTINUE TO PROVIDE THE ADVICE
AND SUPPORT WE NEED, WE COULD INCUR HIGHER OPERATIONAL EXPENSES IN RUNNING
OUR BUSINESS AND DIFFICULTIES IN EXECUTING ON OUR BUSINESS PLAN
Since our inception, Amazon.com has provided us with free consulting
services relating to the operation of our business. During this time, Amazon.com
has also provided us with assistance in negotiating with vendors who also do
business with Amazon.com. This assistance has allowed us to incur significantly
lower operational expenses than we could otherwise have achieved at our early
stage of development. Amazon.com has provided these services to us because of
Amazon.com's significant equity stake in us. Amazon.com, however, is under no
contractual obligation to continue to provide this advice and support. While
Amazon.com will continue to own over % of our common stock after this
offering, we cannot be certain that Amazon.com will continue to provide, or
provide at all, the level of consulting advice and support that Amazon.com has
provided to us in the past. If we are unable to maintain our relationship with
Amazon.com, we would lose access to important operational and strategic
expertise, which could harm our business.
WE DEPEND ON OUR ABILITY TO BUILD AND MAINTAIN RELATIONSHIPS WITH OUR
SUPPLIERS TO OBTAIN SUFFICIENT QUANTITIES OF QUALITY MERCHANDISE ON
ACCEPTABLE COMMERCIAL TERMS. IF WE FAIL TO MAINTAIN OUR SUPPLIER
RELATIONSHIPS, OUR REVENUES WILL DECLINE
Our business strategy depends on providing a large selection of well-known
and high-quality branded products which in turn depends on our ability to
maintain relationships with a significant number of suppliers. We currently
purchase our products from approximately 200 suppliers. Our contracts or
arrangements with suppliers do not guarantee the availability of merchandise,
establish guaranteed prices or provide for the continuation of particular
pricing practices. Our current suppliers may not continue to sell products to us
on current terms or at all, and we may not be able to establish new suppliers to
ensure delivery of products in a timely manner or on terms acceptable to us.
Furthermore, because many of the products offered on our Web store are
well-known branded products, if suppliers of these products do not supply
products to us, we may lose customers who are unwilling to substitute for other
brands we carry. We are also dependent on suppliers for assuring the quality of
products supplied to us. Because we ship products directly to our customers, if
the quality of products supplied to us fall below our customers' expectations,
we may lose customers. In addition, our supply contracts do not restrict our
suppliers from selling products to our online competitors or to retailers other
than online retailers, which could limit our ability to supply the quantity of
products requested by our customers. We are also subject to the risks our
suppliers face, including employee strikes and inclement weather. Our failure to
deliver a large selection of high-quality and well-known branded products to our
customers in a timely and accurate manner, and at acceptable prices, would harm
our reputation, the Pets.com brand and our results of operations.
WE FACE THE RISK OF SYSTEMS INTERRUPTIONS AND CAPACITY CONSTRAINTS ON OUR
WEB SITE, POSSIBLY RESULTING IN ADVERSE PUBLICITY, REVENUE LOSSES AND
EROSION OF CUSTOMER TRUST
The satisfactory performance, reliability and availability of our Web
store, transaction processing systems and network infrastructure are critical to
our reputation and our ability to attract and retain customers and to maintain
adequate customer service levels. Any future systems interruption that results
in the unavailability of our Web store or reduced order fulfillment performance
could result in negative publicity and reduce the volume of goods sold and the
attractiveness of our Web store, which could negatively affect our revenues. For
the nine months ended September 30, 1999, there were three periods of one to
three hours and one period of thirteen hours during which users were able to
access our site but unable to complete transactions. There was also one period
of two hours during which our site was not accessible as a result of scheduled
maintenance. Nevertheless, we may experience temporary system interruptions for
a variety of reasons in the future, including power failures, software bugs and
an overwhelming number of visitors trying to reach our Web store during sales or
other promotions. We may not be able to correct a problem in a timely manner.
Because we are dependent in part on outside consultants for the implementation
of certain aspects of our system and because some of the reasons for a systems
interruption may be outside of our control, we also may not be able to remedy
the problem quickly or at all.
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We opened our Web store for customers in February 1999 and to the extent
that customer traffic grows substantially, we will need to expand the capacity
of our systems to accommodate a larger number of visitors. Any inability to
scale our systems may cause unanticipated system disruptions, slower response
times, degradation in levels of customer service, impaired quality and speed of
order fulfillment, or delays in reporting accurate financial information. We are
not certain that we will be able to project the rate or timing of increases, if
any, in the use of our Web store accurately or in a timely manner to permit us
to effectively upgrade and expand our transaction-processing systems or to
integrate smoothly any newly developed or purchased modules with our existing
systems.
WE HAVE GROWN VERY RAPIDLY. THIS GROWTH HAS PLACED, AND OUR ANTICIPATED
FUTURE OPERATIONS WILL CONTINUE TO PLACE, A SIGNIFICANT STRAIN ON OUR
MANAGEMENT SYSTEMS AND RESOURCES. WE WILL NOT BE ABLE TO IMPLEMENT OUR
BUSINESS STRATEGY UNLESS WE ARE ABLE TO EFFECTIVELY MANAGE THIS STRAIN ON
OUR SYSTEMS AND RESOURCES
We have rapidly and significantly expanded our operations, and anticipate
that we will continue to expand. From March 31, 1999 to September 30, 1999 to
November 30, 1999 we grew from 4 to 123 to 260 employees, respectively. We
currently have one distribution center, and expect to begin operating a second
distribution center in the first half of 2000 and a third distribution center
within twenty-four months thereafter. This growth has placed, and our
anticipated future operations will continue to place, a significant strain on
our management systems and resources. We will not be able to implement our
business strategy unless we are able to effectively manage this strain on our
systems and resources. We will not be able to increase revenues unless we
continue to improve our transaction-processing, operational, financial and
managerial controls, reporting systems and procedures, expand, train, supervise
and manage our work force, and manage multiple relationships with third parties.
WE ENTER INTO STRATEGIC RELATIONSHIPS TO HELP PROMOTE OUR WEB STORE. IF WE
FAIL TO MAINTAIN OR ENHANCE THESE RELATIONSHIPS, OUR DEVELOPMENT COULD BE
HINDERED
We believe that our ability to attract customers, facilitate broad market
acceptance of our products and the Pets.com brand, and enhance our sales and
marketing capabilities depends on our ability to develop and maintain strategic
relationships with Amazon.com, other pets-related Web sites and portals, and
other Web sites that can drive customer traffic to our Web store. If we are
unable to develop or maintain key relationships, we may have difficulty
attracting and retaining customers.
COMPETITION FROM BOTH TRADITIONAL AND ONLINE RETAILERS MAY RESULT IN PRICE
REDUCTIONS AND DECREASED DEMAND FOR OUR PRODUCTS AND SERVICES
We compete in a market that is new, rapidly evolving and highly
competitive, and we expect competition to intensify in the future. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share. We currently or potentially compete with
a variety of companies, many of which have significantly greater financial,
technical, marketing and other resources. These competitors can be divided into
several groups: online stores that specialize in pet products such as
Petopia.com, Inc., PetsMart.com, Inc. and PetStore.com, Inc., online stores that
offer pet products, superstore retailers of pet products such as Petco Animal
Supplies, Inc. and PetsMart, Inc., specialty pet stores, mass market retailers
such as Wal Mart Stores, Inc., Kmart Corporation and Target Stores, Inc.,
supermarkets, warehouse clubs such as Costco Companies, Inc., mail order
suppliers of pet products, and pet supply departments at major department
stores. Many of these companies, which include national, regional and local
chains, have existed for a longer period, have greater financial resources, have
established marketing relationships with leading manufacturers and advertisers,
and have longer established brand recognition among customers.
We believe we may face a significant competitive challenge from our
competitors forming alliances with each other. For instance, Petopia, Inc. is
owned in part by Petco Animal Supplies, Inc., and PetsMart.com, Inc. is owned in
part by PetsMart, Inc. The combined resources of these alliances could pose a
significant competitive challenge to Pets.com. These relationships may enable
these online stores to achieve greater brand recognition, particularly in the
case of PetsMart.com, Inc., by leveraging the better established brand awareness
of their pet retail store partner. These relationships may also enable these
online stores to negotiate better pricing and other terms from suppliers by
aggregating their demand for
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products and negotiating volume discounts. Our inability to partner with a major
pet store chain could be a major competitive disadvantage to us.
We also believe we may face significant competitive challenges from
discount general merchandise stores, mass market retailers and other retailers
that commence or expand their presence on the Internet to include pet products.
Finally, we are aware of numerous other smaller entrepreneurial companies that
are focusing significant resources on developing and marketing products,
information and services that will compete directly with those offered at
Pets.com.
We believe that there may be a significant advantage in establishing a
large customer base before our competitors do so. If we fail to attract and
retain a large customer base and our competitors establish a more prominent
market position relative to ours, this could inhibit our ability to grow. We
believe the principal factors in our market include brand recognition, product
selection, quality of Web store content, reliability and speed of order
shipment, customer service, speed and accessibility of our Web store,
personalized service, convenience and price. We will have little or no control
over how successful our competitors are in addressing these factors. In
addition, with little difficulty, our online competitors can duplicate many of
the products, services and content offered on our site.
EXPANSION OF OUR INTERNATIONAL OPERATIONS WILL REQUIRE MANAGEMENT ATTENTION
AND RESOURCES AND MAY BE UNSUCCESSFUL WHICH COULD HARM OUR BUSINESS
To date, we have conducted no international operations but we intend to
make an investment in a UK-based company that intends to sell pet products
online. We plan to build local versions of our Web store for foreign companies
or expand our international operations through acquisitions or alliances with
third parties. Our expansion plans will require management attention and
resources and may be unsuccessful. We have no experience in selling our products
to conform to local cultures, standards and policies. We may have to compete
with local companies which understand the local market better than we do. In
addition, to achieve satisfactory performance for consumers in international
locations it will be necessary to locate physical facilities, such as server
computers and distribution centers in the foreign market. We do not have
experience establishing such facilities overseas. We may not be successful in
expanding into any international markets or in generating revenues from foreign
operations. In addition, different privacy, censorship and liability standards
and regulations and different intellectual property laws in foreign countries
may cause our business to be harmed. Furthermore, once we expand internationally
we expect to incur net losses in developing foreign markets for the foreseeable
future.
OUR SYSTEMS AND OPERATIONS, AND THOSE OF OUR SUPPLIERS AND SHIPPERS, ARE
VULNERABLE TO NATURAL DISASTERS AND OTHER UNEXPECTED PROBLEMS
Substantially all of our computer and communications hardware is located at
our leased facility in San Francisco, California and our systems infrastructure
is hosted at an Exodus Communications, Inc. facility in Santa Clara, California.
Our systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, earthquakes and similar events.
In addition, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to accept and fulfill customer orders. We
do not currently have fully redundant systems or a formal disaster recovery plan
and do not carry sufficient business interruption insurance to compensate for
losses that may occur. Our suppliers also face these risks.
We also depend on the efficient operation of Internet connections from
customers to our systems. These connections, in turn, depend on the efficient
operation of Web browsers, Internet service providers and Internet backbone
service providers, all of which have had periodic operational problems or
experienced outages. Any system delays, failures or loss of data, whatever the
cause, could reduce customer satisfaction with our applications and services and
harm our sales.
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 federal, state and local regulations relating to
the shipment of pet food, live animals and pet products, advice relating to
animal care, and other matters. Regulations in this area often require
subjective interpretation, and we cannot be certain that our attempts to comply
with these regulations will be deemed sufficient by the appropriate regulatory
agencies. Violations of any regulations
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could result in various civil and criminal penalties, including suspension or
revocation of our licenses or registrations, seizure of our inventory, or
monetary fines, which could adversely effect our operations.
WE NEED TO HIRE AND RETAIN A NUMBER OF ADDITIONAL TECHNOLOGY, CONTENT AND
PRODUCT ORIENTED PERSONNEL WHO MIGHT BE DIFFICULT TO FIND
We intend to continue to hire a significant number of additional personnel,
including software engineers, editorial and customer support personnel,
marketing personnel, and warehouse and operational personnel. Competition for
these individuals is intense, and we may not be able to attract, assimilate or
retain additional highly qualified personnel in the future. The failure to
attract, integrate, motivate and retain additional such employees could
seriously harm our business.
WE RELY ON THE SERVICES OF OUR KEY PERSONNEL, WHOSE KNOWLEDGE OF OUR
BUSINESS AND TECHNICAL EXPERTISE WOULD BE DIFFICULT TO REPLACE
We rely upon the continued service and performance of a relatively small
number of key technical and senior management personnel. Our future success
depends on our retention of these key employees, such as Julie Wainwright, our
Chief Executive Officer. None of our key technical or senior management
personnel are bound by employment agreements, and as a result, any of these
employees could leave with little or no prior notice. If we lose any of our key
technical and senior management personnel, our business could be seriously
harmed. We do not have "key person" life insurance policies covering any of our
employees.
MANY MEMBERS OF OUR MANAGEMENT TEAM ARE NEW TO THE COMPANY OR TO THE PET
PRODUCTS AND SERVICES INDUSTRY OR ONLINE BUSINESSES, AND OUR BUSINESS COULD
BE SERIOUSLY HARMED IF INTEGRATION OF OUR MANAGEMENT TEAM INTO OUR COMPANY
IS NOT SUCCESSFUL
We have recently experienced significant growth in our management team.
Paul Manca, our Chief Financial Officer, joined us in September 1999 and Ralph
Lewis, our Vice President of Distribution and Logistics, joined us in November
1999. In addition, many of the members of our senior management team do not have
prior experience in the pet products and services industry or in online
businesses or in publicly traded companies. Our business could be seriously
harmed if integration of our management team into our company is not successful.
We expect that it will take time for our new management team to integrate into
our company and it is too early to predict whether this integration will be
successful.
WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO PROTECT OUR INTELLECTUAL
PROPERTY, AND WE MAY BE FOUND TO INFRINGE PROPRIETARY RIGHTS OF OTHERS,
WHICH COULD HARM OUR BUSINESS
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to protect our intellectual property. These afford only
limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our sales formats or to
obtain and use information that we regard as proprietary, such as the technology
used to operate our Web store, our content and our trademarks.
We have filed applications for the registration of Pets.com(TM), the
Pets.com logo, Because Pets Can't Drive(TM), Keep It Comin'(TM), More Products
Than a Superstore Delivers(TM), People Helping Animals, Animals Helping
People(TM), and Pets.commitment(TM) in the U.S. and in some other countries,
although we have not secured registration of our marks to date. We have been
granted the right to use Pets.complete(TM) from a third party in exchange for
economic consideration. We may be unable to secure these registrations. 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 Pets.com or our other
trademark applications. Any claims or customer confusion related to our
trademarks, or our failure to obtain any trademark registration, would
negatively affect our business.
Litigation or proceedings before the U.S. Patent and Trademark Office may
be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets and domain names and to determine the validity and
scope of the proprietary rights of others. Any litigation or adverse priority
proceeding could result in substantial costs and diversion of resources and
could seriously harm our business and operating
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results. Finally, we intend to sell our products internationally, and the laws
of many countries do not protect our proprietary rights to as great an extent as
do the laws of the United States.
Third parties may also claim infringement by us with respect to past,
current or future technologies. We expect that participants in our markets will
be increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any claim, whether meritorious or
not, could be time-consuming, result in costly litigation, cause service upgrade
delays or require us to enter into royalty or licensing agreements. These
royalty or licensing agreements might not be available on terms acceptable to us
or at all.
WE MAY NOT BE ABLE TO PROTECT OUR DOMAIN NAMES IN ALL COUNTRIES OR AGAINST
ALL INFRINGERS, WHICH COULD DECREASE THE VALUE OF OUR BRAND NAME AND
PROPRIETARY RIGHTS
We currently hold the Internet domain name "pets.com," as well as various
other related names. Domain names generally are regulated by Internet regulatory
bodies. The regulation of domain names in the United States and in foreign
countries is subject to change. Regulatory bodies could establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may not be able to
acquire or maintain the domain names in all of the countries in which we conduct
business which utilize the term "pets" or "pets.com." We are aware that other
entities have already registered domain names utilizing the term "pets" or
"pets.com." If we are unable to purchase these names from these entities on
commercially reasonable terms or in the event we were to otherwise lose the
ability to use a domain name in a particular country, we would be forced to
incur significant additional expenses to market our products within that
country, including the development of a new brand and the creation of new
promotional materials and packaging.
WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND MAY FACE LIABILITY FOR
CONTENT ON OUR WEB STORE, ANY OF WHICH COULD HARM OUR FINANCIAL CONDITION
AND LIQUIDITY
Because we sell consumer products we may be subject to product liability
claims resulting from injuries to persons and animals caused by the products we
sell. We maintain limited product liability insurance. To the extent these
claims are not covered by or are in excess of our product liability insurance, a
successful product liability claim could harm our financial condition and
liquidity. In addition, because we post product information and other content on
our Web store and permit our customers to place content on our bulletin board
systems and in other areas of our Web store, 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 or permit our
customers to post. Such claims have been brought, and sometimes successfully
pressed, against Internet content distributors. In addition, we do not and
cannot practically screen all of the content generated by our users and placed
on our Web store. Although we maintain general liability insurance of $3
million, our insurance may not cover potential claims of this type or may not be
adequate to indemnify us for all liability that may be imposed. Any imposition
of liability that is not covered by insurance or is in excess of insurance
coverage could harm our financial condition and liquidity.
OUR OPERATIONS MAY BE DISRUPTED IF WE OR OUR PRODUCT SUPPLIERS OR OTHER
VENDORS EXPERIENCE SYSTEMS FAILURE OR DATA CORRUPTION FROM THE YEAR 2000
ISSUE
Any failure of our material systems, our product suppliers or others
vendors' material systems or the Internet to be year 2000 compliant would have
material adverse consequences for us. Such consequences would include
difficulties in operating our Web store effectively, taking product orders,
making product deliveries or conducting other fundamental parts of our business.
We may be unable to detect or assess the effect of any failure well into the
year 2000 and beyond. We are currently assessing the year 2000 readiness of the
software, computer technology and other services that we use which may not be
year 2000 compliant. We do not intend to develop a contingency plan to address
situations that may result if our vendors or we experience material difficulties
after January 1, 2000 as a result of the year 2000 problem.
We also depend on the year 2000 compliance of the computer systems and
financial services used by consumers. A significant disruption in the ability of
consumers to reliably access the Internet or portions of it or to use their
credit cards would have an adverse effect on demand for our products and
services. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000" for a further description of the issues we face with
regard to the year 2000.
AMAZON.COM, OUR OTHER EXISTING STOCKHOLDERS, AND OUR OFFICERS AND
DIRECTORS, WILL STILL CONTROL THE MAJORITY OF OUR COMMON STOCK AFTER THIS
OFFERING, WHICH COULD DISCOURAGE AN ACQUISITION OF US OR MAKE REMOVAL OF
INCUMBENT MANAGEMENT MORE DIFFICULT
After this offering, Amazon.com will beneficially own approximately % of
our outstanding common stock, % if the underwriters' over-allotment option is
exercised in full, and Randy Tinsley, Amazon.com's Vice President, Corporate
Development, is a member of our Board of Directors. Therefore, Amazon.com will
be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combination transactions. Amazon.com's substantial equity stake
in us could also make us a much less attractive acquisition candidate to
potential acquirors, because Amazon.com would be able to block the acquisition
by acting in concert with only a small number of other stockholders. In
addition, Amazon would have sufficient votes to prevent the tax-free treatment
of an acquisition. In addition, executive officers, directors and entities
affiliated with them, including Amazon.com, will, in the aggregate, beneficially
own approximately % of our outstanding common stock following the completion
of this offering, % if the underwriters' over-allotment option is exercised in
full. These stockholders, if acting together, would be able to decide all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions. See "Principal Stockholders" for a description of Amazon.com's
stock ownership relative to other stockholders, "Executive Officers and
Directors" for background on Randy Tinsley, and "Related Party Transactions" for
a description of our agreements with Amazon.com.
RISKS RELATED TO INTERNET COMMERCE
WE DEPEND ON CONTINUED USE OF THE INTERNET, AND IF THE USE OF THE INTERNET
DOES NOT DEVELOP AS WE ANTICIPATE, OUR SALES MAY NOT GROW
Our future revenues and profits, if any, substantially depend upon the
widespread acceptance and use of the Internet as an effective medium of business
and communication by our target customers. Rapid growth in the use of and
interest in the Internet has occurred only recently. As a result, acceptance and
use may not continue to develop at historical rates, and a sufficiently broad
base of consumers may not adopt, and continue to use, the Internet and other
online services as a medium of commerce.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. Our success will depend, in
large part, upon third parties maintaining the Internet infrastructure to
provide a reliable network backbone with the speed, data capacity, security and
hardware necessary for reliable Internet access and services.
OUR SUCCESS DEPENDS ON THE WILLINGNESS OF CONSUMERS TO PURCHASE PET
PRODUCTS OVER THE INTERNET INSTEAD OF THROUGH TRADITIONAL RETAILERS.
CONSUMERS MAY NOT BE WILLING TO DO THIS
The online market for pet products, information and services is in its
infancy. The market is significantly less developed than the online market for
books, auctions, music, software and numerous other consumer products. If this
market does not gain widespread acceptance, our business may fail. Demand and
market acceptance for recently introduced services and products on the Internet
are subject to a high level of uncertainty, and there are few proven services
and products. Our success will depend on our ability to engage consumers who
have historically purchased pet products through traditional retailers. In order
for us to be successful, many of these consumers must be willing to utilize new
ways of buying pet products. In addition, a substantial proportion of the
consumers who use our Web store may be using our service because it is new and
different rather than because they believe it is a desirable way to purchase pet
products. Such consumers may use our service only once or twice and then return
to more familiar means of purchasing these products.
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OUR SALES COULD BE NEGATIVELY AFFECTED IF WE ARE REQUIRED TO CHARGE TAXES
ON PURCHASES
We do not collect sales or other similar taxes in respect of goods sold by
Pets.com, except from purchasers located in California. However, one or more
states or the federal government may seek to impose sales tax collection
obligations on out-of-state companies, such as Pets.com, which engage in or
facilitate online commerce, and a number of proposals have been made at the
state and local level that would impose additional taxes on the sale of goods
and services through the Internet. In 1998, the U.S. federal government enacted
legislation prohibiting states or other local authorities from imposing new
taxes on Internet commerce for a three-year period, ending on October 1, 2001.
This tax moratorium does not prohibit states or the Internal Revenue Service
from collecting taxes on our income, if any, or from collecting taxes that are
due under existing tax rules. A successful assertion by one or more states or
any foreign country that we should collect sales or other taxes on the exchange
of merchandise on our Web store could harm our business. In addition, a number
of trade groups and government entities have publicly stated their objections to
this tax moratorium and have argued for its repeal. The Federal Advisory
Commission on Electronic Commerce is in the process of evaluating these issues.
It is expected to make its recommendation to Congress in April 2000. There can
be no assurance that future laws will not impose taxes or other regulations on
Internet commerce, or that such three-year moratorium will not be repealed, or
that it will be renewed when it expires, any of which events could substantially
impair the growth of electronic commerce.
We intend to open distribution centers from time to time in other states
and, regardless of the outcome of this federal tax moratorium, may be required
to collect sales or other similar taxes in respects of goods sold by Pets.com
into these states. A successful assertion by one or more states or the federal
government that we should collect further sales or other taxes on the sales of
products through Pets.com could negatively affect our revenues and business.
WE RELY ON THIRD-PARTY CARRIERS FOR PRODUCT SHIPMENTS TO US AND OUR
CUSTOMERS, AND COULD LOSE CUSTOMERS IF THESE CARRIERS DO NOT ADEQUATELY
SERVE OUR NEEDS
We rely upon third-party carriers for product shipments, including
shipments to and from our distribution facility. We are therefore subject to the
risks, including employee strikes and inclement weather, associated with such
carriers' ability to provide delivery services to meet our shipping needs. In
addition, failure to deliver products to our customers in a timely manner would
damage our reputation and brand.
BECAUSE WE ARE UNABLE TO OBTAIN SIGNATURES FROM OUR CUSTOMERS WHEN WE
PROCESS ORDERS ONLINE, WE ARE EXPOSED TO RISKS ASSOCIATED WITH CREDIT CARD
FRAUD
A failure to adequately control fraudulent credit card transactions would
harm our net sales and results of operations because we do not carry insurance
against this risk. Under current credit card practices, we are liable for
fraudulent credit card transactions because we do not obtain a cardholder's
signature. To date, we have experienced almost no losses from credit card fraud,
but we face the risk of significant losses from this fraud as our sales
increase. Our failure to adequately control fraudulent credit card transactions
could reduce our collections and harm our business.
OUR BUSINESS COULD BE HARMED IF WE FAIL TO PREVENT ONLINE COMMERCE SECURITY
BREACHES. WE MAY NEED TO EXPEND SIGNIFICANT RESOURCES TO PROTECT AGAINST
SECURITY BREACHES OR TO ADDRESS PROBLEMS CAUSED BY BREACHES
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks, and our failure
to prevent security breaches could harm our business. Currently, a significant
number of our users authorize us to bill their credit card accounts directly for
all products sold by us. We rely on encryption and authentication technology
licensed from third parties to provide the security and authentication
technology to effect secure transmission of confidential information, including
customer credit card numbers. Advances in computer capabilities, new discoveries
in the field of cryptography, or other developments may result in a compromise
or breach of the technology used by us to protect customer transaction data. Any
such compromise of our security could harm our reputation and expose us to a
risk of loss or litigation and possible liability and, therefore, harm our
business. In addition, a party who is able to circumvent our security measures
could misappropriate
15
<PAGE> 19
proprietary information or cause interruptions in our operations. We may need to
expend significant resources to protect against security breaches or to address
problems caused by breaches. Security breaches could damage our reputation. Our
insurance policies carry low coverage limits, which may not be adequate to
reimburse us for losses caused by security breaches.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR SERVICES COULD
BECOME OBSOLETE AND OUR BUSINESS WOULD BE SERIOUSLY HARMED
As the Internet and online commerce industry evolve, we must license
leading technologies useful in our business, enhance our existing services,
develop new services and technology that address the increasingly sophisticated
and varied needs of our prospective customers and respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis. We may not be able to successfully implement new technologies or
adapt our Web store, proprietary technology and transaction-processing systems
to customer requirements or emerging industry standards. If we are unable to do
so, it could adversely impact our ability to build the Pets.com brand and
attract and retain customers.
GOVERNMENTAL REGULATION OF THE INTERNET AND DATA TRANSMISSION OVER THE
INTERNET MAY NEGATIVELY AFFECT OUR CUSTOMERS AND RESULT IN A DECREASE IN
DEMAND FOR OUR PRODUCTS, WHICH WOULD CAUSE A DECLINE IN OUR SALES
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the U.S.
Congress resulted in Internet laws regarding children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European Union
recently enacted its own privacy regulations. The law of the Internet, however,
remains largely unsettled, even in areas where there has been some legislative
action. It may take years to determine whether and how existing laws such as
those governing privacy, libel and taxation apply to Web stores such as ours.
The delays that these governmental processes entail may cause order
cancellations or postponements of product purchases by our customers, which
would seriously harm our business. The rapid growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. The adoption or
modification of laws or regulations relating to the Internet business could
result in a decrease in demand for our products, which would cause a decline in
our revenues.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE WILL FLUCTUATE AFTER THIS OFFERING, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS
Although the initial public offering price will be determined based on
several factors, the market price for our common stock will vary from the
initial offering price after trading commences. This could result in substantial
losses for investors. The market price of our common stock may fluctuate
significantly in response to a number of factors, some of which are beyond our
control. These factors include:
- Quarterly variations in operating results;
- Changes in financial estimates by securities analysts;
- Announcements by us or our competitors, of new product and service
offerings, significant contracts, acquisitions or strategic
relationships;
- Publicity about our company, our products and services, our
competitors, or e-commerce in general;
- Additions or departures of key personnel;
- Any future sales of our common stock or other securities; and
- Stock market price and volume fluctuations of publicly-traded
companies in general and Internet-related companies in particular,
especially Amazon.com.
The trading prices of Internet-related companies and e-commerce companies,
including Amazon.com, have been especially volatile and many are at or near
historical highs. Investors may be unable to resell
16
<PAGE> 20
their shares of our common stock at or above the offering price. In the past,
securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. We may be
the target of similar litigation in the future. Securities litigation could
result in substantial costs and divert management's attention and resources,
which could seriously harm our business and operating results.
A TOTAL OF 26,068,921 SHARES, OR %, OF OUR TOTAL OUTSTANDING SHARES
AFTER THE OFFERING ARE RESTRICTED FROM IMMEDIATE RESALE, BUT MAY BE SOLD
INTO THE MARKET IN THE NEAR FUTURE. THIS COULD CAUSE THE MARKET PRICE OF
OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock could cause our stock price to
fall. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional stock.
After this offering, we will have outstanding shares of common
stock. This includes shares that we are selling in the offering,
which may be resold immediately in the public market. The remaining 26,068,921
shares will become eligible for resale in the public market as shown in the
table below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES/PERCENT
OUTSTANDING
AFTER THE
OFFERING DATE OF AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ------------------ ------------------------------------------------------------
<C> <S>
/ % 180 days after the date of the final prospectus due to
agreements these stockholders have with us and the
underwriters. However, the underwriters can waive this
restriction without prior notice and allow these
stockholders to sell their shares at any time.
/ % At various times between 180 days after the date of the
final prospectus and November 5, 2000 shares
will be eligible for sale pursuant to Rule 144.
/ % At various times between November 5, 2000 and December 8,
2000, shares will be eligible for sale
pursuant to Rule 144.
/ % At various times after December 8, 1999, shares
will be eligible for sale pursuant to Rule 144.
</TABLE>
NEW STOCKHOLDERS WILL INCUR SUBSTANTIAL DILUTION OF APPROXIMATELY $ PER
SHARE AS A RESULT OF THIS OFFERING
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate
substantial dilution of approximately $ per share. In addition, we have
issued options to acquire common stock at prices significantly below the initial
public offering price. To the extent such outstanding options are ultimately
exercised, there will be further dilution to investors in this offering. See
"Dilution" for a more detailed description of how new stockholders will incur
dilution.
17
<PAGE> 21
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, expect, plan, intend, anticipate,
believe, estimate, predict, potential or continue, the negative of such terms or
other comparable terminology. These statements are only predictions. Actual
events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks outlined in
the Risk Factors section above. These factors may cause our actual results to
differ materially from any forward-looking statement. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock we are
offering hereby are estimated to be $79.9 million, or $92.0 million if the
underwriters' option to purchase additional shares is exercised in full, based
on an initial offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses.
The principal purposes of this offering are to fund our operating losses,
increase our working capital, fund our capital expenditures, create a public
market for our common stock, and facilitate our future access to the public
capital markets. We currently expect to use the net proceeds of this offering
primarily for working capital and general corporate purposes, including
marketing and brand building efforts, capital expenditures associated with the
expansion and building of distribution centers, and technology and system
upgrades. We are in the process of building a second distribution center which
will require capital investments in facilities and equipment of $7 million to $9
million. We have not yet determined the actual expected expenditures and thus
cannot estimate the amounts to be used for each of these purposes. The amounts
and timing of these expenditures will vary depending on a number of factors,
including the amount of cash generated by our operations, competitive and
technological developments and the rate of growth, if any, of our business. In
addition, we may use a portion of the net proceeds for further development of
our product lines through acquisitions of products, technologies and businesses.
Accordingly, although we have no present commitments or agreements with respect
to any such acquisitions, management will have significant discretion in
applying the net proceeds of this offering. Pending such uses, we will invest
the net proceeds in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and do not anticipate paying any cash dividends
in the foreseeable future.
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<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999.
Our capitalization is presented:
- On an actual basis;
- On a pro forma basis to give effect to the automatic conversion of all of
the outstanding shares of our convertible preferred stock into shares of
common stock upon the closing of this offering; and
- On a pro forma as adjusted basis to reflect the automatic conversion of
all of the outstanding shares of our convertible preferred stock and our
receipt of the estimated net proceeds from the sale of
shares of common stock in this offering at an estimated price of
$ per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $0.001 par value, no shares authorized,
issued or outstanding, actual and pro forma; 5,000,000
shares authorized, no shares issued or outstanding, pro
forma as adjusted........................................... $ -- $ -- $ --
Convertible Preferred Stock, $0.001 par value;
Series A -- 7,227,328 shares authorized; 7,227,328
shares issued and outstanding actual; none
authorized, issued or outstanding, pro forma and pro
forma as adjusted.................................... 7 -- --
Series B -- 6,900,000 shares authorized; 6,622,517
shares issued and outstanding actual; none
authorized, issued or outstanding, pro forma and pro
forma as adjusted.................................... 7 -- --
Common Stock $0.001 par value; 30,000,000 shares authorized,
actual and pro forma; 5,098,746 shares issued and
outstanding, actual; 18,948,591 shares issued and
outstanding, pro forma; 150,000,000 shares authorized,
shares issued and outstanding, pro forma
as adjusted............................................... 5 19
Additional paid-in capital.................................. 73,671 73,671
Accumulated deficit......................................... (19,355) (19,355) (19,355)
Stock-based compensation.................................... (11,751) (11,751) (11,751)
-------- -------- --------
Total stockholders' equity.............................. 42,584 42,584 122,454
-------- -------- --------
Total capitalization............................... $ 42,584 $ 42,584 $122,454
======== ======== ========
</TABLE>
In addition to the shares of common stock to be outstanding after the
offering, we may issue additional shares of common stock under the following
plans and arrangements:
- 1,335,250 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $1.48 per share as of December 9,
1999; and
- a total of 2,500,000 shares available for future issuance under our
various stock plans at December 9, 1999, excluding the annual increases
in the number of shares authorized under each of our plans beginning
January 1, 2001. See "Management -- Stock Plans" for a description of how
these annual increases are determined.
This information also excludes 1,073,750 shares issuable upon exercise of
options granted from October 1, 1999 to December 9, 1999. Please read this
capitalization table together with the sections of this prospectus entitled
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the financial statements and
related notes beginning on page F-1.
19
<PAGE> 23
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $42.6 million or $2.25 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities and divided by the total number
of shares of common stock outstanding, after giving effect to the automatic
conversion of our convertible preferred stock. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering and the pro
forma net tangible book value per share of common stock immediately after the
completion of this offering. After giving effect to the sale of the
shares of common stock offered by Pets.com at an assumed initial public offering
price of $ per share, and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of September 30, 1999 would have been approximately
$122.5 million or $ per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to
new investors of common stock. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999..................................... $2.25
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes on a pro forma basis after giving effect to
the offering at an initial public offering price of $ per share, as of
September 30, 1999, the differences between the existing stockholders and new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid to us and the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 18,948,591 % $60,800,000 % $3.21
New investors...........................
----------- ----- ----------- ------
Totals................................ 100.0% $ 100.0%
=========== ===== =========== ======
</TABLE>
The foregoing discussions and tables are based upon the number of shares
actually issued and outstanding as of September 30, 1999 and assume no exercise
of options outstanding as of September 30, 1999. As of that date there were
901,000 shares issuable upon exercise of options outstanding at a weighted
average exercise price of $0.67 per share.
Assuming the exercise in full of all outstanding options, our pro forma as
adjusted net tangible book value at September 30, 1999 would be $ per share,
representing an immediate increase in net tangible book value of $ per share
to our existing stockholders, and an immediate decrease in the net tangible book
value per share of $ to the new investors.
20
<PAGE> 24
SELECTED FINANCIAL AND OPERATING DATA
The selected financial and operating data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", our financial statements and the notes thereto and
the other information contained in this prospectus. The selected balance sheet
data as of September 30, 1999 and the selected statement of operations data for
the period from February 17, 1999 (inception) to September 30, 1999 have been
derived from our audited financial statements appearing elsewhere in this
prospectus. The selected balance sheet data as of June 30, 1999 and the
statement of operations data for the quarters ended June 30, 1999 and September
30, 1999 have been derived from our unaudited financial statements not included
in this prospectus. We prepared the unaudited financial statements on
substantially the same basis as the audited financial statements and, in our
opinion, they include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of our financial condition as of
June 30, 1999 and our results of operations for the quarters ended June 30, 1999
and September 30, 1999. The historical results presented below are not
necessarily indicative of future results.
The calculation of pro forma net loss per share gives effect to the
automatic conversion of all of the outstanding shares of our convertible
preferred stock into shares of common stock upon the completion of this
offering.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 17, 1999
QUARTER ENDED (INCEPTION) TO
QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1999 1999 1999
------------- ------------- ---------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net sales......................................... $ 39 $ 568 $ 619
Cost of goods sold................................ (76) (1,766) (1,842)
--------- --------- -----------
Gross margin.................................... (37) (1,198) (1,223)
Operating expenses:
Marketing and sales.......................... 1,122 10,693 11,815
Product development.......................... 1,624 2,194 3,835
General and administrative................... 838 1,205 2,043
Amortization of stock-based compensation..... -- 1,139 1,139
--------- --------- -----------
Total operating expenses................... 3,584 15,231 18,832
--------- --------- -----------
Operating loss.................................. (3,621) (16,429) (20,055)
Interest income, net............................ 123 577 700
--------- --------- -----------
Net loss........................................ $ (3,498) $ (15,852) $ (19,355)
========= ========= ===========
Basic and diluted net loss per share.............. $ (1.93) $ (8.75) $ (10.84)
Weighted average shares outstanding used to
compute basic and diluted net loss per share.... 1,811,837 1,811,837 1,786,156
Pro forma basic and diluted net loss per share.... $ (1.24)
Weighted average shares outstanding used to
compute pro forma basic and diluted net loss per
share........................................... 15,636,001
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1999
-------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $55,355 $36,231
Working capital........................................... 54,301 34,913
Total assets.............................................. 58,487 48,399
Convertible preferred stock and related paid-in capital... 60,382 60,382
Total stockholders' equity................................ $60,449 $42,584
</TABLE>
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related Notes contained elsewhere in
this prospectus.
OVERVIEW
Pets.com is a leading online retailer of pet products, integrating product
sales with expert information and professional resources. Our broad selection of
approximately 12,000 SKUs transcends the limited product selection of
superstores, specialty stores and grocery stores.
We were formed in February 1999. The assets related to the Web store,
including the Pets.com domain name, were sold to Pets.com, Inc. from a third
party concurrent with our first round of venture capital investment. The Company
had a small amount of revenue during the second quarter of 1999 from a limited
number of products available on our Web store. From inception through the launch
of the second version of our Web store in July 1999, our operations were
concentrated on the development of our Web store, the opening of a distribution
center in San Francisco and establishing supplier and vendor relationships.
Since July 1999, we have continued these operating activities and have also
focused on building sales momentum, expanding our product offerings, building
vendor relationships, promoting our brand name, improving the efficiency of our
order fulfillment processes and improving our customer service operations.
We derive substantially all of our revenues from the online sale of pet
products. We do not currently sell live animals such as fish or reptiles, but we
may do so in the future. Virtually all of our orders are fulfilled from our
distribution center and either billed to the customer's credit card or payment
is received via check. Generally, we collect cash from credit cards in two to
five days from the date ordered. If the pay-by-check method is selected, the
order is shipped once the customer's check is deposited and funds are available.
If a customer is not satisfied with a particular product or service we provide
within 30 days of the date of purchase, we generally refund all or a portion of
the sale. To date, our refunds have averaged less than 1% of net sales.
We have incurred net losses of $19.4 million from inception to September
30, 1999. We believe that we will continue to incur net losses for at least the
next four years, and possibly longer, and that the rate at which we will incur
such losses will increase significantly from current levels. We anticipate our
losses will increase because we expect to incur additional costs and expenses
related to brand development, marketing, and other promotional activities,
distribution, customer service, content development, technology and
infrastructure development and other capital expenditures.
Because we only began selling products in February 1999 and have yet to
achieve meaningful revenues, we have a limited operating history on which to
base an evaluation of our business and prospectus. You must consider our
prospects in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as online commerce. These
risks include, but are not limited to, an evolving and unpredictable business
model and management of growth. To address these risks, we must, among other
things, maintain and expand our customer base, implement and successfully
execute our business and marketing strategy, continue to develop and upgrade our
technology and systems that we use to process customers' orders and payments,
improve our Web store, provide superior customer service, respond to competitive
developments and attract, retain and motivate qualified personnel. We cannot
assure you that we will be successful in addressing such risks, and our failure
to do so could have a material adverse effect on our business, prospects,
financial condition and results of operations.
Net Sales. Net sales consist of product sales and charges to customers for
outbound shipping and handling and are net of allowances for product returns,
promotional discounts and coupons. We recognize product and shipping revenues
when the related product is shipped. In the future, the level of our sales will
depend on a number of factors including, but not limited to, the frequency of
our customers'
22
<PAGE> 26
purchases, the quantity and mix of products, pricing of products and shipping,
sales promotions and discounts, seasonality and customer returns.
Cost of Sales and Gross Margin. Cost of sales consists primarily of the
costs of products sold to customers and outbound and inbound shipping costs. We
expect cost of sales to increase in absolute dollars to the extent that our
sales volume increases. We may in the future expand or increase the coupons and
discounts we offer to our customers and may otherwise alter our pricing
structures and policies. These changes may negatively affect our gross margin.
Our gross margin will fluctuate based on a number of factors, including, but not
limited to the cost of our products, our product and shipping pricing strategy,
product mix, our distribution centers and inventory control.
Marketing and Sales Expenses. Marketing and sales expenses consist
primarily of advertising and promotional expenditures, supplies, payroll and
related expenses for personnel engaged in marketing, merchandising and business
development. We intend to continue to pursue an aggressive branding and
marketing campaign and, therefore, expect marketing and sales expenses to
increase significantly in absolute dollars. Marketing and sales expenses may
also vary considerably as a percentage of net revenues from quarter to quarter,
depending on the timing of our advertising campaigns.
Product Development Expenses. Product development expenses consist
primarily of payroll and related expenses for our Web store development, systems
personnel, consultants, content and other Web store costs. Over the next several
months, we plan to continue to work on a significant number of development
projects that will result in increased product development expenses. We believe
that continued investment in product development is critical to attaining our
strategic objectives and, as a result, we expect product development expenses to
increase significantly in absolute dollars, but to fluctuate as a percentage of
net revenue from quarter to quarter.
General and Administrative Expenses. General and administrative expenses
consist of payroll and related expenses for development, design, production,
finance, human resources, executive and administrative personnel, corporate
facility expenses, professional services expenses, travel and other general
corporate expenses. We expect general and administrative expenses to increase in
absolute dollars as we expand our staff and incur additional costs related to
the anticipated growth of our business and being a public company, but to
fluctuate as a percentage of net revenue from quarter to quarter.
Amortization of Stock-Based Compensation. We recorded total stock-based
compensation of $12.9 million for the period from inception on February 17, 1999
to September 30, 1999 in connection with stock options granted and restricted
stock issued during such periods. In the case of stock options granted, the
stock-based compensation amounts represent the difference between the exercise
price of stock option grants and the deemed fair value of our common stock at
the time of such grants. In the case of restricted stock, the stock-based
compensation represents the difference between the purchase price of the
restricted stock and the deemed fair value of our common stock on the date of
purchase. Such amounts are amortized as an expense over the vesting periods of
the applicable agreements, resulting in amortization of stock-based compensation
totaling $1.1 million for the period from inception on February 17, 1999 to
September 30, 1999. The amortization expense relates to options awarded to
employees in all operating expense categories. Stock-based compensation for
stock options and restricted stock issued through September 30, 1999 that will
be subsequently recognized as expense for each of the next four years is
estimated to be as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1999 (quarter ended December 31, 1999).................. $ 803
2000.................................................... $ 3,210
2001.................................................... $ 3,210
2002.................................................... $ 3,210
2003.................................................... $ 1,318
</TABLE>
23
<PAGE> 27
The amount of stock compensation expense to be recorded in future periods could
decrease if options for which accrued but unvested compensation has been
recorded are forfeited.
Income Taxes. There was no provision or benefit for income taxes for any
period since inception due to our operating losses. As of September 30, 1999, we
had $17.8 million of net operating loss carryforwards for federal income tax
purposes, which expire beginning in 2019. We have not recognized any benefit
from the future use of loss carryforwards for these periods or for any other
period since inception because of uncertainty surrounding their realization. The
amount of net operating losses that we can utilize may be limited under tax
regulations in circumstances including a cumulative stock ownership change of
more than 50% over a three year period. It is possible that such a change may
have already occurred or could occur as a result of this offering. See Note 4 of
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
We have not provided year-to-year comparative quarterly results because we
only commenced operations in February 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of preferred stock, which, through September 30, 1999, yielded net cash
proceeds of $60.0 million.
Net cash used in operating activities was $16.6 million from inception on
February 17, 1999 to September 30, 1999. Net cash used in operating activities
for this period primarily consisted of net losses, increases in inventories and
other working capital purposes.
Net cash used in investing activities was $7.6 million from inception on
February 17, 1999 to September 30, 1999. Net cash used in investing activities
primarily consisted of leasehold improvements and purchases of equipment and
systems, including computer equipment and fixtures and furniture.
Net cash provided by financing activities was $60.4 million from inception
on February 17, 1999 to September 30, 1999. Net cash provided by financing
activities during each of those periods primarily consisted of cash proceeds
from the issuances of preferred stock. In April 1999 we issued 7,227,328 shares
of Series A preferred stock in exchange for an aggregate purchase price of $10.0
million. In June 1999 we issued 6,622,517 shares of Series B preferred stock in
exchange for an aggregate purchase price of $50.0 million.
As of September 30, 1999 we had $36.2 million of cash and cash equivalents.
As of that date, our principal commitments consisted of obligations outstanding
under operating leases aggregating approximately $1.4 million through September
30, 2000. In November 1999 we invested $2 million for an equity position in
PetPlace.com, Inc. and are committed to invest an additional $1.5 million no
later than February 2000. Although we have no material commitments for capital
expenditures, we anticipate a increase in our capital expenditures and lease
commitments consistent with anticipated growth in operations, infrastructure and
personnel. In the first half of 2000, we intend to add a second distribution
center to ensure greater control over the distribution process and to ensure
adequate supplies of products to our customers. The second distribution center
is in the final planning stages and will require capital investments in
facilities and equipment of $7 million to $9 million. For 2000, we anticipate
our total capital expenditures will be at least $15 million, which will include
substantial expenditures toward technology and systems upgrades to support the
distribution centers and increases in business volume. In November and December
1999, we issued 6,523,181 shares of Series B preferred stock in exchange for an
aggregate purchase price of $49.3 million.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next 12 months. We
may need to raise additional funds prior to the expiration of such period if,
for example, we pursue business or technology acquisitions or experience
operating losses that exceed our current expectations. If we raise additional
funds through the issuance of equity, equity-related or debt
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securities, such securities may have rights, preferences or privileges senior to
those of the rights of our common stock and our stockholders may experience
additional dilution. We cannot be certain that additional financing will be
available to us on acceptable terms when required, or at all.
YEAR 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon, and we may be unable to detect or assess the effect of any failure
until well into the year 2000 and beyond. For example, we are dependent on the
financial institutions involved in processing our customers' credit card
payments for Internet services and a third party that hosts our servers. We are
also dependent on telecommunications vendors to help maintain our network,
suppliers to supply products to us and the United Parcel Service and other
third-party carriers to deliver our products to customers.
Since inception, we have internally developed a significant portion of the
systems for the operation of our Web site. These systems include the software
used to provide our Web site's search, customer interaction, and
transaction-processing and distribution functions, as well as monitoring and
back-up capabilities. Based upon our assessment to date, we believe that our
internally developed proprietary software is year 2000 compliant.
In an ongoing effort we have assessed the year 2000 readiness of our
third-party supplied software, computer technology and other services, which
include software for use in our accounting, database and security systems. As we
have purchased software and hardware during 1999, we have sought assurances from
each vendor that their software, computer technology and other services are year
2000 compliant. We have expensed amounts incurred in connection with year 2000
assessment since our inception through September 30, 1999. Such amounts have
been under $50,000 in total. The failure of our software and computer systems or
those of our third-party suppliers to be year 2000 compliant could have a
material adverse effect on us.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For example, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support our operations consists
of a network of computers and telecommunications systems located throughout the
world and operated by numerous unrelated entities and individuals, none of which
has the ability to control or manage the potential year 2000 issues that may
impact the entire infrastructure. Our ability to assess the reliability of this
infrastructure is limited and relies solely on generally available news reports,
surveys and comparable industry data. Based on these sources, we believe most
entities and individuals that rely significantly on the Internet are reviewing
and attempting to remediate issues relating to year 2000 compliance, but it is
not possible to predict whether these efforts will be successful in reducing or
eliminating the potential negative impact of year 2000 issues. A significant
disruption in the ability of consumers to reliably access the Internet or
portions of it or to use their credit cards would have an adverse effect on
demand for our products and services.
We believe the year 2000 compliance issue should not have a material impact
on our operations and we have not developed a contingency plan. Specific factors
which might cause the year 2000 issue to have a material adverse effect on our
business include the availability and cost of trained personnel and the ability
to recruit and retain them, as well as the ability to locate all system coding
requiring correction. Base upon information available at this time, we believe
that the cost of modifications, replacements and related testing will not have a
material impact on our liquidity or results of operations.
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We believe that our most reasonably likely worst case scenario related to
year 2000 could include:
- disruption of our customers' ability to access our Web store;
- disruption of our ability to take orders from customers;
- disruption of our suppliers' ability to provide products to us;
- disruption of our ability to fulfill customers' orders; and
- disruption of third-party carriers to ship products to our customers.
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BUSINESS
OVERVIEW
We are a leading online retailer of pet products, integrating product sales
with expert information on pets and their care. We are committed to serving pets
and their owners with the best care possible through a broad product selection,
expert information and superior service. We seek to address the entire pet
products market, transcending the limited product selection of superstores,
specialty stores and grocery stores. Our broad selection of approximately 12,000
SKUs is integrated with extensive pet-related information and resources designed
to help consumers make informed purchasing decisions. For example, we provide
information to help pet owners manage the life stages of their pet as well as
topical articles that address their pet care needs. We designed our Web store to
provide our customers with a convenient, one-stop shopping experience that is
organized to reflect how consumers think about shopping for their pets. Our Web
store addresses the needs of many of the most popular pets, including dogs,
cats, birds, fish, reptiles, ferrets, and other small pets. We provide quality
customer service through our in-house distribution, fulfillment, customer
service, and technology operations. Furthermore, we encourage participation in
the pet community both through our Web store and through Pets.commitment, our
charitable foundation that supports the role that pets and people play in each
others' lives.
INDUSTRY BACKGROUND
THE GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The Internet has become an increasingly significant medium for
communication, information exchange, and commerce. International Data
Corporation estimates that there will be approximately 196 million online users
worldwide at the end of 1999 and that this number will grow to approximately 399
million users by the end of 2002. Forrester Research estimates that online
purchases made by consumers in the United States will grow from $20 billion in
1999 to $184 billion by 2004, representing a compound annual growth rate of 56%,
and estimates that the total number of U.S. online consumers will grow from
approximately 17 million in 1999 to 49 million in 2004, representing a compound
annual growth rate of nearly 24%. We believe this increased usage is due to a
number of factors, including a large installed base of personal computers,
advances in the speed of personal computers and modems, easier and cheaper
access to the Internet, improvements in network security, infrastructure and
bandwidth, a broader range of online offerings, and growing consumer awareness
of the benefits of online shopping.
THE PET PRODUCTS RETAIL INDUSTRY
The pet products industry is a large and growing market characterized by a
loyal and emotion-driven customer base whose needs we believe are not adequately
satisfied by traditional retail stores. According to the Pet Industry Joint
Advisory Council, U.S. consumer spending on pet products and services grew at an
annual rate of approximately 9% per year between 1993 and 1997 totaling
approximately $23 billion at the end of 1997. Pets have become an increasingly
important part of U.S. households, numbering over 235 million at the end of
1998, based on a survey conducted by Sloan Trends & Solutions, Inc. Today, more
than 60% of U.S. households own a pet and 40% of those households own more than
one, according to a recent American Pet Products Manufacturers Association
study. In addition, according to Sloan Trends & Solutions, Inc., U.S. households
spent on average $350 on their pets in 1998.
Pet owners generally exhibit strong emotional connections to their animals.
For example, according to Sloan Trends & Solutions, Inc., over 80% of pet owners
consider their pets to be members of the family and 67% buy their pets holiday
gifts. In addition, over 80% of pet owners surveyed by the American Animal
Hospital Association stated that in an emergency they would likely risk their
life for their pet. Because of this strong human-animal bond, we believe pet
owners, like parents, represent an attractive base of consumers who seek a wide
variety of products and information for their pets which promote their pets'
health, well being and happiness.
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Store-based pet supply retailers have traditionally served the pet product
market in the United States. These include superstore retailers such as Petco
Animal Supplies, Inc. and PetsMart, Inc., grocery store retailers such as Kroger
Company and Safeway, Inc., mass market retailers such as Wal Mart Stores, Inc.
and Kmart Corporation, and smaller, independent specialty pet products stores.
While in the aggregate these channels provide consumers with a wide
selection of pet related products, we believe traditional store-based retailers
for pet products have the following limitations:
Lack of One-Stop Shopping. The pet products retail market is fragmented,
generally requiring consumers to shop at multiple outlets to find everything
they need for their pets. For example, superstore retailers, grocery stores and
mass market retailers tend to carry a deep selection of well known brand name
pet products from leading vendors, but have fewer specialty products. Specialty
pet stores instead tend to carry a broader selection of specialty products from
smaller vendors, but usually have a limited selection of the more well known
brand name products. On a combined basis, specialty pet stores control the
largest percentage of sales in the U.S. pet product retail market, having 20% of
U.S. sales based on data published by the Pet Industry Joint Advisory Council in
1998. This lack of one-stop shopping also applies to other online retailers who
have chosen to duplicate the traditional retail model in terms of selection and
are offering a subset of a superstore product mix.
Limited Geographic Coverage. The few pet retailers who do tend to offer a
broader selection of products either operate on a regional basis or only in
metropolitan areas. This leaves a significant percentage of the U.S. population
without easy access to all of the products they need for their pets. Opening
additional stores would require substantial investments in real estate and
inventory, as well as in trained personnel, for these chain stores. The high
cost of opening and maintaining additional stores further limits the ability of
retailers to serve geographic areas that are not densely populated.
Inconvenience of Store Design and Layout. We believe consumers value the
opportunity to select items from a broad range of pet products that best fit
their needs. However, the constraints of retail shelf space and store layouts
limit traditional retailers' ability to meet many customers' needs, often
dictating a limited product selection that appeals to the broadest number of
consumers. Products are typically displayed by brand, category or packaging to
maximize stocking efficiencies, especially for bulk products such as dog food,
and to promote fast selling products. Further, because of large investments in
inventory required to keep stores fully stocked, traditional pet retailers often
have limited flexibility to adapt their merchandising strategies to meet
changing consumer demand.
Limited, Inconsistent Information. Consumers buying pet products often seek
information and expert advice to assist them in making purchase decisions.
However, many traditional store-based retailers do not provide consumers with
easy access to useful product information or readily available on-site experts
who can provide assistance. In addition, even where on-site support is
available, the quality of information and expertise may be inconsistent due to
the challenges of hiring, training and maintaining knowledgeable sales staff.
This limits the level of customer service available to consumers.
As a result of these factors, we believe that consumers typically find the
pet product shopping experience to be both inconvenient and unpleasant. Shopping
for pet products in retail stores can involve making trips to multiple stores,
extended searching for desired products, waiting in line to make a purchase and
carrying home heavy bags of pet food, litter or other bulk products.
THE PETS.COM SOLUTION
We are a leading online retailer of pet products integrating product sales
with expert information on pets and their care. Our mission is to serve pets and
their owners with the best care possible through broad product selection, expert
information and superior service. We seek to address the entire pet products
market, transcending the limited product selection of superstores, specialty
stores and grocery stores. Our Web store tightly integrates broad product
selection with highly relevant content, providing consumers with the pet-related
information they need to make informed purchase decisions. Additionally, we
provide information to help pet owners manage the life stages of their pet
coupled with topical articles that address
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their pet care needs. We believe that our Web store provides customers with a
superior one-stop shopping experience, with direct delivery to their doors.
We are distinguished in the online pet retail industry because of our
in-house control over key aspects of our business. Our online design and
editorial team is responsible for the consumer shopping experience, creation and
delivery of pet information, and general usability of our Web store. Our
technology group is responsible for the development and maintenance of our Web
store and back-end transaction processing and fulfillment. Our merchandising
team has more than 90 years of combined buying and merchandising experience and
deep product knowledge which enables them to build and maintain close
relationships with manufacturers and build our private label business. Our
in-house distribution and fulfillment operation enables full control over the
product supply process from product mix to customer shipments. Our customer
service department manages the communication with customers. We believe our
in-house control of these functions is an important strength that enhances our
competitive position in the pet products industry.
We attract and retain consumers by emphasizing the following key
attributes:
Extensive Product Selection Enables One-Stop-Shopping. We provide consumers
with one-stop-shopping for their pet care needs, with direct delivery to their
doors. Our broad selection addresses nearly the entire pet products market,
transcending the limited product selection of superstores, specialty stores and
grocery stores. We cater to the needs and interests of consumers who own dogs,
cats, fish, birds, ferrets, reptiles, and other small pets. With only one
distribution center, our SKU count is currently equivalent to the number of SKUs
available at the largest pet superstores, and by the middle of 2000 is projected
to increase to roughly two times the SKUs available at these stores. Our online
business model enables us to aggregate a diverse product selection that is not
generally found in single retail outlets, respond more quickly to new product
introductions than traditional retailers, and dynamically change our mix on a
national basis to meet consumer needs and interests.
Expert Information and Professional Resources. Because of the emotional
attachment consumers have toward their pets, they value extensive information
from experts to give them confidence that they are giving their pets the best
care possible. We offer this information to consumers in several different ways:
- Editorials. Our in-house staff of pet experts, veterinarians, an animal
behavior specialist, and a pet attorney provide consumers with advice on
a wide variety of animal topics. We offer an "Ask the Vet" column hosted
by one of our veterinarians, in which answers are given to customer
questions. In addition, multiple articles are posted weekly spanning
seasonal topics, current events, health, nutrition, and behavior, among
others.
- Periodicals. Our offline print publication, Pets.com, The Magazine For
Pets and Their Humans, is designed to further establish Pets.com in the
lives of consumers and their pets, and to introduce pet owners to the
products and expert information available in our Web store. Our team
contributes high quality, original content spanning lifestyle, health,
behavioral, and product information. The first issue of the magazine was
published in November 1999, and had a distribution of more than one
million copies. We intend to publish this magazine on a bi-monthly basis.
- Professional Resources. Consumers can use our search tool to find a wide
range of professional pet resources near where they live. These resources
include veterinarians, hospitals and emergency care centers, kennels and
boarding facilities, hotels accepting pets, and pet sitters, among
others.
- Veterinary Relationships. We provide consumers with a comprehensive array
of veterinary information through two exclusive strategic relationships.
We have an exclusive strategic relationship with PetPlace.com which
intends to launch a comprehensive, online educational library through its
Web site in the first quarter of 2000 for pet owners and veterinarians
covering pet illness and wellness. PetPlace.com will provide our
customers with extensive resources through links to their Web site to
help them increase the quality of healthcare for their pets. We also have
a strategic alliance with the American Veterinary Medical Foundation
which enables us to provide
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information about our products in their healthcare information video sent
out bi-monthly to approximately 17,000 veterinarians, who can make this
information available to consumers.
Superior Shopping Experience. We believe that we provide an intuitive,
easy-to-use Web store, offering extensive product selection across the most
popular pet types, supported by tightly integrated, relevant editorial and
searchable resource information. We categorize and organize our products to
reflect how consumers shop for their pets, allowing them to browse by pet type,
category, product line and individual product. Our product presentation is
supported by numerous high resolution photographs of products available for sale
in our Web store. We offer search capabilities across all products and editorial
content. Further convenience advantages of our Web store include:
- Continuous replenishment of food and litter through "Keep It Comin' "
which allows customers to schedule ongoing deliveries of products;
- A gift center, allowing consumers to match gifts to pet lifestyles and
personalities; and
- Advanced personalization features, including the use of wish lists and
address books.
Quality Customer Service. The typical online shopping experience begins
with the search for products that meet specific needs, includes the online
ordering process, and extends through product delivery and post-purchase
support. We believe that the ability to accurately fulfill orders, ship products
quickly to a customer's door, or efficiently handle customer inquiries is as
important to customer satisfaction as product selection. We have invested
significant resources to create our own fulfillment, distribution, and customer
service functions rather than outsourcing these functions to a third party. The
decision to build this operation in-house provides us with the ability to carry
differentiated products, buy direct from manufacturers and improve product
margins, reduce shipping and handling costs and provide customer satisfaction
through better service.
Community. We encourage community participation both through our Web store
and offline community efforts. Online consumers can participate in 60 different
discussion groups covering various topics of interest across a range of pet
types, and sign up to receive our online newsletter which is sent to consumers
every two to three weeks. We offer specific forums for dogs, cats, fish, birds,
reptiles, ferrets, horses, and small pets. Our online newsletter provides timely
information, highlighting current articles and new products that are available
at our Web store, and describes upcoming pet events. More than 200,000 consumers
either receive our online newsletter or participate in our discussion groups
each month. At the community level, we encourage participation through
Pets.commitment, our charitable foundation that supports the role that pets and
people play in each other's lives. Pets.commitment provides direct financial
support and encourages volunteerism across animal shelters, animal therapy and
service dog programs, and pet care and wellness organizations. Our intent is to
contribute more than $1 million to these organizations by the end of 2000.
BUSINESS STRATEGY
Our objective is to become one of the world's leading retailers of pet
products. To achieve this objective, we intend to be the one-stop shop for pet
products and the definitive source for pet information. Key elements of our
business strategy include:
Build Enduring Brand Equity. We have marketed our Web store to consumers
through a wide range of advertising and promotional activities. We intend to
continue to leverage our offline and online marketing strategies to maximize
customer awareness, attract consumers most likely to make online purchases, and
enhance our brand recognition as follows:
- Advertising. We use television, radio, outdoor, and online advertising to
build brand equity and create awareness. At the center of this campaign
is our Pets.com sock puppet brand icon who we believe has already made an
emotional connection with consumers. Media campaigns featuring this
puppet communicate our key benefits of convenience, selection, and
delivery.
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- Online Marketing Relationships. We leverage our relationships with select
online content providers and portals such as Blue Mountain Arts and Buena
Vista Internet Group (Disney.com and Family.com) to attract consumers
most likely to make online purchases.
- National Events and Local Marketing. We use national sponsorships and
local market efforts to build brand awareness and expand our customer
base. This includes participation in national events such as the 1999
Macy's Thanksgiving Day Parade and promotion of "Take Your Dog To Work
Day." Local market activities such as SPCA events, dog walks, and
adoption fairs reach pet owners in a pet-related context.
Offer Broadest Product Mix. We provide consumers with one-stop shopping for
their pet care needs, with direct delivery to their doors. Our broad selection
addresses nearly the entire pet products market, encompassing the selection of a
superstore, specialty store and grocery store. We plan to grow from a SKU count
of approximately 12,000 by year-end to more than 20,000 SKUs during 2000. We
will continue to purchase products directly from manufacturers in order to
optimize our product selection, enable a highly flexible product mix in response
to new or fast moving items, strengthen our vendor relationships, customize
promotions to specific consumer demographics and purchase patterns, easily test
new items, and substantively improve our margins. We are currently working to
broaden and diversify our product selection. For example, we will begin offering
product in other pet-themed categories such as human apparel, calendars, picture
frames and other home accessories by the first quarter of 2000. We also plan to
introduce live fish during the first half of 2000 and equine-related products
thereafter.
Establish Our Private Label Brands. We plan to introduce a full line of
high quality, private label dog and cat food and cat litter in the first half of
2000, marketed under the Pets.complete brand name targeted to the premium buyer.
Our private label business should provide further margin enhancement, continued
growth of our brand, and enhanced consumer loyalty and repeat purchases. We
intend to expand this product line in the second half of 2000 under the Pets.com
brand name to include apparel, bowls, rawhide, chews, toys, and a range of other
accessories. These private label products will only be available at our Web
store and will further distinguish our product selection.
Provide Comprehensive and Relevant Content. We intend to be the definitive
source of pet information. Our content is designed to address the broadest
possible collection of pet types and a wide array of topics. We will
increasingly deliver pet-related information in a variety of online and offline
media forms, and in conjunction with a range of consumer and veterinary care
partners. We will continue to encourage growing participation in a range of
community forums, events, and newsletters.
Deliver Superior Customer Service and Promote Repeat Purchases. We intend
to continue to deliver a superior online shopping experience that encourages
repeat purchases, beginning with the initial order and continuing through
product delivery and post-purchase support. To accomplish this, we intend to
build features which allow greater personalization and targeting of our Web
store to existing customers, and will continue to invest in people, technology
and distribution facilities which will allow us to continuously improve our
customer service. This in-house competency enables us to distinguish our product
selection from traditional and online retailers, realize better economics
through greater margin control and reduced handling and shipping costs, and
allows for better communication with customers.
Continue to Maintain and Expand our Relationship with
Amazon.com. Amazon.com is currently our largest stockholder and is represented
on our board of directors. Although Amazon.com has no contractual obligation to
provide us with consulting advice or engage in joint marketing activities, as a
result of this equity ownership in our business Amazon.com has historically
provided us with a number of services that have enabled us to benefit from its
extensive online retailing experience. We have been able to consult with our
Amazon.com counterparts across a range of operational and strategic initiatives.
We have engaged in a number of joint marketing activities including joint
e-mails. In the future, we intend to work to maintain and expand this
relationship to grow our business.
Expand Internationally. We intend to expand our business internationally in
order to better serve pet owners and capitalize on a global market. We intend to
complete the first step in this global expansion by
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taking an equity stake in Petspark.com, Ltd. a UK based online pet retailer that
intends to offer pet owners a full range of pet-related services including a
broad selection of pet products, expert information from veterinarians and
animal behaviorists, and an online community of pet owners. In addition,
Petspark.com, Ltd. will have the right to use our name in its marketing in the
UK.
THE PETS.COM EXPERIENCE
We offer consumers instant online access to a wide array of products,
expert information and professional resources. We believe that we provide a
convenient, easy-to-use Web store, offering extensive product selection across
the most popular pet types, supported by integrated, relevant editorial and
searchable resource information. From our home page, consumers can access the
shopping area, read pet care articles in "Today's Features," search our store
for products or content, view the "Pet of the Day," access our professional
resources, or participate in one of the community discussion groups. Our Web
store is optimized for fast loading at a range of connection speeds. Key
components of the Pets.com experience include:
Shopping at Pets.com. Our broad product selection offers products for many
of the most popular pet types. We categorize and organize our products the way
people shop for their pets, and support a highly visual shopping experience.
Customers can shop at our online store as follows:
- Pet Type. Our product offering spans a wide selection of products for
dogs, cats, fish, birds, reptiles, ferrets, and small pets like hamsters,
rabbits, and guinea pigs. Our home page allows consumers to select pet
type to help them narrow the choices that follow.
- Category. We provide consumers with the ability to browse categories
based on the key attributes of that particular product category. For
example, consumers shopping for dog food can browse by type of food, such
as dry or canned, by the specific dog food brand, or by stage of their
dog's life, such as puppy, adult or senior. These attributes differ by
category and have been customized in our Web store to match these
shopping patterns. This non-duplicative navigational approach helps
eliminate the problem of consumers becoming overwhelmed as they browse
hundreds of items within a category to find the product that they need.
- Product Line. We enable consumers to browse as many as a dozen product
lines from a single Web page. This browsing approach closely maps the
physical retail experience and highly visual nature of shopping for pet
products. In this category, a pet owner might know the color of the
package or the picture on the front of the box, and then recall more
specific information such as the brand name when they see the package.
- Individual Product. Our product pages feature large, high quality photos
of each item, and allow customers to select flavor, color, size and
quantity from a single Web page. This eliminates the need for consumers
to navigate through multiple Web pages to specify the attributes of a
particular item that they want to purchase. In addition, as consumers
make their specific product selection, this same Web page displays
product availability in real time.
- Checkout. We offer consumers a highly streamlined checkout experience
requiring a minimal number of steps, only asking them for the information
that is necessary to complete the transaction. The checkout area offers
several convenient features such as the ability to create a personalized
address book and then choose a specific address from the list by
selecting it from a pull down menu.
In addition, we recently opened a gift center, which allows consumers to
match gifts to pet lifestyles and personalities. For example, consumers can find
gifts for "the urban pet," "the dog who has everything," or "the cat in vogue."
This new area also features seasonal baskets, offering consumers gift ideas
tailored to particular holidays and seasons of the year. Overall, the gift
center capitalizes on our belief that consumers consider their pets to be
members of the family, providing consumers with a fun, creative way to shop for
their pets.
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Editorial and Resource Information. We provide our customers with expert
information and professional resources, tightly coupled with our product
selection in order to support informed purchase decisions. The information
supports various pet lifestyles from urban to rural, and the full spectrum of
stages from the young pet to the aging pet. The timely, topical, relevant nature
of this editorial information reinforces the emotional connection that pet
owners have with their animals, which we believe will help build loyalty to
Pets.com as consumers return to the store to read the latest news and
information. We offer the following editorial and resource information to our
customers:
- Online Articles. Our current editorial staff of in-house and freelance
experts contributes 15-20 new articles per week which are posted in our
Web store, spanning all pet types and a wide range of topical areas. Our
experts include writers with extensive pet experience, veterinarians, an
animal behaviorist, and a pet attorney. All articles contain a brief
synopsis of the author's credentials in order to help consumers
understand the area of expertise and qualifications of each of our
writers. Our content includes product-specific information, basic pet
information covering topics such as healthcare, nutrition, and behavior,
and information based on seasonal topics and current events. We
supplement the breadth and depth of our original content with licensed
content on topics such as breed profiles and basic pet care information.
Where relevant, our stories contain product references and merchandising
links to support decision-making.
- Resources. Consumers can use the search tool on our Web store to find a
wide range of pet resources specific to the area in which they live. This
resources include veterinarians, hospitals and emergency care clinics,
kennels and boarding facilities, hotels that accept pets, and pet
sitters, among others.
- Pets.com, The Magazine For Pets and Their Humans. We are currently the
only online pet retailer publishing a print magazine, which is designed
to broaden awareness of Pets.com, drive purchase of products sold through
our Web store, and increase current customer loyalty. Many pet owners
will be introduced to our store through this magazine, which was
published for the first time in November 1999, and distributed to
approximately 760,000 qualified pet owning households and nearly 300,000
copies to veterinary offices, shelters, and pet sitter organizations. We
also distribute the magazine through our in-box product shipments to
customers. We intend to publish new issues of the magazine bi-monthly.
MERCHANDISING AND PRODUCT SELECTION
Merchandising. We have assembled an in-house merchandising team with pet
industry expertise spanning product design, buying, import sourcing, and retail
experience. This expertise gives us several key advantages. We use our category
knowledge to source a broad assortment of products that encompasses the
selection of a superstore, specialty store and grocery store. We leverage our
vendor relationships to buy direct and realize better pricing, rapidly bring new
products to market, capitalize on promotional opportunities, and easily test new
items on a national basis. We currently offer a majority of the well known
brands in the pet industry such as Science Diet, IAMS, Pedigree and Eukanuba,
and other well-known brands such as Alpo, FreshStep, Friskies and Hartz. We also
offer our premium private label brand that includes Pets.complete food and
litter and Pets.com supplies and accessories. Over time, we anticipate that
10-20% of our revenues will come from our private label products.
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Product Offering. Our product offering provides customers with a breadth
and depth of selection across the most popular pet types and product categories
as follows:
<TABLE>
<CAPTION>
DOGS CATS FISH BIRDS
---- ---- ---- -----
<S> <C> <C> <C>
Apparel Beds Aeration & Bubblers Books & Videos
Beds Books Aquarium & Kits Cage Accessories
Behavior Bowls Books & Videos Food
Modification Cages & Accessories Bowls Hand Feeding
Bones Calendars Breeding Supplies Healthcare & Remedies
Books Carriers Cleaning Equipment Nesting Supplies
Bowls & Supplies Catnip & Cat Grass Decor Toys
Calendars Collars Filtration Treats
Carriers Doors & Barriers Food & Accessories Wild Bird & Wildlife
Chews Feeders & Waterers Health Care FERRETS
Collars Flea & Pest Control Heaters Apparel
Containment Food Lighting Food & Treats
Doors & Barriers Furniture Live Plan Supplies Grooming
Ears, Hooves, Etc. Grooming Nets Habitats
Feeders & Waterers Harnesses Pond Hammocks & Beds
Flea & Pest Control Health Care & Remedies Saltwater Supplies Health Care
Food Holiday Thermometers Leashes
Food Containers I.D. Tags & Belts Valves & Tubing Litter
Grooming Leashes Water Test Kits Litter Pans
Hair Lifters & Rollers Litter Water Treatments Toys
Harnesses Litter Box Supplies REPTILES SMALL PETS
Health Care & Remedies Litter Boxes Books & Videos Bedding
Holiday New Kitten Bowls & Waterers Books & Videos
Houses & Accessories Repellents Decor Cage Accessories
I.D. Tags Scratchers Food & Treats Cage Kits
Leashes Stain & Odor Habitats Carriers
New Puppy Toys Health Care Collars & Leashes
Outdoor Clean-Up Training Heating Exercise
Rawhide Treats Humidifiers Feeding Supplies
Repellents Vitamins & Supplements Leashes Food
Safety & First Aid Lighting Grooming
Stain Odor Substrate Habitats
Tie-Outs Thermometers Health Care
Toys Miscellaneous
Training Treats & Chews
Treats & Biscuits
Videos & CDs
Vitamins & Supplements
</TABLE>
Product Sourcing. As of November 30, 1999, we purchased our products from a
network of approximately 200 manufacturers. For the period from inception
through September 30, 1999, approximately 80% of our total sales were from this
network of manufacturers. In addition, we anticipate adding well over 100 new
direct relationships in the first half of 2000 as we expand our product
selection.
VETERINARY CARE AND SERVICES
The American Pet Products Manufacturers Association cites that seven out of
ten dog and cat owners rely on veterinarians when they need information about
their pet. Given this high degree of reliance on veterinary expertise, we
provide consumers with access to extensive veterinary care information. In
parallel, we reach veterinarians with the most up-to-date research and
information in order to help them better serve pet owners. We accomplish these
objectives in several ways: by providing a wide variety of articles written by
veterinarians; by allowing consumers to participate in our "Ask the Vet" column;
and, by entering into relationships with accredited veterinary care
organizations that provide consumers with in-depth information on pet illness
and wellness, and that offer veterinarians access to the most current research
and information on pet healthcare. A description of our strategic veterinary
care relationships follows.
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PetPlace.com, Inc. We have made an equity investment in PetPlace.com and
entered into a three year exclusive marketing agreement which includes mutual
revenue sharing and new customer bounties which are paid for every new customer
referred from one site to another. PetPlace.com intends to launch an online
comprehensive, interactive, educational library through its Web site in the
first quarter of 2000 for pet owners and veterinarians covering illness and
wellness. Consumers will be able to search for relevant information on the site
before they visit their veterinarian and after the pet's illness is diagnosed.
Consumers will also be able to create a personal history of their pet, which
might include recommendations on food, grooming, worms, or flea control.
PetPlace.com is distinguished by its exclusive relationship with Angell Memorial
Animal Hospital, one of the leading veterinary specialty hospitals, whose
specialists provide content for this site and online consultations for
consumers.
We intend to provide our customers with in-depth veterinary care
information, generate highly qualified customer leads, encourage repeat visits
to our Web store, and build our brand. Our Web store is fully integrated with
PetPlace.com in a number of ways: PetPlace.com consumers will be able to
navigate directly from PetPlace.com articles to relevant products for purchase
at our Web store; consumers who ask our veterinarians questions will be able to
receive answers to the highly specialized healthcare issues from PetPlace.com;
and consumers will be able to have direct access to extensive veterinary
resources available on PetPlace.com.
American Veterinary Medical Foundation. The American Veterinary Medical
Foundation is a renowned professional association of over 60,000 veterinarians.
Our strategic relationship with the American Veterinary Medical Foundation is a
three year exclusive marketing agreement that we believe provides us with
enhanced credibility. We have agreed to provide financial support in an amount
of approximately $500,000 to the American Veterinary Medical Foundation for key
activities such as "ClientLink," a video sent out by American Veterinary Medical
Foundation every two months to 17,000 veterinarians that provides up-to-date
news and pet healthcare information. In return for this support, our Web store
will receive bi-monthly coverage of products, services, and key initiatives,
such as the launch of PetPlace.com in "ClientLink" beginning in January 2000,
and we will have the right to use the American Veterinary Medical Foundation
logo on our home page.
MARKETING AND PROMOTIONS
Our marketing strategy is designed to attract customers most likely to shop
online, convert browsers to buyers, meet or exceed customer expectations, drive
loyalty and repeat purchases, build enduring brand equity, and reinforce the
human-animal bond. In order to implement this strategy, we execute an integrated
marketing campaign that includes the following:
- Advertising. Our advertising is designed to build brand equity, create
awareness, and generate initial purchase of products sold through our Web
store. The campaign features the Pets.com sock puppet, who we believe has
become popular with many consumers, and is a strategic icon of our brand.
In this advertising, our sock puppet is a roving advocate for the brand,
and has a playful, enthusiastic, funny, and caring personality. In our
ads, he endears himself to both animals and their owners as he strives to
make sure they get the products that they need. We use a mix of broadcast
media including national network television, local radio in the top
markets with online shoppers, outdoor advertising, online banners, text
links, and e-mail newsletters.
- Amazon.com Joint Marketing. We have implemented joint marketing programs
with Amazon.com. To date, this includes joint e-mails. In addition, links
to our Web page rotate on Amazon.com's home page and on other book
category pages, consistent with their other marketing arrangements. In
all of these marketing programs, Amazon.com receives a referral fee for
delivering new customers to our Web store.
- National Events and Local Marketing. Our national sponsorships are
designed to build brand awareness and expand our customer base. A balloon
float of our Pets.com sock puppet was featured in the 1999 Macy's
Thanksgiving Day Parade, and was viewed on television by approximately 52
million people. We own the trademark to "Take Your Dog to Work Day," and
will be launching
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a national publicity campaign in 2000 which includes a video news release
and a "Do It Yourself Kit" that helps companies structure their own
event. We are the presenting sponsor of "Dog Day Afternoon," an outdoor
festival for dogs and their owners organized by Design Industries
Foundation Fighting AIDS. Our local marketing activities are designed to
deliver the Pets.com message in a pet-related context at the community
level. This includes local market efforts such as SPCA events and dog
fashion shows, and grassroots activities including dog walks and adoption
fairs in high Internet penetration markets.
- Strategic Online Marketing Relationships. We have identified a select
group of online companies who we believe attract buyers more likely to
shop for pet products online. We are the exclusive online pet retailer
for Blue Mountain Arts, and have created special "pet holiday cards" that
are offered to consumers at Bluemountain.com. Our advertising
relationship with Buena Vista Internet Group (Disney.com and Family.com)
allows us to be the exclusive online pet retailer for the animal channel
on Disney.com and Family.com. We are the exclusive online pet retailer
for PlanetOut. These agreements expire in September 2000, April 2000 and
August 2000, respectively. We have also entered a non-exclusive
relationship with AOL on their Shopping Channel. In addition, we have an
exclusive relationship with Pet Sitters International, Inc. until
December 2002, under which we list their approximately 3,000 pet sitters
in the resources area of our Web store in exchange for sales commissions.
Furthermore, our Associates Program, based on Be Free's associate program
technology, encourages other Web sites to link to our store and earn
sales commissions. Associates can earn referral fees on all Pets.com
purchases made from the links on their site, and earn a bounty for each
new customer.
- Promotions. We selectively utilize promotional offers to further our
brand building efforts. This includes promotions such as on-site
merchandising of product discounts and pet-themed specials, the "Keep It
Comin' " food subscription program, trial offers at local events such as
organized dog walks, and coupon offers in our online newsletter and in
Pets.com, The Magazine for Pets and Their Humans.
- Philanthropic Marketing. Our philanthropic marketing effort is designed
to deepen our relationship with pet owners and expand our customer base.
Pets.commitment is our charitable foundation, which provides direct
financial support and encourages volunteerism across animal shelters,
animal therapy and service dog programs, and pet care and wellness
organizations. Our intent is to contribute more than $1 million to these
organizations by the end of 2000. We contribute to organizations where
"people help animals," such as SPCAs and humane organizations across the
country including Best Friends Animal Sanctuary in Utah. We also
contribute to organizations where "animals help people," including Design
Industries Foundation Fighting Aids, Canine Assistants, and The North
American Disabled Riders Association.
- Public Relations. We utilize public relations to drive coverage across a
wide array of high profile outlets, spanning television, radio,
magazines, and newspapers.
FULFILLMENT AND DISTRIBUTION
We have built an in-house fulfillment and distribution operation which is
used to manage the entire supply chain beginning with placement of the
customer's order, and continuing through order processing, fulfillment, and
shipment of product to the customer. In addition, we can improve our economics
through lower shipping and handling costs, and a higher margin product mix
availability.
We currently fulfill all customer orders from our new 143,232 square foot
distribution center in Union City, California and a 84,000 square foot satellite
facility in Hayward, California. We currently receive goods from our suppliers
at the distribution center into an automated system which assigns bin and
storage locations. The inventory system is linked to the Web store which
automatically updates product availability. A team of individuals using the same
automated system picks products to fill orders which are then packed on location
and loaded onto UPS, United States Postal Service or other shipping trucks for
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distribution to consumers in all 50 states. We are committed to shipping a high
volume of accurate orders, efficiently and effectively.
We believe our expertise in fulfillment and distribution, developed as the
result of our experience with the original Union City distribution center,
enables us to expand rapidly to our second distribution center. By adding
regional distribution centers, we can significantly increase our SKU count,
improve ship time to customers, and reduce shipping costs. We are in the process
of establishing a second distribution center in Greenwood, Indiana. This 292,500
square foot warehouse is scheduled to open in the first half of 2000, and is
intended to mirror the SKUs carried in the Union City distribution center. We
believe that two distribution centers can likely support our growth into 2001
based on anticipated levels of demand for our products.
CUSTOMER SERVICE
We believe that a high level of customer service and support is critical to
retaining and expanding our customer base. Our in-house customer service team is
available via phone from 6 a.m. to 8 p.m. Pacific time, Monday to Friday, and
can also be reached by e-mail or fax. We currently have 90 full-time employees
in customer service as of November 30, 1999. This team is central to our ability
to deliver a superior customer experience and strives to make a personal
connection with each consumer.
We view Amazon.com's customer service performance to be the standard in the
industry and we seek to emulate their customer service approach. We seek to
exceed customer expectations. We provide proactive customer service which
includes e-mail order confirmation, e-mail ship confirmation with tracking
numbers, notifying customers of out-of-stock situations, and for those orders,
updating customers on order status on a frequent basis. We increase staff to
handle peak periods and train customer service representatives across
departments to help them better understand the business.
We are dedicated to customer satisfaction. One of the ways that we deliver
on this commitment is through our product, customer service, privacy, and
security guarantees. Our product guarantee offers consumers a 30-day refund if
their shipment is not satisfactory. Our customer service guarantee commits to a
one business day response time for all inquiries. Our privacy guarantee commits
that Pets.com will not sell, trade or rent personal information to other
companies, and communicates that this information is used exclusively to process
orders and to provide a more personalized shopping experience. Our security
guarantee ensures protection of personal information and compensation to
consumers for the amount of their liability, up to $50, in the unlikely event of
unauthorized interception and use of their credit card.
TECHNOLOGY AND NETWORK OPERATIONS
We have implemented a broad array of services and systems for site
management, searching, customer interaction, transaction processing, and
fulfillment. We designed our system for scalability, reliability, and
performance, using a set of software applications for:
- Displaying merchandise in a logical, customer-friendly way;
- Accepting and verifying orders;
- Processing credit card orders;
- Organizing, placing, and managing customer orders;
- Notifying and updating customers of order status;
- Managing shipment of products; and
- Managing community forums and the communication of pet and pet care
information.
These services and systems use a combination of our own proprietary
technologies and commercially available, licensed technologies. We selected
BroadVision as our e-commerce platform, and have a non-exclusive license to use
their commerce application, which has been customized by our internal engineers
for the Pets.com shopping experience. This robust commerce application is
integrated with our Quality Software Systems, Inc. warehouse management system,
enabling a fully automated order fulfillment
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process. We realize many benefits from the integration of these front-end and
back-end systems, including the ability to track customer orders through the
entire supply chain in real-time, make rapid changes to processes such as a
change in shipping policy, or efficiently expand our infrastructure to support
the addition of a new distribution center.
It is our policy that our vendors meet the requirement of providing
technical support 24 hours a day, 7 days a week, 365 days a year. Our Sun
Microsystems, Inc. servers are Unix-based, and our software platform and
architecture is integrated with an Oracle Corporation database system. Our
Internet servers use Verisign, Inc. digital certificates to help conduct secure
communications and transactions. Our production system is co-located at Exodus
Communications, Inc. in Santa Clara, California, and provides 24-hour
engineering and monitoring support. We anticipate adding an additional
co-location facility in the eastern United States in stages over the course of
2000 for redundancy and performance purposes.
We address the goals of scalability, reliability and performance in a
number of ways. We have replicated key components of our production system
in-house in order to perform load testing that enables us to simulate our Web
store and better support peak shopping periods. We aim to have fast download
times and make use of caching and load balancing at the Web server and
application level for optimal performance. We are implementing vertical hardware
partitioning in early 2000, enabling us to do significant work on the Web store
without having to take it down for maintenance.
We elected to build an in-house development and operations team augmented
by outside consultants to enable faster response to changing market conditions.
We only outsource development work that is considered to be non-strategic. Our
in-house development team builds out new features, focusing on the software and
functionality that is unique to our business. Our in-house operations team
ensures that our Web store is up and running 24 hours a day, seven days a week.
We incurred $3.8 million in product development expenses in the period from
inception to September 30, 1999. We anticipate that we will continue to devote
significant resources to product development in the future as we add new
features and functionality to our Web store. Long term, we believe our in-house
capability will allow us to manage strategic initiatives such as the creation of
a data warehouse enabling our merchandising team to better understand our
customers, and then use this information to modify our product mix and enhance
our margins.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future. In particular,
the pet products, information and services market is intensely competitive and
are also highly fragmented, with no clear dominant leader in any of our market
segments. Our competitors can be divided into several groups: online stores that
specialize in pet products, such as Petopia.com, Inc., which is owned in part by
Petco Animal Supplies, Inc., PetsMart.com, Inc., which is owned in part by
PetsMart, Inc., and Petstore.com, Inc.; superstore retailers of pet products
such as Petco Animal Supplies, Inc., and PetsMart, Inc.; specialty pet stores;
mass market retailers such as Wal Mart Stores, Inc., Kmart Corporation and
Target Stores, Inc.; supermarkets; warehouse clubs such as Costco Companies,
Inc.; mail order suppliers of pet products; and pet supply departments at major
department stores. Each of these competitors operates within one or more of the
pet products, information and services segments.
We believe that the following are principal competitive factors in our
market:
- brand recognition;
- product selection;
- quality of Web store content;
- reliability and speed of order shipment;
- streamlined shopping experience;
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- customer service;
- speed and accessibility of Web store;
- personalized service;
- convenience; and
- price.
Many of our current and potential traditional store-based and online
competitors have longer operating histories, larger customer or user bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do. Many of these current and potential competitors can
devote substantially more resources to Web site and systems development than we
can. In addition, larger, more well-established and financed entities may
acquire, invest in or form joint ventures with online competitors or pet supply
retailers as the use of the Internet and other online services increases.
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
store-based retailers also enable customers to see and feel products in a manner
that is not possible over the Internet. Some of our competitors such as Petco
Animal Supplies, Inc. and PetsMart, Inc. have significantly greater experience
than we do in selling pet supplies and pet care products.
RELATIONSHIP WITH AMAZON.COM
We have a strategic relationship with Amazon.com whereby Amazon.com has
provided free consulting services relating to the operation of our business and
has promoted our Web store. Amazon.com is our largest stockholder and has
invested a total of approximately $57.8 million to date in Pets.com. Randy
Tinsley, Amazon.com's Vice President of Corporate Development, is a member of
our Board of Directors. See "Executive Officers and Directors", "Related Party
Transactions" and "Principal Stockholders" for a further discussion of
Amazon.com's equity ownership of us. As part of our relationship, in April 1999
we entered into an advertising agreement with Amazon.com whereby Amazon.com
provides us with online promotions mutually agreed upon, such as e-mails about
Pets.com, and one or more links from different locations on its Web site to our
Web store, consistent with Amazon.com's other marketing agreements. Under our
agreement, the content, placement, timing, and even the extent of most of these
online promotions are determined at Amazon.com's discretion and can be
terminated by Amazon.com at any time. Under the agreement, we are obligated to
maintain a link on our home page to Amazon.com's Web site, and pay Amazon.com a
referral fee for each new customer referred from Amazon.com's Web site, reduced
by new customers we refer from our Web store to Amazon.com. Unless terminated
earlier for breach by the non-breach party, the agreement will expire in October
2000.
In addition to this formal agreement, Amazon.com has provided free
consulting advice to our management team upon request regarding brand building
efforts, Web store design, product merchandising, fulfillment and distribution,
and a variety of other operational and strategic issues that are important to
our business. The existence of this relationship with Amazon.com, Amazon.com's
stockholder position in Pets.com and our advertising agreement with Amazon.com,
has also enabled us to attract the attention of potential corporate partners and
to enter into alliances with corporate partners on favorable terms. While our
relationship with Amazon.com has received significant media attention,
Amazon.com is not obligated to provide any of this advice and support.
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OTHER STRATEGIC RELATIONSHIPS
We continually seek to form strategic relationships to increase our access
to online customers, build brand recognition, and expand our online presence.
Because of our relationship with Amazon.com, we believe that we can execute
fewer, more focused, and less costly ventures to accomplish our objectives over
the long-term. In addition to our relationship with Amazon.com, we have
established the following relationships:
General Internet Portal Sites. These companies provide an aggregated
audience of Internet users to whom we market our products and services. These
marketing activities drive new customers to our Web site and extend our brand.
These companies are America Online, Inc., Lycos, Inc., Buena Vista Internet
Group (Disney.com and Family.com), Xoom.com, Inc., PlanetOut Corporation and
Snap! L.L.C.
Pet Related Internet Sites. To ensure the strength of our brand among pet
owners we have established exclusive relationships with Petplace.com, Inc. and
Pet Sitters International, Inc., whose pet oriented Internet sites attract large
audiences of pet owners. In addition, through our relationship with Be Free, our
Associates Program encourages other Web sites to link to our store and earn
sales commissions.
Content Providers. To ensure that our site attracts and retains a large
audience of pet product consumers we have established relationships with various
content providers relevant to pet owners of all types. These content providers
are Blue Mountain Arts, Dawbert Press, Inc. and IDG Books Worldwide, Inc.
Pets.com Sponsorships. Our relationships with these organizations not only
increases our brand awareness, but also increases the goodwill associated with
our brand among pet owners and the general population. These organizations are
American Veterinary Medical Foundation, Best Friends Animal Sanctuary, Design
Industries Foundation Fighting AIDS and NADRA Productions.
International Relationships. We plan to make an equity investment in
Petspark.com, a UK-based online pet retailer that intends to offer pet owners a
full range of pet-related services. This relationship will include consultation,
marketing support, and use of the Pets.com name. This agreement should allow us
to expand our business internationally in order to better serve pet owners and
capitalize on the global market.
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have entered into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with our suppliers and strategic partners to limit access to and
disclosure of our proprietary information. We cannot be certain that these
contractual arrangements or the other steps taken by us to protect our
intellectual property will prevent misappropriation of our technology. We have
licensed in the past, and expect that we may license in the future, certain of
our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of the Pets.com products
brand is maintained by such licensees, we cannot assure that such licensees will
not take actions that might hurt the value of our proprietary rights or
reputation. We also rely on technologies that we license from third parties,
such as BroadVision, Inc., Oracle Corporation, Netscape Communications
Corporation (AOL), Quality Software Systems, Inc., Sun Microsystems, and Compaq
Computer Corporation, the suppliers of key e-commerce software, database
technology, operating system software, and specific hardware components for our
service. We cannot be certain that these third-party technology licenses will
continue to be available to us on commercially reasonable terms. The loss of
such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could harm our
business.
We have filed applications for the registration of Pets.com(TM), the
Pets.com logo, Because Pets Can't Drive(TM), Keep It Comin'(TM), More Products
Than a Superstore Delivers(TM), People Helping Animals, Animals Helping
People(TM), and Pets.commitment(TM) in the U.S. and in some other countries,
although we
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have not secured registration of any of our marks to date. We have been granted
the right to use Pets.complete(TM) from a third party. We may be unable to
secure these registered marks. It is also possible that our competitors or
others will use marks similar to ours, which could impede our ability to build
brand identity and lead to customer confusion. In addition, there could be
potential trademark or trademark infringement claims brought by owners of other
registered trademarks or trademarks that incorporate variations of the term
"Pets.com." Any claims or customer confusion related to our trademark, or our
failure to obtain trademark registration, would negatively affect our business.
In addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the U.S., and effective copyright,
trademark and trade secret protection may not be available in such
jurisdictions. Our efforts to protect our intellectual property rights may not
prevent misappropriation of our content. Our failure or inability to protect our
proprietary rights could substantially harm our business.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally or directly applicable
to retailing or electronic commerce. However, as the Internet becomes
increasingly popular, it is possible that a number of laws and regulations may
be adopted with respect to the Internet. These laws may cover issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Furthermore, the growth of electronic commerce may prompt
calls for more stringent consumer protection laws. Several states have proposed
legislation to limit the uses of personal user information gathered online or
require online services to establish privacy policies. The Federal Trade
Commission has also initiated action against at least one online service
regarding the manner in which personal information is collected from users and
provided to third parties and has proposed regulations restricting the
collection and use of information from minors online. We do not currently
provide individual personal information regarding our users to third parties and
we currently do not identify registered users by age. However, the adoption of
additional privacy or consumer protection laws could create uncertainty in Web
usage and reduce the demand for our products and services or require us to
redesign our web site.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity,
qualification to do business and export or import matters. The vast majority of
these laws were adopted prior to the advent of the Internet. As a result, they
do not contemplate or address the unique issues of the Internet and related
technologies. Changes in laws intended to address these issues could create
uncertainty in the Internet marketplace. This uncertainty could reduce demand
for our services or increase the cost of doing business as a result of
litigation costs or increased service delivery costs.
In addition to regulations applicable to businesses generally, we are
regulated by federal, state or local governmental agencies with respect to the
shipment of pet food, live animals and pet products, advice relating to animal
care, and other matters. We currently seek to rely upon our suppliers to meet
the various regulatory and other legal requirements applicable to products and
services supplied by them to us. However, we are unable to verify that they have
in the past, or will in the future, always do so, or that their actions are
adequate or sufficient to satisfy all governmental requirements that may be
applicable to these sales. We would be fined or exposed to civil or criminal
liability, and we could receive potential negative publicity, if these
requirements have not been fully met by our suppliers or by us directly.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. On September 21, 1999 Biolink
L.L.C. dba ERI International sued us in Los Angeles County Superior Court for
breach of contract, anticipatory breach of contract, breach of the implied
covenant of good faith and fair dealing, and fraud arising out of a contract
entered into for the shipment of live animals, including fish and reptiles. ERI
International has stated four causes of action, three seeking
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damages each in an amount in excess of $2,000,000 and one seeking damages in an
amount in excess of $500,000. We have answered and asserted affirmative defenses
to their complaint. No trial date has been set and discovery has not yet
commenced. We believe we have meritorious defenses against these claims and
intend to vigorously defend against them.
EMPLOYEES
As of November 30, 1999, we had 260 employees. None of our employees is
represented by a labor union. We have not experienced any work stoppages and
consider our employee relations to be good.
FACILITIES
Our principal executive offices are located in San Francisco, California,
where we lease approximately 17,000 square feet under a lease and sublease that
expire in June 2002, with an option to extend until 2004. We believe that our
current executive office space is adequate to meet our needs through the end of
March 2000, at which time we plan to relocate to new executive offices in San
Francisco, California, where we have arranged to lease approximately 40,410
square feet under a lease that expires no earlier than April 2010. For our
Northern California distribution center and satellite facility, we lease
approximately 143,232 square feet in Union City, California under a sublease
that expires in August 2004 and 84,000 square feet in Hayward, California under
a lease that expires in November 2004. In addition, we lease approximately
15,000 square feet in San Francisco, California for additional warehouse and
distribution purposes under a lease that continues on a month-to-month basis
after December 31, 1999. For our second distribution center, we have entered
into a lease for approximately 292,500 square feet in Greenwood, Indiana, that
expires in December 2005.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Julia L. Wainwright....................... 42 Chairman of the Board of Directors and Chief
Executive Officer
Christopher E. Deyo....................... 40 President
Paul G. Manca............................. 41 Chief Financial Officer
John R. Benjamin.......................... 49 Vice President of Merchandising
John M. Hollon............................ 44 Vice President of Editorial
John A. Hommeyer.......................... 33 Vice President of Marketing
Diane R. Hourany.......................... 45 Vice President of Customer Service
Sue Ann Latterman, V.M.D.................. 42 Vice President of Strategic Alliances
Ralph E. Lewis............................ 53 Vice President of Distribution and Logistics
Paul W. Melmon............................ 38 Vice President of Engineering
Kathryn C. Ringewald...................... 39 Vice President of Human Resources
John B. Balousek(1)....................... 54 Director
Matthew T. Cowan.......................... 27 Director
John R. Hummer(2)......................... 51 Director
Randolph J. Tinsley(1)(2)................. 39 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Julia L. Wainwright has served as our Chief Executive Officer and one of
our directors since March 1999 and Chairman of the Board since December 1999.
From March 1998 to February 1999, she served as Chief Executive Officer of
Reel.com, Inc. From May 1997 to February 1998, Ms. Wainwright was independently
researching e-commerce opportunities. From December 1996 to April 1997, she
served as Chief Executive Officer of Berkeley Systems, Incorporated, as
President from August 1995 to November 1996 and as Vice President of Sales and
Marketing from January 1995 to August 1995. From June 1994 to December 1994, she
served as Vice President of Marketing of Mindscape, Inc. From October 1993 to
June 1994, she was a partner in Corporate Development Partners, a private
venture capital firm. From August 1991 to October 1993, she served as Vice
President of International for Spinnaker Software, Inc. From October 1988 to
August 1991, she worked for Power Up Software Corporation in several positions,
finishing as Vice President of International. From January 1982 to October 1988,
she served in various management positions at Software Publishing, Inc. and from
January 1980 to December 1982, she worked in brand management at The Clorox
Company. Ms. Wainwright holds a B.S. from Purdue University.
Christopher E. Deyo has served as our President since April 1999. From July
1998 to March 1999, he served as President of Reel.com, Inc. He served as
General Manager of Berkeley Systems, Incorporated from March 1997 to June 1998
and as Vice President of Marketing from September 1996 to February 1997. From
May 1995 to August 1996, Mr. Deyo served as Vice President of Marketing of
Microprose, Inc. From January 1995 to April 1995, Mr. Deyo was independently
researching technology opportunities. From September 1987 to December 1994, he
worked for Kransco Group Companies in several positions, finishing as Vice
President of Marketing. Mr. Deyo co-founded Video Edge, Inc. where he served in
various capacities from May 1986 to August 1987. From August 1983 to April 1986,
he worked in brand management at The Procter & Gamble Company. Mr. Deyo holds a
B.S. and an M.B.A. from Syracuse University.
Paul G. Manca has served as our Chief Financial Officer since September
1999. From May 1995 to September 1999, he served as Chief Financial Officer of
CellNet Data Systems, Inc. From February 1987
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<PAGE> 47
to May 1995, he worked for BZW/Barclays, an investment bank, finishing as
Managing Director and Group Head of the Communications Group within Corporate
Finance. Mr. Manca holds a B.A. from the University of California at Berkeley
and an M.B.A. from Golden Gate University.
John R. Benjamin has served as our Vice President of Merchandising since
May 1999. From September 1990 to April 1999, Mr. Benjamin worked for Petco
Animal Supplies, Inc. in several positions, finishing as Director of Imports and
Global Sourcing. From December 1989 to August 1990, he served as the National
Sales Manager for Suunto, USA and from September 1984 to December 1989, he
worked as a buyer for Oshman's Sporting Goods, Inc. From September 1971 to July
1984, Mr. Benjamin worked for Fedco Membership Department Stores, Inc., in
several positions finishing as a store manager.
John M. Hollon has served as our Vice President of Editorial since April
1999 and as Editor and Publisher of Pets.com, The Magazine for Pets and Their
Humans since September 1999. From November 1996 to April 1999, he served as
Group Editorial Director of Fancy Publications, Inc. Mr. Hollon also worked as a
newspaper editor for 19 years, most recently with Gannett Co., Inc., as Editor
of The Great Falls Tribune in Montana and as Executive Editor of The Honolulu
Advertiser in Hawaii. Mr. Hollon holds a B.A. from California State University
at Long Beach.
John A. Hommeyer, Jr. has served as our Vice President of Marketing since
May 1999. From August 1988 to April 1999, he worked at The Procter & Gamble
Company in several U.S. and international positions, finishing as Marketing
Director of Global Baby Care. Mr. Hommeyer holds an A.B. from Dartmouth College.
Diane R. Hourany has served as our Vice President of Customer Service since
December 1999 and as Vice President of Operations from April 1999 to November
1999. From June 1998 to April 1999, Ms. Hourany served as Vice President of
Operations of Reel.com, Inc. From February 1994 to May 1998, she served as
General Manager of Catalog Fulfillment for Bullock & Jones, a subsidiary of Saks
Fifth Avenue, Inc. and from September 1987 to January 1994, Ms. Hourany served
as Manager of Telemarketing & Customer Services of Power Up Software
Corporation. Ms. Hourany holds an A.A. from Diablo Valley College.
Sue Ann Latterman, V.M.D. has served as our Vice President of Strategic
Alliances since November 1999 and as Vice President of Business Development from
May 1999 to October 1999. From August 1998 to April 1999, she served as Chief
Operating Officer of CrossCart, Inc. From March 1996 to July 1998, Dr. Latterman
worked as a consultant to the medical device industry and from October 1994 to
March 1996, she served as Vice President of Clinical Affairs of Percusurge, Inc.
From July 1993 to September 1994, she worked as an associate at Mohr Davidow
Ventures, a private venture capital firm, and from January 1993 to June 1993, as
a consultant to the biotechnology industry. From November 1990 to December 1992,
she served as Manager of Market Research of Hybritech Incorporated. From July
1989 to August 1990, Dr. Latterman attended business school and from May 1985 to
June 1989, she practiced veterinary medicine in Pittsburgh, Pennsylvania and
Ringoes, New Jersey. Dr. Latterman holds a B.A. and V.M.D. from the University
of Pennsylvania and an M.B.A. from the University of Pittsburgh.
Ralph E. Lewis has served as our Vice President of Distribution and
Logistics since November 1999. From January 1998 to October 1999, he served as
Vice President of Operations for Office Depot, Inc. From June 1995 to December
1997, he served as Vice President and General Manager of Softworld Services,
Inc. and from June 1992 to May 1995, as General Manager of Neodata Services,
Inc. From January 1992 to May 1992, Mr. Lewis served as a consultant to Egghead
Discount Software, Inc. From August 1986 to May 1992, Mr. Lewis served as Vice
President of Distribution for Egghead Discount Software, Inc., from June 1981 to
July 1986, as Divisional Vice President of Operations for Pay 'N Save
Corporation and from April 1977 to May 1981, as Operations Manager of
Distribution for Save On Drugs, Inc. Mr. Lewis holds a B.S. from the University
of Dayton.
Paul W. Melmon has served as our Vice President of Engineering since April
1999. From August 1998 to April 1999, he served as an Entrepreneur in Residence
at Sutter Hill Ventures, L.L.C., a private venture capital firm. From November
1996 to July 1998, Mr. Melmon served as Vice President of
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<PAGE> 48
Engineering of Wallop Software, Inc. and from July 1994 to October 1996, as
Director of Engineering of Scopus Technology, Inc. From October 1989 to July
1994, he held various technical positions at Sybase, Inc. and from November 1984
to October 1989, he served as a member of the technical staff at Hewlett-
Packard Company. Mr. Melmon holds a B.S. from the University of California at
Davis.
Kathryn C. Ringewald has served as our Vice President of Human Resources
since April 1999. From June 1997 to April 1999, she served as Director of Human
Resources of Form Factor, Inc. From August 1996 to May 1997, she served as
Director of Human Resources of Berkeley Systems, Incorporated and from June 1995
to August 1996, as Vice President of Human Resources of Crystal Dynamics, Inc.
From February 1994 to May 1995, Ms. Ringewald worked as a Director of Talent for
Lucas Arts Entertainment Company and from October 1992 to February 1994, as a
human resources consultant to various industries. From January 1990 to October
1992, she worked as a Human Resources Manager for Symantec Corporation and from
June 1985 to January 1990, she served in various capacities at Apple Computer,
Inc. Ms. Ringewald holds a B.A. from Dominican College.
John B. Balousek has served as one of our directors since October 1999. Mr.
Balousek, a founder of PhotoAlley, Inc., served as its Executive Vice President
from July 1998 to March 1999. He served as Chairman and Chief Executive Officer
of True North Technologies, Inc. from March 1996 to June 1996. From March 1979
to March 1996, Mr. Balousek worked for Foote, Cone & Belding Communications,
Inc. and served as its President and Chief Operating Officer from February 1991
to March 1996. He served as a director of Foote, Cone & Belding from May 1989 to
May 1994, and then served as a director of True North Communications, Inc., a
newly-created holding company of Foote, Cone & Belding, from June 1994 to
February 1997. Mr. Balousek is also a director of Micron Electronics, Inc.,
Geoworks Corporation, FreeShop.com, Inc., Transilluminant Corporation, Worldwide
Magnifi, Inc., and EDBH, Inc. He holds a B.A. from Creighton University and an
M.S. from Northwestern University.
Matthew T. Cowan has served as one of our directors since June 1999. Mr.
Cowan has been a general partner of Bowman Capital Management, L.L.C., a private
venture capital firm, since October 1998. From July 1994 until September 1998,
he served as a Director of Corporate Business Development for Intel Corporation.
Mr. Cowan is also a director of Support.com, Inc., ELetter Incorporated and
sixdegrees, Inc. He holds a B.A. from Tufts University.
John R. Hummer has served as one of our directors since April 1999. Mr.
Hummer is a general partner of Hummer Winblad Venture Partners, a private
venture capital firm, which he co-founded in September 1989. From 1980 until
1989 he served as partner of Glenwood Management, a private venture capital
firm. Mr. Hummer is also a director of Extensity, Inc., Industrywide Mortgage
Exchange, Inc., The National Transportation Exchange, Inc., Mambo.com, and
Netcontext, Inc. He holds a B.A. from Princeton University and an M.B.A. from
Stanford University.
Randolph J. Tinsley has served as one of our directors since April 1999.
Mr. Tinsley has served as Vice President of Corporate Development of Amazon.com,
Inc. since April 1999 and as Director of Corporate Development from January 1998
to March 1999. He also served as Treasurer from January 1998 to November 1999.
He served as Assistant Treasurer of Mergers and Acquisitions of Intel
Corporation from August 1994 to January 1998 and as Senior Attorney from
December 1992 to August 1994. From May 1989 to December 1992, he was an
associate with Fenwick & West LLP and from June 1987 to May 1989, he was an
associate with Orrick, Herrington & Sutcliffe LLP. Mr. Tinsley serves on the
Board of Advisors of Spinnaker Crossover Fund, L.P. He holds a B.A. from the
University of California at Berkeley and a J.D. from the University of Santa
Clara.
BOARD COMPOSITION
Our bylaws currently provide for a board of directors consisting of five
directors. Each director is elected for a period of one year at our annual
meeting of stockholders and serves until the next annual meeting or until his or
her successor is duly elected and qualified. The executive officers serve at the
discretion of the board of directors. There are no family relationships among
any of our directors or executive officers.
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<PAGE> 49
BOARD COMPENSATION
Except for reimbursement for reasonable travel expenses relating to
attendance at board and committee meetings and the grant of stock options,
directors are not compensated for their services as directors. Our directors are
eligible to participate in our 1999 Stock Plan and, upon the closing of this
offering, directors who are employees of Pets.com will also be eligible to
participate in our 2000 Employee Stock Purchase Plan. Julia Wainwright is the
only director who is currently an employee. We have issued and sold to Ms.
Wainwright 1,157,023 shares of common stock under our 1999 Stock Plan at a price
of $0.01 per share. Ms. Wainwright's shares are subject to our right of
repurchase at the original purchase price in the event that Ms. Wainwright's
employment with Pets.com terminates. Our repurchase right lapses with respect to
25% of the shares purchased by Ms. Wainwright on March 10, 2000 and with respect
to 1/48th of the shares on the 10th day of each month after that date. In
addition, our repurchase right will lapse with respect to 50% of the remaining
unvested shares held by Ms. Wainwright if she is terminated without cause within
twelve months after a merger or sale of Pets.com resulting in a change of
control. We have also granted to Mr. Balousek an option to purchase up to 45,000
shares of common stock at an exercise price of $1.50 per share under our 1999
Stock Plan. Mr. Balousek's stock option vests at the rate of 25% of the shares
subject to this option on October 29, 2000 and 1/48th of the shares subject to
this option on the 29th day of each month after that date. For additional
information, see "Stock Plans."
BOARD COMMITTEES
In May 1999, our board of directors established an audit committee and a
compensation committee. The audit committee reviews our annual audited financial
results and unaudited quarterly results, and meets with our independent auditors
to review our financial statements, internal controls and financial management
practices. Our audit committee currently consists of John Balousek and Randolph
Tinsley. Our compensation committee reviews and recommends to the board the
compensation arrangements for our management team and administers our stock
plans. Our compensation committee currently consists of John Hummer and Randolph
Tinsley.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of our board of directors are
currently John Hummer and Randolph Tinsley. Neither of them has at any time been
an officer or employee of Pets.com or any subsidiary of Pets.com. However, we
have issued and sold in private placement transactions shares of preferred stock
to certain entities affiliated with Hummer Winblad Venture Partners and to
Amazon.com. Mr. Hummer is a general partner of Hummer Winblad Venture Partners
which manages certain investment funds that have purchased shares of our
preferred stock, and Mr. Tinsley is Vice President, Corporate Development of
Amazon.com that has purchased shares of our preferred stock and entered into an
advertising agreement with us. The following is a summary of the stock purchase
transactions between us and entities affiliated with Hummer Winblad Venture
Partners, and between us and Amazon.com.
Entities Affiliated with Hummer Winblad Venture Partners
- March 10, 1999: we issued a convertible promissory note in the principal
amount of $142,500 to Hummer Winblad Venture Partners III, L.P. and a
second convertible promissory note in the principal amount of $7,500 to
Hummer Winblad Technology Fund III, L.P., which notes were canceled and
converted into shares of Series A preferred stock at $1.45 per share on
April 22, 1999.
- March 19, 1999: we issued a convertible promissory note in the principal
amount of $237,500 to Hummer Winblad Venture Partners III, L.P. and a
second convertible promissory note in the principal amount of $12,500 to
Hummer Winblad Technology Fund III, L.P., which notes were canceled and
converted into shares of Series A preferred stock at $1.45 per share on
April 22, 1999.
- April 22, 1999: we issued and sold to Hummer Winblad Venture Partners
III, L.P. 2,389,503 shares of Series A preferred stock and to Hummer
Winblad Technology Fund III, L.P. 125,763 shares of Series A Preferred
Stock, all at $1.45 per share, which included cancellation and
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conversion of the promissory notes issued to each entity respectively on
March 10, 1999 and March 19, 1999 (including conversion of accrued
interest on the promissory notes).
- June 18, 1999: we issued and sold to Hummer Winblad Venture Partners III,
L.P. and Hummer Winblad Technology Fund III, L.P. 899,669 shares and
47,351 shares, respectively, of our Series B preferred stock at $7.55 per
share.
- November 5, 1999: we issued and sold to Hummer Winblad Venture Partners
IV, L.P. 1,008,800 shares of Series B preferred stock at $7.55 per share
and a convertible promissory note in the principal amount of $2,383,565,
which note was cancelled and converted into shares of Series B Preferred
Stock at $7.55 per share on December 8, 1999.
- December 8, 1999: we issued and sold to Hummer Winblad Venture Partners
IV, L.P. 1,375,307 shares of Series B Preferred Stock at $7.55 per share,
which included cancellation and conversion of the promissory note issued
to this investor on November 5, 1999.
Amazon.com
- April 22, 1999: we issued and sold to Amazon.com 4,401,716 shares of
Series A preferred stock at $1.45 per share.
- June 18, 1999: we issued and sold to Amazon.com 4,728,477 shares of
Series B preferred stock at $7.55 per share.
- November 5, 1999: we issued and sold to Amazon.com 1,692,038 shares of
Series B preferred stock at $7.55 per share and a convertible promissory
note in the principal amount of $2,975,115, which note was canceled and
converted into 394,055 shares of Series B preferred stock on December 8,
1999.
For additional information concerning compensation committee interlocks and
insider participation in compensation decisions, please refer to our discussion
of entities affiliated with Hummer Winblad Venture Partners and Amazon.com under
"Related Party Transactions."
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<PAGE> 51
EXECUTIVE COMPENSATION
The following table provides summary information concerning the
compensation to be received for services rendered to us during the fiscal year
ending December 31, 1999 by each person who served as our chief executive
officer, or who acted in a similar capacity, and each of the other four most
highly compensated executive officers, collectively, the "named officers," each
of whose aggregate compensation during our last fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- -------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Julia L. Wainwright.................. $147,568 $ -- $ -- -- $ --
Chief Executive Officer
Christopher E. Deyo.................. 134,009 -- -- 653,969 --
President
Paul W. Melmon....................... 111,009 -- -- 278,950 --
Vice President, Engineering
John A. Hommeyer..................... 103,395 20,000 -- 175,000 25,000
Vice President, Marketing
Diane R. Hourany..................... 99,802 10,000 -- 157,204 320
Vice President, Operations
Gregory McLemore..................... 39,231 -- -- -- --
President
</TABLE>
Mr. McLemore served as President of Pets.com from February 1999 until April
1999. On an annualized basis, Mr. McLemore's salary would have been $150,000.
Paul Manca was hired as our Chief Financial Officer in August 1999. On an
annualized basis, Mr. Manca's salary would have been $175,000.
Ralph Lewis was hired as our Vice President of Distribution and Logistics
in November 1999. On an annualized basis, Mr. Lewis' salary would have been
$200,000.
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OPTION GRANTS
The following table provides summary information regarding stock options
granted to each of the named officers during the fiscal year ended December 31,
1999. The options were granted pursuant to our 1999 Stock Plan. All options are
immediately exercisable; however, the underlying shares are subject to our right
of repurchase at the original purchase price. Our repurchase right will lapse
with respect to 25% of the shares on the one year anniversary of the vesting
commencement date, and with respect to 1/48th of the shares each month
thereafter. Stock price appreciation of 5% and 10% is assumed pursuant to rules
promulgated by the Securities and Exchange Commission and does not represent our
prediction of our stock performance. There is no assurance provided to any
holder of our securities that the actual stock price appreciation over the
ten-year option terms will be at the assumed 5% and 10% levels or at any other
defined level.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Julia L. Wainwright............. -- --% $ -- -- $-- $--
Christopher E. Deyo............. 653,969 -- 0.15 05/12/09 -- --
Paul W. Melmon.................. 238,950 -- 0.15 05/12/09 -- --
40,000 -- 0.75 07/29/09 -- --
John A. Hommeyer................ 150,000 -- 0.15 05/18/09 -- --
25,000 -- 1.50 11/06/09 -- --
Diane R. Hourany................ 157,204 -- 0.15 05/12/09 -- --
Gregory McLemore................ -- -- -- -- -- --
</TABLE>
In August 1999, we granted the right to purchase 250,000 shares of our
common stock to Paul Manca, our Chief Financial Officer at an exercise price of
$0.75 per share, which shares are subject to our right of repurchase at the
original purchase price in the event that Mr. Manca's employment with us
terminates. Our repurchase right lapses with respect to 25% of the shares in
August 2000 and with respect to 1/48th of the shares monthly thereafter. In
November 1999, we granted an option exercisable for 175,000 shares of our common
stock to Ralph Lewis, our Vice President of Distribution and Logistics. We
granted options for an aggregate of 5,266,659 shares to our employees and
consultants under our 1999 Stock Plan during our fiscal year ended December 31,
1999. See "Stock Plans." Options were granted at an exercise price equal to the
fair market value of the common stock, as determined by our board of directors
on the date of grant.
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<PAGE> 53
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR OPTION VALUES
The following table provides summary information concerning the shares of
common stock acquired in the year ended December 31, 1999, the value realized
upon exercise of stock options during that period, and the number and value of
unexercised options with respect to each of the named officers as of December
31, 1999. The value was calculated by determining the difference between the
fair market value of underlying common stock and the exercise price. All options
are immediately exercisable; however, the underlying shares are subject to our
right of repurchase at the original purchase price. Our repurchase right will
lapse with respect to 25% of the shares on the one year anniversary of the
vesting commencement date, and with respect to 1/48th of the shares each month
thereafter.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Julia L. Wainwright............. -- $-- -- -- $-- $--
Christopher E. Deyo............. 653,969 0 -- -- -- --
Paul W. Melmon.................. 238,950 0 40,000 -- --
John A. Hommeyer................ 150,000 0 25,000 -- --
Diane R. Hourany................ 157,204 0 -- -- -- --
Gregory McLemore................ -- -- -- -- -- --
</TABLE>
STOCK PLANS
1999 Stock Plan. Our 1999 Stock Plan was adopted by our board of directors
in February 1999 and approved by our stockholders in March 1999. The plan was
amended at various times after February 1999 to increase the number of shares
reserved for issuance thereunder. These amendments were approved by our
stockholders. A total of 7,269,159 shares of common stock has been reserved for
issuance under our stock plan. As of December 9, 1999, options to purchase
3,881,409 shares of common stock had been exercised, options to purchase a total
of 1,335,250 shares at a weighted average exercise price of $1.48 per share were
outstanding and 2,050,000 shares remained available for future grants under the
plan.
In connection with this offering, our board amended the stock plan to
provide for, among other things, an automatic annual increase in the number of
shares of common stock reserved for issuance on the first day of each of our
fiscal years beginning in 2001 and ending in 2009 equal to the lesser of:
- 1,000,000 shares;
- 3% of the shares outstanding on the last day of the immediately preceding
fiscal year; or
- a lesser number of shares as determined by our board of directors.
The purposes of our stock plan are to attract and retain the best available
personnel, to provide additional incentives to our employees and consultants and
to promote the success of our business. Our stock plan provides for the granting
to employees, including officers and employee directors, of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and for the granting to employees and consultants,
including non-employee directors, of nonstatutory stock options and stock
purchase rights. To the extent an optionee would have the right in any calendar
year to exercise for the first time one or more incentive stock options for
shares having an aggregate fair market value (under all plans of Pets.com and
determined for each share as of the date the option to purchase the shares was
granted) in excess of $100,000, any such excess options will be treated as
nonstatutory stock options. If not terminated earlier, our stock plan will
terminate in February 2009.
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Our stock plan may be administered by the board of directors or a committee
of the board. Our stock plan is currently administered by our board of
directors. The administrator determines the terms of options granted under our
stock plan, including the number of shares subject to the option, exercise
price, term and exercisability. In no event, however, may an individual employee
receive option grants for more than 2,000,000 shares under the stock plan in any
fiscal year. The exercise price of all incentive stock options granted under our
stock plan must be at least equal to the fair market value of our common stock
on the date of grant. The exercise price of any incentive stock option granted
to an optionee who owns stock representing more than 10% of the total combined
voting power of all classes of our outstanding capital stock must equal at least
110% of the fair market value of the common stock on the date of grant. The
exercise price of all nonstatutory stock options and stock purchase rights shall
be the price determined by the administrator, provided, however, that the
exercise price of any nonstatutory stock option or stock purchase right granted
to a named officer must equal at least 100% of the fair market value of the
common stock on the date of grant in order for that grant to qualify as
performance-based compensation under applicable tax law. Payment of the exercise
price may be made in cash or other consideration as determined by the
administrator.
The administrator determines the term of options, which may not exceed 10
years (5 years in the case of an incentive stock option granted to an optionee
who owns stock representing more than 10% of the total combined voting power of
all classes of our outstanding capital stock). Options and stock purchase rights
are generally nontransferable. The administrator may grant nonstatutory stock
options and stock purchase rights with limited transferability rights in
circumstances specified in the stock plan. Each option and stock purchase right
may generally be exercised during the lifetime of the optionee only by such
optionee or a permitted transferee. The administrator determines the vesting
terms of options and stock issued pursuant to stock purchase rights. Options
granted under the 1999 Stock Plan generally may be exercised immediately after
the grant date, but to the extent the shares subject to the options are not
vested as of the date of exercise, we retain a right to repurchase any shares
that remain unvested at the time of the optionee's termination of employment by
paying an amount equal to the exercise price times the number of unvested
shares. Options granted under the 1999 Stock Plan generally vest at the rate of
1/4th of the total number of shares subject to the options twelve months after
the date of grant and 1/48th of the total number of shares subject to the
options each month thereafter.
In addition to stock options, the administrator may issue stock purchase
rights under the 1999 Stock Plan to employees, non-employee directors and
consultants. The administrator determines the number of shares, price, terms,
conditions and restrictions related to the grant of stock purchase rights. The
purchase price of a stock purchase right granted under the 1999 Stock Plan will
be determined by the administrator. The period during which the stock purchase
right is held open is determined by the administrator, but in no case shall this
period exceed 30 days. Unless the administrator determines otherwise, the
recipient of a stock purchase right must execute a restricted stock purchase
agreement granting Pets.com an option to repurchase unvested shares at cost upon
termination of recipient's relationship with us.
In the event of a change of control due to the sale of all or substantially
all of our assets or merger of Pets.com with another corporation, then each
option may be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation does not agree to an assumption or
substitution, each outstanding stock option will terminate on the effective date
of the transaction. Some option agreements issued by the administrator provide
for limited acceleration of vesting in certain circumstances following a change
of control transaction.
The administrator has the authority to amend or terminate our stock plan as
long as this action would not adversely affect any outstanding option or stock
purchase right and provided that stockholder approval is required for some
amendments to the extent required by applicable law.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
was adopted by the board of directors in December 1999 and approved by our
stockholders in December 1999. A total of 500,000 shares of common stock have
been reserved for issuance under our purchase plan, plus an
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<PAGE> 55
automatic annual increase on the first day of each of our fiscal years beginning
in 2001 and ending in 2010 equal to the lesser of:
- 300,000 shares;
- 1% of the shares outstanding on the last day of the immediately preceding
fiscal year; or
- a lesser number of shares as determined by our board.
Our purchase plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 24
months' duration, with new offering periods (other than the first offering
period) commencing on February 1 and August 1 of each year. Each offering period
will consist of four consecutive purchase periods of six months duration. The
initial offering period is expected to commence on the date of this offering and
end on January 31, 2002, and the initial purchase period is expected to end on
July 31, 2000. The purchase plan will be administered by the board of directors
or by a committee appointed by the board. Our employees (including officers and
employee directors), and the employees of any majority-owned subsidiary
designated by the board, are eligible to participate in the purchase plan if
they are employed by us or any such subsidiary for at least 20 hours per week
and more than five months per year. The purchase plan permits eligible employees
to purchase common stock through payroll deductions, which may not exceed 20% of
an employee's compensation, at a price equal to the lower of 85% of the fair
market value of our common stock at the beginning of each offering period or at
the end of each purchase period. In circumstances described in the purchase
plan, the purchase price may be adjusted during an offering period to avoid our
incurring adverse accounting charges. The maximum number of shares an employee
may purchase during each purchase period is 2,000 shares, subject to certain IRS
limitations specified in the plan. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with us. If not terminated earlier,
the purchase plan will have a term of ten years.
The purchase plan provides that in the event of our merger with or into
another corporation or a sale of all or substantially all of our assets, each
right to purchase stock under the purchase plan will be assumed or an equivalent
right substituted by the successor corporation. If the successor corporation
does not agree to assume or substitute stock purchase rights, our board of
directors will shorten the offering periods then in effect so that employees'
rights to purchase stock under the purchase plan are exercised prior to the
merger or sale of assets. The board of directors has the power to amend or
terminate the purchase plan as long as such action does not adversely affect any
outstanding rights to purchase stock thereunder, provided however, that the
board of directors may amend or terminate the purchase plan or an offering
period even if it would adversely affect outstanding options in order to avoid
our incurring adverse accounting charges.
EMPLOYEE BENEFIT PLANS
401(k) Plan. We maintain a 401(k) tax-qualified employee savings and
retirement plan covering all employees who satisfy eligibility requirements
relating to minimum age and length of service. Pursuant to our 401(k) plan,
eligible employees may elect to contribute up to 20% of their cash compensation
to the 401(k) plan. The 401(k) plan is intended to qualify under applicable law,
so that contributions to the 401(k) plan and income earned on the 401(k) plan
contributions are not taxable until withdrawn. The 401(k) plan is available to
our executive officers on terms not more favorable than those offered to other
employees. We may elect to make contributions to the 401(k) plan at the
discretion of our board of directors. No contributions have been made by us as
of December 31, 1999. All employee contributions are 100% vested.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
We have entered into the following employment and change of control
arrangements with our current officers. For a description of arrangements with
our former officers, directors and substantial stockholders, see "Related Party
Transactions" on page 58.
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<PAGE> 56
In March 1999, we entered into a letter agreement with Julia Wainwright,
our Chief Executive Officer. Under the agreement, Ms. Wainwright receives an
annual salary of $185,000 and she was granted the right to purchase 1,157,023
shares of common stock at a purchase price of $0.01 per share, which shares are
subject to our right of repurchase at the original purchase price in the event
that Ms. Wainwright's employment with us terminates. Our repurchase right lapses
with respect to 25% of the shares on March 10, 2000 and with respect to 1/48th
of the shares monthly thereafter. In the event of a change of control, 50% of
any remaining unvested shares held by Ms. Wainwright will accelerate and vest.
In March 1999, we entered into a letter agreement with Christopher Deyo,
our President. Under the agreement, Mr. Deyo receives an annual salary of
$185,000 and was granted an option to purchase 653,969 shares of common stock at
an exercise price of $0.15 per share, 25% of which vest after one year of
service, and 1/48th of the shares subject to the option vest every month
thereafter. In the event of a change of control, 50% of any remaining unvested
shares will accelerate and vest.
In August 1999, we entered into a letter agreement with Paul Manca, our
Chief Financial Officer. Mr. Manca receives an annual salary of $175,000 and was
granted the right to purchase 250,000 shares of common stock at an exercise
price of $0.75 per share, which shares are subject to our right of repurchase at
the original purchase price in the event that Mr. Manca's employment with us
terminates. Our repurchase right lapses with respect to 25% of the shares in
August 2000 and with respect to 1/48th of the shares monthly thereafter.
In April 1999, we entered into a letter agreement with John Benjamin, our
Vice President of Merchandising. Under the agreement, Mr. Benjamin receives an
annual salary of $125,000, relocation expenses of $25,000 and was granted an
option to purchase 90,000 shares of common stock at an exercise price of $0.15
per share, 25% of which vest after one year of service and 1/48th of the shares
subject to the option vest every month thereafter.
In March 1999, we entered into a letter agreement with John Hollon, our
Vice President of Editorial. Under the agreement, Mr. Hollon receives an annual
salary of $100,000, received a signing of bonus of $10,000 and was granted an
option to purchase 125,000 shares of common stock at an exercise price of $0.15
per share, 25% of which vest after one year of service and 1/48th of the shares
subject to the option vest every month thereafter.
In May 1999, we entered into a letter agreement with John Hommeyer, our
Vice President of Marketing. Under the agreement, Mr. Hommeyer receives an
annual salary of $165,000 and received a bonus of $20,000 and relocation
expenses of $25,000. Mr. Hommeyer also was granted an option to purchase 150,000
shares of common stock at an exercise price of $0.15 per share, 25% of which
vest after one year of service and 1/48th of the shares subject to the option
vest every month thereafter. In the event Mr. Hommeyer is terminated with or
without cause within one year after a change of control in connection with our
merger or sale or if our office is moved more than fifty miles from our current
San Francisco location, Mr. Hommeyer will receive severance equal to three
months of his current monthly salary.
In April 1999, we entered into a letter agreement with Diane Hourany, our
Vice President of Customer Service. Under the agreement, Ms. Hourany receives an
annual salary of $150,000, received a bonus of $10,000 and an option to purchase
157,204 shares of common stock at an exercise price of $0.15 per share, 25% of
which vest after one year of service and 1/48th of the shares subject to the
option vest every month thereafter. In the event of a change in control, 25% of
Ms. Hourany's remaining unvested shares will accelerate and become fully vested.
In the event Ms. Hourany is terminated with or without cause within one year
after a change of control in connection with our merger or sale or if our office
is moved more than fifty miles from our current San Francisco location, Ms.
Hourany will receive severance equal to three months of her current monthly
salary.
In May 1999, we entered into a letter agreement with Sue Ann Latterman, our
Vice President of Strategic Alliances. Under the agreement, Ms. Latterman
receives an annual salary of $150,000, received a bonus of $10,000 and was
granted an option to purchase 150,000 shares of common stock at an exercise
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<PAGE> 57
price of $0.15 per share, 25% of which vest after one year of service and 1/48th
of the shares subject to the option vest every month thereafter. In the event
Ms. Latterman is terminated with or without cause within one year after a change
of control in connection with our merger or sale or if our office is moved more
than fifty miles from our current San Francisco location, Ms. Latterman will
receive severance equal to three months of her current monthly salary.
In November 1999, we entered into a letter agreement with Ralph Lewis, our
Vice President of Distribution and Logistics. Under the agreement, Mr. Lewis
receives an annual salary of $200,000, received a bonus of $20,000, relocation
expenses of $75,000, and was granted an option to purchase 175,000 shares of
common stock at an exercise price of $1.50 per share, 25% of which vest after
one year of service and 1/48th of the shares subject to the option vest every
month thereafter. In the event Mr. Lewis is terminated with or without cause
within one year after a change of control in connection with our merger or sale
or if our office is moved more than fifty miles from our current San Francisco
location, Mr. Lewis will receive severance equal to three months of his current
salary.
In April 1999, we entered into a letter agreement with Paul Melmon, our
Vice President of Engineering. Under the agreement, Mr. Melmon receives an
annual salary of $160,000 and was granted an option to purchase 238,950 shares
of common stock, 25% of which vest after one year of service and 1/48th of the
shares subject to the option vest every month thereafter.
In March 1999, we entered into a letter agreement with Kathryn Ringewald,
our Vice President of Human Resources. Under the agreement, Ms. Ringewald
receives an annual salary of $120,000 and was granted an option to purchase
125,763 shares of common stock, 25% of which vest after one year of service and
1/48th of the shares subject to the option vest every month thereafter.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, we have included in
our restated certificate of incorporation a provision to eliminate the personal
liability of our officers and directors for monetary damages for breach or
alleged breach of their fiduciary duties as officers or directors, respectively,
subject to certain exceptions. In addition, our bylaws provide that we are
required to indemnify our officers and directors under certain circumstances,
including those circumstances in which indemnification would otherwise be
discretionary, and we are required to advance expenses to our officers and
directors as incurred in connection with proceedings against them for which they
may be indemnified. We have entered into indemnification agreements with our
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in Delaware Law. The
indemnification agreements require that we, among other things, indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as officers and directors (other than liabilities
arising from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms. We intend to obtain directors' and officers' liability
insurance prior to the completion of this offering. At present, we are not aware
of any pending or threatened litigation or proceeding involving any of our
directors, officers, employees or agents in which indemnification would be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification. We believe
that our charter provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers.
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<PAGE> 58
RELATED PARTY TRANSACTIONS
The following describes the significant transactions entered into between
us and our directors, executive officers, stockholders and affiliates of our
stockholders. All future transactions, other than compensation, stock options
pursuant to our plans and other benefits to employees, generally will be
approved by a majority of our board of directors including a majority of our
independent and disinterested directors. If required by law, future transactions
will be approved by a majority of our stockholders.
STOCK ISSUANCES TO OUR DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
Some stock option grants to our directors and executive officers are
described under the caption "Management -- Executive Compensation."
Since our inception, we have issued and sold shares of our common stock and
granted options to purchase common stock to our employees, directors and
consultants from time to time. In addition, we have issued in private placement
transactions, shares of preferred stock as follows: an aggregate of 7,227,328
shares of Series A preferred stock at $1.45 per share in April 1999 and an
aggregate of 13,148,347 shares of Series B preferred stock at $7.55 per share in
June, November and December 1999. The following table summarizes the shares of
common stock and preferred stock purchased by our named executive officers,
directors and 5% stockholders and persons and entities associated with them:
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON PREFERRED PREFERRED
STOCKHOLDER STOCK STOCK STOCK
----------- --------- --------- ---------
<S> <C> <C> <C>
Amazon.com, Inc. (Randolph J. Tinsley).............. -- 4,401,716 6,814,570
Entities Affiliated with Bowman Capital Management,
L.L.C. (Matthew T. Cowan)......................... -- -- 1,728,477
Entities Affiliated with Hummer Winblad Venture
Partners (John R. Hummer)......................... -- 2,515,266 3,331,127
Gregory McLemore.................................... 1,610,587 275,863 --
</TABLE>
DEBT FINANCINGS
In March 1999 we issued and sold convertible promissory notes to our
following named executive officers, directors and 5% stockholders and persons
and entities associated with them, in the amounts set forth opposite each such
party's name. The promissory notes were canceled and converted into share of our
Series A preferred stock at $1.45 per share on April 22, 1999.
<TABLE>
<CAPTION>
AMOUNT OF
STOCKHOLDER PROMISSORY NOTE(S)
----------- ------------------
<S> <C>
Entities Affiliated with Hummer Winblad Venture Partners
(John R. Hummer).......................................... $450,000.00
</TABLE>
In November 1999 we issued and sold convertible promissory notes to our
following named executive officers, directors and 5% stockholders and persons
and entities associated with them, in the amounts set forth opposite each such
party's name. The promissory notes were cancelled and converted into shares of
our Series B preferred stock at $7.55 per share on December 8, 1999.
<TABLE>
<CAPTION>
AMOUNT OF
STOCKHOLDER PROMISSORY NOTE(S)
----------- ------------------
<S> <C>
Amazon.com, Inc............................................. $2,975,115.25
Entities Affiliated with Bowman Capital Management,
L.L.C....................................................... $1,430,136.10
Entities Affiliated with Hummer Winblad Venture Partners.... $2,383,565.20
</TABLE>
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Affiliate Relationships. The following members of our board of directors
are affiliated with certain investors that participated in the transactions
listed above: Randolph J. Tinsley (Amazon.com, Inc.),
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Matthew T. Cowan (entities affiliated with Bowman Capital Management, L.C.C.)
and John Hummer (entities affiliated with Hummer Winblad Venture Partners).
In April 1999, we entered into an advertising agreement with Amazon.com
pursuant to which we and Amazon.com agreed to display certain advertising of the
other party on our respective Web sites and to provide other related promotional
services. For more information on this relationship, see "Business --
Relationship with Amazon.com" and "Risk Factors -- We Depend on Our Relationship
with Amazon.com to Provide Operational Expertise, Attract and Retain a
Significant Number of Our Customers and Build Our Brand."
In connection with our Series A and Series B preferred stock financings, we
entered into an agreement, as amended, dated November 5, 1999 with our preferred
stockholders and a holder of over common stock in which we agreed, among other
things and subject to applicable laws, rules and regulations, to use reasonable
efforts to cause the underwriters in this offering to offer to Amazon.com that
number of shares of our common stock such that Amazon.com would hold 46% of our
outstanding common stock immediately after this offering. Under the agreement,
the managing underwriters may prohibit Amazon.com from purchasing any shares in
this offering or only allow Amazon.com to purchase a number of shares which in
their sole discretion will not jeopardize the success of this offering. We are
currently negotiating a waiver from Amazon.com with respect to its right of
first offer. The agreement further provides that if Amazon.com is unable in this
offering to purchase enough shares to reach the 46% threshold, then to the
extent the managing underwriters determine that the sale of additional shares
will not jeopardize the success of this offering, we will use best efforts to
offer and sell to Amazon.com, and Amazon.com may, but is not obligated to,
purchase up to that number of additional shares in a private placement so that
its ownership percentage is 46%. However, the agreement provides that the
foregoing terms are not intended to be, and shall not be, construed as an offer
by us to sell shares to Amazon.com. The agreement also provides that, if
Amazon.com is unable in this offering and in the private placement offering
described above to purchase enough shares to reach the 46% threshold, then for a
period of one year following the closing of this offering, we will negotiate
with Amazon.com to agree upon a means by which Amazon.com may purchase the
number of shares that it was not permitted to purchase in this offering or the
private placement described above to enable it to reach the 46% threshold.
Furthermore, if Amazon.com is unable to achieve the 46% threshold in this
offering, for one year following the closing of this offering, if we offer
additional shares of our capital stock to any purchasers, Amazon.com shall have
a right of first offer to purchase that number of the offered shares that will
enable it to attain the 46% threshold. However, if Amazon.com disposes of any of
our shares held by it, then all of its rights described above shall terminate.
Pursuant to the agreement, Amazon.com also may not increase its ownership of our
stock above the 46% threshold until the earliest to occur of the second
anniversary of the closing date of our initial public offering, immediately
following a change of control in connection with our merger or sale, or April
22, 2003. Until this occurs, we are required to provide notice to Amazon.com of
any merger or sale that would result in our change of control. Additional terms
of the agreement require that Amazon.com gives us notice of its purchase of any
additional shares of our stock and complies with restrictions to allow us to
qualify for pooling accounting treatment in the event of our merger or sale. In
connection with proxy contests, tender offers or exchange offers, however,
Amazon.com shall not be subject to the 46% threshold limit.
For information on employment and change in control arrangements with our
officers, see "-- Employment and Change of Control Arrangements."
OTHER TRANSACTIONS
In February 1999, we issued 1,610,587 shares of our common stock to Greg
McLemore in consideration of the transfer to us of the Pets.com Web store and
certain domain names and software assets pursuant to a bill of sale and
assignment by Mr. McLemore and Koala Computer Products, a sole proprietorship of
which Mr. McLemore is sole proprietor.
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<PAGE> 60
In April 1999, we issued 275,863 shares of our Series A preferred stock to
Mr. McLemore in consideration of the transfer to us by Mr. McLemore of certain
domain names and agreements concerning domain names pursuant to a bill of sale
and assignment.
We have reimbursed certain operating expenses of approximately $175,000
that were paid on our behalf by Koala Computer Products, of which Mr. McLemore
is the sole proprietor, between February 1999 and the relocation of our
executive offices to San Francisco in April 1999.
Mr. McLemore and Webmagic, a corporation of which Mr. McLemore is the sole
shareholder, have agreed to indemnify us for up to $500,000 in connection with a
third-party online promotional agreement entered into by Webmagic and the third
party relating to the Pets.com business conducted by Mr. McLemore and Webmagic
prior to April 1999.
In November 1999, we loaned $187,500 to Paul Manca, our Chief Financial
Officer. Mr. Manca used the loan proceeds to exercise in November 1999 options
held by him to purchase 250,000 shares of our common stock at an exercise price
of $0.75 per share. These shares are subject to our right of repurchase at the
original purchase price in the event that Mr. Manca's employment with us
terminates. Our repurchase right lapses with respect to 25% of the shares in
August 2000 and with respect to 1/48th of the shares monthly thereafter. The
loan is full recourse, accrues interest at the rate of 6.08% compounded
annually, and matures in November 2003 or on Mr. Manca's termination of
employment. The loan is secured by the 250,000 shares of common stock held by
Mr. Manca.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our officers and
directors that contain provisions which may require us, among other things, to
indemnify our officers and directors against liabilities that may arise by
reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified. See "Management -- Limitation of Liability and
Indemnification Matters."
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 9, 1999 and as adjusted to reflect
the sale of the common stock offered by us under this prospectus and upon
conversion of all outstanding shares of preferred stock into common stock by:
- each stockholder known to us to own beneficially more than 5% of our
common stock;
- each of our directors and named officers; and
- all directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table
is c/o Pets.com, Inc., 435 Brannan Street, Suite 100, San Francisco, California
94107. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. To our knowledge, except under applicable community property
laws or as otherwise indicated, the persons named in the table have sole voting
and sole investment control with respect to all shares beneficially owned by
each stockholder as of December 9, 1999. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of December 9, 1999 are deemed
outstanding. Those shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. The percent of
beneficial ownership for each stockholder is based on 26,068,921 shares of
common stock outstanding as of December 9, 1999 on an as converted basis, and
shares of common stock outstanding after this offering.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING OFFERING
---------------- ------------ -------- --------
<S> <C> <C> <C>
Amazon.com, Inc............................................. 11,216,286 43.0% %
1200 12th Avenue South, Suite 1200
Seattle, WA 98108-1226
Entities Affiliated with Hummer Winblad Venture Partners.... 5,846,393 22.4% %
2 South Park, 2nd Floor
San Francisco, CA 94107
Gregory McLemore............................................ 1,886,450 7.2% %
Entities Affiliated with Bowman Capital Management,
L.L.C..................................................... 1,728,477 6.6% %
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Randolph J. Tinsley......................................... 11,216,286 43.0% %
John R. Hummer.............................................. 5,846,393 22.4% %
Matthew T. Cowan............................................ 1,728,477 6.6% %
John B. Balousek............................................ 45,000 * *
Julia L. Wainwright......................................... 1,157,023 4.4% %
Christopher E. Deyo......................................... 653,969 2.5% %
Paul W. Melmon.............................................. 278,950 1.1% %
John A. Hommeyer............................................ 150,000 * *
Diane R. Hourany............................................ 157,204 * *
All executive officers and directors as a group (15
persons).................................................. 22,149,065 83.8% %
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
The beneficial ownership for entities affiliated with Hummer Winblad
Venture Partners is comprised of 3,289,172 shares held by Hummer Winblad Venture
Partners III, L.P., 173,114 shares held by Hummer Winblad Technology Fund III,
L.P., and 2,384,107 shares held by Hummer Winblad Venture Partners IV, L.P. The
general partner of each of the first two funds listed in the first sentence of
this paragraph is
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<PAGE> 62
Hummer Winblad Equity Partners III, LLC, and the general partner of the third
fund is Hummer Winblad Equity Partners IV, LLC. The members of each of the
foregoing general partners are principals of Hummer Winblad Venture Partners.
The beneficial ownership for entities affiliated with Bowman Capital
Management, L.L.C. is comprised of 607,933 shares held by Spinnaker Technology
Fund, L.P., 371,764 shares held by Spinnaker Founders Fund, L.P., 24,901 shares
held by Spinnaker Clipper Fund, L.P., 512,697 shares held by Spinnaker
Technology Offshore Fund Limited, and 211,182 shares held by Spinnaker Offshore
Founders Fund Cayman Limited. Bowman Capital Management, L.C.C. is the general
partner of each of the first three entities and investment adviser to the last
two offshore entities listed in the first sentence of this paragraph.
The beneficial ownership for Randolph J. Tinsley is comprised of 11,216,286
shares held by Amazon.com. Mr. Tinsley is a director of Pets.com and Vice
President of Corporate Development of Amazon.com and he disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
these shares.
The beneficial ownership for John R. Hummer is comprised of 3,289,172
shares held by Hummer Winblad Venture Partners III, L.P., 173,114 shares held by
Hummer Winblad Technology Fund III, L.P., and 2,384,107 shares held by Hummer
Winblad Venture Partners IV, L.P. Mr. Hummer is a director of Pets.com and a
member of each of Hummer Winblad Equity Partners III, LLC and Hummer Winblad
Equity Partners IV, LLC, the general partners for the three investment funds
listed in the first two sentences of this paragraph, and he disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
these shares.
The beneficial ownership for Matthew T. Cowan is comprised of 607,933
shares held by Spinnaker Technology Fund, L.P., 371,764 shares held by Spinnaker
Founders Fund, L.P., 24,901 shares held by Spinnaker Clipper Fund, L.P., 512,697
shares held by Spinnaker Technology Offshore Fund Limited, and 211,182 shares
held by Spinnaker Offshore Founders Fund Cayman Limited. Mr. Cowan is a director
of Pets.com and a member of Bowman Capital Management, L.C.C., the general
partner of each of the first three entities listed in the first sentence of this
paragraph and investment adviser to the last two entities listed in the first
sentence of this paragraph, and he disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in these shares.
The beneficial ownership for John B. Balousek includes 45,000 shares under
outstanding stock options that are currently exercisable or exercisable within
60 days of December 9, 1999.
The beneficial ownership for Paul W. Melmon includes 40,000 shares under
outstanding stock options that are currently exercisable or exercisable within
60 days of December 9, 1999.
The beneficial ownership for our executive officers and directors as a
group includes 350,000 shares under outstanding stock options that are currently
exercisable or exercisable within 60 days of December 9, 1999.
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DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of 150,000,000 shares of common stock, $0.001 par value per share, and
5,000,000 shares of undesignated preferred stock, $0.001 par value per share.
COMMON STOCK
As of December 9, 1999, there were 26,068,921 shares of common stock
outstanding held of record by 120 stockholders. Options to purchase an aggregate
of 1,335,250 shares of common stock were also outstanding. There will be shares
of common stock outstanding, assuming no exercise of the underwriter's option to
purchase additional shares, or exercise of outstanding options under our stock
plans after December 9, 1999, after giving effect to the sale of the shares of
common stock offered to the public in this prospectus.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for that
purpose. In the event of liquidation, dissolution or winding up of Pets.com, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior distribution rights of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of common
stock are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of the offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock. The board of directors will also have the authority
to designate the rights, preferences, privileges and restrictions of each such
series, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series.
The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change of control of Pets.com without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
some circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
offering, no shares of preferred stock will be outstanding and we currently have
no plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
As of December 9, 1999, the holders of 21,986,262 shares of common stock or
their transferees are entitled to certain rights with respect to the
registration of such shares under the Securities Act. These rights are provided
under the terms of an agreement between the holders of these registrable
securities and us. Subject to limitations in the agreement, the holders of at
least 33 1/3% of the then outstanding registrable securities may require, on two
occasions beginning six months after the date of this prospectus, that we use
our best efforts to register these securities for public resale if Form S-3 is
not available. If we register any of our common stock either for our own account
or for the account of other security holders, all holders of these securities
are entitled to include their shares of common stock in that registration,
subject to the ability of the underwriters to limit the number of shares
included in the offering. The holders of at least 30% of the then outstanding
registrable securities may also require that we, not more than twice in any
twelve-month period, register all or a portion of such securities on Form S-3
when the use of that form becomes available to us, provided, among other
limitations, that the proposed aggregate selling price, net of any underwriters'
discounts or commissions, is at least $1,000,000. We will be
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responsible for paying all registration expenses, and the holders selling their
shares will be responsible for paying all selling expenses.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND OUR CHARTER DOCUMENTS
Provisions of Delaware law and our charter documents could make the
acquisition of Pets.com and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of Pets.com to negotiate with us first. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
Pets.com outweigh the disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals could result in an improvement
of their terms.
Delaware Law. We are subject to the provisions of Section 203 of the
Delaware law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, subject to exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior, did own, 15% or more of the corporation's voting
stock. These provisions may have the effect of delaying, deferring or preventing
a change of control of Pets.com without further action by the stockholders.
Charter Documents. Our amended and restated certificate of incorporation
provides that stockholder action can be taken only at an annual or special
meeting of stockholders and may not be taken by written consent. Our bylaws
provide that special meetings of stockholders can be called only by the board of
directors, the chairman of the board, if any, the president and holders of 50%
of the votes entitled to be cast at a meeting. Moreover, the business permitted
to be conducted at any special meeting of stockholders is limited to the
business brought before the meeting by the board of directors, the chairman of
the board, if any, the president or any such 50% holder. Our bylaws set forth an
advance notice procedure with regard to the nomination, other than by or at the
direction of the board of directors, of candidates for election as directors and
with regard to business to be brought before a meeting of stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation. The transfer agent's address and telephone number is 1745
Gardena Avenue, 2nd Floor, Glendale, California 91204, (818) 502-1404.
NASDAQ STOCK MARKET LISTING
We intend to apply for listing for quotation on the Nasdaq National Market
under the trading symbol "IPET."
61
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Furthermore, only a limited
number of shares will be available for sale shortly after this offering because
of certain contractual and legal restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital in the future.
Upon completion of the offering, we will have outstanding
shares of common stock, based on the number of shares outstanding as of December
9, 1999. Of these shares, the shares sold in the offering, plus any shares
issued upon exercise of the underwriters' option to purchase additional shares,
will be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. In general, affiliates include officers, directors or 10%
stockholders.
The remaining 26,068,921 shares of our common stock outstanding are
"restricted securities" within the meaning of Rule 144. These shares may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 of the Securities Act, which are
summarized below. Sales of these shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
our common stock.
Our directors, officers, employees and other stockholders have entered into
lock-up agreements in connection with this offering generally providing that
they will not, without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, directly or indirectly, offer, pledge, sell,
contract to sell or sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of their shares of our common stock or any securities
exercisable for or convertible into shares of our common stock for a period of
180 days following the effective date of the registration statement filed
pursuant to this offering. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be
saleable until such agreements expire or are waived by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
Taking into account the lock-up agreements, and assuming Merrill Lynch,
Pierce, Fenner & Smith Incorporated does not release stockholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
<TABLE>
<CAPTION>
NUMBER OF
DATE OF AVAILABILITY FOR SALE SHARES
----------------------------- ---------
<S> <C>
30 days after the date of the final prospectus..............
180 days after the date of the final prospectus...........
At various times between the date 180 days after the date
of the final prospectus and November 5, 2000...........
At various times between November 5, 2000 and December 8,
2000...................................................
At various times thereafter upon the expiration of
applicable holding periods.............................
</TABLE>
Under Rule 144, the number of shares that may be sold by affiliates of our
stockholders are subject to volume restrictions. In general, under Rule 144, and
beginning after the expiration of the lock-up agreements, a person who has
beneficially owned restricted shares, including shares that are aggregated to
such person or persons, for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding
which will equal approximately shares immediately after the
offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.
62
<PAGE> 66
In order to sell shares under Rule 144, the selling stockholder must comply
with manner of sale provisions and notice requirements and current public
information about us must be available. Under Rule 144(k), a person who is not
deemed to have been our affiliate at any time during the three months preceding
a sale, and who has beneficially owned the shares proposed to be sold for at
least two years, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
The holders of approximately 20,375,675 shares of common stock or their
transferees are also entitled to certain rights with respect to registration of
their shares of common stock for offer or sale to the public. If the holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, the sales could have a material
adverse effect on the market price of our common stock.
As part of the lock-up agreements, all of our employees holding common
stock or stock options may not sell shares acquired upon exercise of their
options until 180 days after the effective date. Beginning 180 days after the
effective date, any of our employees, officers, directors of or consultants who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell their shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. In addition, we intend to file one or more registration
statements under the Securities Act as promptly as possible after the effective
date to register shares to be issued under our employee benefit plans. As a
result, any options exercised under our stock option plans or any other benefit
plan after the effectiveness of a registration statement will also be freely
tradable in the public market, unless the shares are held by affiliates of ours.
Shares held by our affiliates will still be subject to the volume limitation,
manner of sale, notice and public information requirements of Rule 144 unless
the shares may otherwise be sold under Rule 701. As of December 9, 1999 there
were outstanding options for the purchase of 1,335,250 shares, of which 740,000
shares subject to those options were exercisable. No shares have been issued to
date under our purchase plan or directors plan. See "Risk Factors -- Shares
Eligible for Future Sale," "Management -- Stock Plans" and "Description of
Capital Stock -- Registration Rights."
63
<PAGE> 67
UNDERWRITING
GENERAL
We are offering our shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc. Thomas Weisel
Partners LLC, and Warburg Dillon Read LLC are acting as U.S. representatives of
the U.S. underwriters named below. Subject to the terms and conditions described
in a U.S. purchase agreement among us and the U.S. underwriters, and
concurrently with the sale of shares to the international
managers, we have agreed to sell to the U.S. underwriters, and the U.S.
underwriters severally have agreed to purchase from us the number of shares
listed opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Bear, Stearns & Co. Inc.....................................
Thomas Weisel Partners LLC..................................
Warburg Dillon Read LLC.....................................
--------
Total..........................................
========
</TABLE>
We have also entered into an international purchase agreement with the
international managers for sale of the shares outside the U.S. and Canada for
whom Merrill Lynch International is acting as lead manager. Subject to the terms
and conditions in the international purchase agreement, and concurrently with
the sale of shares to the U.S. underwriters pursuant to the U.S.
purchase agreement, we have agreed to sell to the international managers, and
the international managers severally have agreed to purchase
shares from us. The initial public offering price per share and the total
underwriting discount per share are identical under the U.S. purchase agreement
and the international purchase agreement.
The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
U.S. underwriters and the international managers are conditioned on one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the U.S. underwriters and international
managers 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 U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares to the public at the initial public offering price
set forth on the cover page of this prospectus and to dealers at that price less
a concession not in excess of $ per share. The U.S. 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.
64
<PAGE> 68
The following table shows the per share and total public offering price,
underwriting discount and proceeds before expenses to Pets.com. The information
assumes either no exercise or full exercise by the U.S. underwriters and the
international managers 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 Pets.com..................... $ $ $
</TABLE>
The total expenses of the offering, not including the underwriting
discount, are estimated at $1,000,000 and are payable by Pets.com.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom
they sell shares will not offer to sell or sell shares to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, except in the case of
transactions under the intersyndicate agreement. Similarly, the international
managers and any dealer to whom they sell shares will not offer to sell or sell
shares to U.S. persons or Canadian persons or to persons they believe intend to
resell to U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement.
OVER-ALLOTMENT OPTION
We have granted an option to the U.S. underwriters to purchase up to
additional shares at the public offering price less the
underwriting discount. The U.S. underwriters may exercise this option for 30
days from the date of this prospectus solely to cover any over-allotments. If
the U.S. underwriters exercise this option, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to that U.S. underwriter's initial amount
reflected in the above table.
We have also granted an option to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to
additional shares to cover any over-allotments on terms similar
to those granted to the U.S. underwriters.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered by this prospectus for
sale to some of our directors, officers, employees, business associates and
related persons. If these persons purchase reserved shares, the number of shares
available for sale to the general public will be reduced accordingly. Any
reserved shares that are not orally confirmed for purchase within one business
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 and 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
65
<PAGE> 69
obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Specifically, we and these other individuals 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.
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 "IPET."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the U.S. representatives and lead managers. 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 U.S.
representatives and the lead managers 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 being
offered in this offering to accounts over which they exercise discretionary
authority.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 91
filed public offerings of equity securities, of which 78 have been completed,
and has acted as a syndicate member in an additional 48 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or controlling persons,
except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
66
<PAGE> 70
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit
underwriters from bidding for and purchasing our common stock. However, the U.S.
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 U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. 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 U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriter's 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 U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
67
<PAGE> 71
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Pets.com by Venture Law Group, A Professional Corporation, Menlo Park,
California. John V. Bautista, a director at Venture Law Group, is a Secretary of
Pets.com. Legal matters specified by the underwriters in connection with this
offering will be passed upon for the underwriters by Shearman & Sterling, Menlo
Park, California. As of the date of this prospectus, an investment partnership
associated with Venture Law Group owns an aggregate of 56,877 shares of our
common stock, and certain directors and attorneys of Venture Law Group
beneficially own a total of 60,719 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of September 30, 1999 and for the period from February 17, 1999
(inception) to September 30, 1999, as set forth in their report. The financial
statements audited by Ernst & Young LLP have been included in reliance on their
report given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1, including the exhibits and schedules filed with the
registration statement, under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, we refer you to the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement may be inspected by anyone
without charge at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all
or any portion of the registration statement may be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed fees. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
68
<PAGE> 72
PETS.COM, INC.
FINANCIAL STATEMENTS
PERIOD FROM FEBRUARY 17, 1999 (INCEPTION)
TO SEPTEMBER 30, 1999
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Audited Financial Statements
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Stockholders' Equity........................... F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pets.com, Inc.
We have audited the accompanying balance sheet of Pets.com, Inc. as of September
30, 1999, and the related statements of operations, stockholders' equity, and
cash flows for the period from February 17, 1999 (inception) to September 30,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pets.com, Inc. at September 30,
1999, and the results of its operations and its cash flows for the period from
February 17, 1999 (inception) to September 30, 1999, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
San Francisco, California
December 6, 1999, except for Paragraph 3 of Note 8 as to
which the date is December 8, 1999
F-2
<PAGE> 74
PETS.COM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 36,231
Inventories............................................... 1,872
Prepaid advertising expenses.............................. 2,214
Other prepaid expenses and current assets................. 411
--------
Total current assets........................................ 40,728
Certificate of deposit...................................... 150
Fixed assets, net........................................... 7,249
Other assets................................................ 272
--------
Total assets................................................ $ 48,399
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,495
Accrued expenses.......................................... 193
Other..................................................... 127
--------
Total current liabilities................................... 5,815
Stockholders' equity:
Convertible preferred stock, $.001 par value:
Authorized shares -- 14,127,328
Series A preferred stock, designated 7,227,328 shares
Issued and outstanding shares -- 7,227,328
(aggregate liquidation preference of $10,480)..... 7
Series B preferred stock, designated 6,900,000 shares
Issued and outstanding shares -- 6,622,517
(aggregate liquidation preference of $50,000)..... 7
Common stock, $.001 par value:
Authorized shares -- 30,000,000
Issued and outstanding shares -- 5,098,746........... 5
Additional paid-in capital................................ 73,671
Accumulated deficit....................................... (19,355)
Stock-based compensation.................................. (11,751)
--------
Total stockholders' equity.................................. 42,584
--------
Total liabilities and stockholders' equity.................. $ 48,399
========
</TABLE>
See accompanying notes.
F-3
<PAGE> 75
PETS.COM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
PERIOD FROM FEBRUARY 17, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<S> <C>
Net sales................................................... $ 619
Cost of goods sold.......................................... (1,842)
----------
Gross margin................................................ (1,223)
Operating expenses:
Marketing and sales....................................... 11,815
Product development....................................... 3,835
General and administrative................................ 2,043
Amortization of stock-based compensation.................. 1,139
----------
Total operating expenses.................................... (18,832)
----------
Operating loss.............................................. (20,055)
Interest income, net........................................ 700
----------
Net loss.................................................... $ (19,355)
==========
Basic and diluted net loss per share...................... $ (10.84)
==========
Weighted average shares outstanding used to compute basic
and diluted net loss per share............................ 1,786,156
==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 76
PETS.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
PERIOD FROM FEBRUARY 17, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------
SERIES A SERIES B COMMON STOCK ADDITIONAL
------------------ ------------------ ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------ --------- ------ --------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial issuance of common shares to
founders in exchange for cash and
intellectual property.................. -- $-- -- $-- 1,811,837 $2 $ 16 $ --
Issuance of restricted shares to
employee................................. -- -- -- -- 1,157,023 1 11 --
Issuance of Series A preferred stock in
April, net of offering costs of $59.... 7,227,328 7 -- -- -- -- 10,414 --
Issuance of Series B preferred stock in
June, net of offering costs of $39..... -- -- 6,622,517 7 -- -- 49,954 --
Exercise of common stock options......... -- -- -- -- 2,129,886 2 386 --
Compensation related to issuance of stock
options and restricted common stock.... -- -- -- -- -- -- 12,890 --
Amortization of stock-based
compensation........................... -- -- -- -- -- -- -- --
Net loss and comprehensive loss.......... -- -- -- -- -- -- -- (19,355)
--------- -- --------- -- --------- -- ------- --------
Balance at September 30, 1999............ 7,227,328 $7 6,622,517 $7 5,098,746 $5 $73,671 $(19,355)
========= == ========= == ========= == ======= ========
<CAPTION>
TOTAL
STOCK-BASED STOCKHOLDERS'
COMPENSATION EQUITY
------------ -------------
<S> <C> <C>
Initial issuance of common shares to
founders in exchange for cash and
intellectual property.................. $ -- $ 18
Issuance of restricted shares to
employee................................. -- 12
Issuance of Series A preferred stock in
April, net of offering costs of $59.... -- 10,421
Issuance of Series B preferred stock in
June, net of offering costs of $39..... -- 49,961
Exercise of common stock options......... -- 388
Compensation related to issuance of stock
options and restricted common stock.... (12,890) --
Amortization of stock-based
compensation........................... 1,139 1,139
Net loss and comprehensive loss.......... -- (19,355)
-------- --------
Balance at September 30, 1999............ $(11,751) $ 42,584
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 77
PETS.COM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM FEBRUARY 17, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(19,355)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 319
Common and preferred stock issued for intellectual
property............................................... 416
Amortization of stock-based compensation related to stock
options................................................ 1,139
Changes in:
Inventories............................................ (1,872)
Prepaid marketing expenses............................. (2,214)
Other prepaid expenses and current assets.............. (411)
Certificate of deposit................................. (150)
Other assets........................................... (272)
Accounts payable, accrued expenses and other........... 5,815
--------
Net cash used in operating activities....................... (16,585)
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (7,568)
--------
Net cash used in investing activities....................... (7,568)
FINANCING ACTIVITIES
Proceeds from issuances of common stock..................... 14
Proceeds from exercise of stock options..................... 388
Net proceeds from issuances of Series A preferred stock..... 10,021
Net proceeds from issuances of Series B preferred stock..... 49,961
--------
Net cash provided by financing activities................... 60,384
--------
Net increase in cash and cash equivalents................... 36,231
Cash and equivalents at beginning of period................. --
--------
Cash and equivalents at end of period....................... $ 36,231
========
</TABLE>
See accompanying notes.
F-6
<PAGE> 78
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Pets.com, Inc. (the Company) was formed on February 17, 1999 with the
acquisition of certain assets and internet domain names. The Company is engaged
in the sale over the Internet of pet products, services, and information
primarily in the United States.
FISCAL YEAR
The Company's fiscal year begins on January 1 and ends on December 31 of
each year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues on product sales, net of discounts, coupons and allowances, are
recognized upon shipment of the related goods. Outbound shipping and handling
fees are included in net sales upon shipment. The Company provides for an
estimated allowance for sales returns in the period of sale.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of payroll and related
expenses for Web site development, systems personnel, consultants, and other
website costs. As the Company believes that its website is subject to continual
and substantial change, expenditures relating to product development are
expensed as incurred.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was
$7,634,000 for the period from February 17, 1999 (inception) to September 30,
1999, respectively.
MARKETING AGREEMENT
In conjunction with the sale of its Series A preferred stock, the Company
entered into a co-marketing agreement with a shareholder, which allows for
certain reciprocal advertising, promotional and customer acquisition activities
for an initial term of 18 months. Under the agreement, both the Company and the
shareholder will reimburse each other in equal amounts for customers acquired as
a result of the marketing agreement.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents. The
Company's cash equivalents consist mainly of money market funds.
F-7
<PAGE> 79
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market.
CERTIFICATE OF DEPOSIT
The certificate of deposit is restricted and secures a letter of credit
related to the Company's lease agreement (see Note 3). The carrying amount
approximates fair value.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is provided using the straight-line method over the estimated useful lives of
the related assets, which range from three to seven years.
The Company capitalizes certain internal use software costs in accordance
with Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Capitalized internal use software costs
with an expected useful life in excess of one year are amortized on a
straight-line basis over their estimated useful lives. Internal use software
costs, which are subject to continual and substantial change, are expensed as
incurred.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Recoverability of assets is measured by comparison of the carrying amount of the
asset to net future cash flows expected to be generated from the asset. No
impairment has been recognized in the accompanying financial statements.
NET LOSS PER SHARE
Net loss per share is computed using the weighted-average number of shares
of common stock outstanding less the number of shares subject to repurchase.
Shares associated with stock options, warrants and the convertible preferred
stock are not included in the calculation of diluted net loss per share because
they are antidilutive. At September 30, 1999, there were 3,286,909 unvested or
restricted common shares that are subject to repurchase and 901,000 stock
options that were excluded from the computation of diluted net loss per share.
If the Company had reported net income, the calculation of these per share
amounts would have included the dilutive effect of these common stock
equivalents using the treasury stock method.
CONCENTRATION OF CREDIT RISK
The Company is subject to concentrations of credit risk from its cash
investments. The Company's credit risk is managed through monitoring the
stability of the financial institutions utilized and diversification of its
financial resources.
The Company's financial instruments consist of cash and cash equivalents.
The fair value of all financial instruments approximates the carrying amount
based on the current rate offered to the Company for similar instruments.
F-8
<PAGE> 80
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). APB
No. 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. SFAS
No. 123 requires companies that continue to follow APB No. 25 to provide a pro
forma disclosure of the impact of applying the fair value method of SFAS No. 123
(see Note 5).
INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to be recovered. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
requires that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The items of
other comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investments in debt and equity securities. There
were no items of other comprehensive income in 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 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, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. The Company does
not expect that the adoption of SFAS No. 133 will have a material impact on its
financial statements because the Company does not currently hold any derivative
instruments.
F-9
<PAGE> 81
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. FIXED ASSETS
Fixed assets at September 30, 1999 consists of the following:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Computers and equipment..................................... $3,150
Purchased software.......................................... 2,034
Furniture and fixtures...................................... 269
Plant and equipment......................................... 1,076
Leasehold improvements...................................... 1,039
------
7,568
Less accumulated depreciation............................... (319)
------
$7,249
======
</TABLE>
3. LEASE AGREEMENTS
The Company leases its office and warehouse facilities under various
operating leases, which call for fixed rental payments through 2011. The lease
arrangements require letters of credit totaling $1,350,000, in the event the
Company defaults on any of its lease payments. Provided the Company is not in
default, the letters of credit shall be reduced over the terms of the leases.
Total rent expense under operating leases for the period ended September 30,
1999 approximated $239,000.
Future minimum commitments under operating leases at September 30, 1999 are
as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
2000........................................................ $ 1,380
2001........................................................ 2,165
2002........................................................ 1,940
2003........................................................ 1,977
2004........................................................ 2,021
Thereafter.................................................. 9,820
-------
Total minimum lease payments.............................. $19,303
=======
</TABLE>
4. INCOME TAXES
There has been no provision for U.S. federal, U.S. state, or foreign income
taxes for any period as the Company has incurred operating losses in all periods
and for all jurisdictions.
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate:
<TABLE>
<S> <C>
Statutory federal income tax benefit........................ (34)%
State income tax benefit.................................... (6)
Valuation allowance......................................... 38
Non-deductible stock-based compensation..................... 2
---
Income tax provision........................................ --%
===
</TABLE>
F-10
<PAGE> 82
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
4. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Deferred tax assets:
Net operating loss carryforward............................. $ 7,101
Other temporary differences............................... 176
-------
Total deferred tax assets................................... 7,277
Less valuation allowance.................................... (7,277)
-------
Net deferred tax assets................................ $ --
=======
</TABLE>
Net deferred tax assets have been fully offset by a valuation allowance due
to a lack of operating history combined with risks and uncertainties surrounding
the Company's ability to generate future taxable income. The valuation allowance
increased by $7,277,000 for the period from February 17, 1999 (inception) to
September 30, 1999.
As of September 30, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $17,752,000, which expire in
the year 2019. The Company also had net operating loss carryforwards for state
income tax purposes of approximately $17,752,000 expiring in the year 2007.
Utilization of the Company's net operating loss may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss before
utilization.
5. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
In April 1999, the Company issued 7,227,328 shares of Series A preferred
stock in a private placement offering in exchange for cash proceeds of
$10,079,624 and rights to certain internet domain names valued at $400,001.
In connection with the issuance of the Series A preferred stock, the
Articles of Incorporation were amended to increase the total authorized number
of common shares to 25,000,000, and to authorize a series of preferred stock
consisting of 7,500,000 shares.
In June 1999, the Company issued 6,622,517 shares of Series B preferred
stock in a private placement offering in exchange for cash proceeds of
$50,000,003. In connection with the issuance of the Series B preferred stock,
the Articles of Incorporation were amended to increase the total authorized
number of common shares to 30,000,000 and preferred shares to 14,127,328.
Each share of the Company's Series A and B preferred stock is convertible
into one share of common stock at the option of the holder, subject to certain
antidilution adjustments, in accordance with the conversion formula provided in
the Company's Articles (currently on a 1:1 ratio). Outstanding preferred shares
automatically convert into common stock at the option of the holder and upon the
closing of an initial public offering of the Company's common stock in which
gross proceeds exceed $10.0 million and minimum per share price equal or exceeds
$10.00 per share. Holders of each share of preferred stock are entitled to the
number of votes per share that would be equivalent to the number of shares of
common
F-11
<PAGE> 83
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
5. STOCKHOLDERS' EQUITY (CONTINUED)
stock into which a share of preferred stock is convertible and are entitled to
dividends in preference to common stock, if and when declared by the Board of
Directors. The Company also granted the preferred stockholders certain
registration rights and agreed not to carry out certain actions without prior
approval of the holders of not less than two-thirds of the outstanding preferred
shares, voting together as a single class. As a condition to the Series A and B
preferred stock agreements, one shareholder agreed to restrict its acquisitions
of Company shares to no more than a 46% interest for a period of up to 4 years.
COMMON STOCK
Under certain conditions, 50,000 shares of common stock issued to the
Company's founders are subject to repurchase at the greater of the price
originally paid or the fair market value of the stock at the time of repurchase.
The repurchase provisions expire at the earlier of 36 months from the issuance
date of the common stock or an initial public offering of the Company.
On February 17, 1999, the Company issued 1,610,587 common shares, for total
consideration of $16,106 to a former officer in exchange for certain tangible
and intangible assets. In connection with subsequent upgrades to the Company's
website, these costs were recorded to general and administrative expense in the
accompanying statement of operations.
1999 STOCK PLAN
Under the terms of the 1999 Stock Plan (the 1999 option plan), the Board of
Directors may grant incentive and nonqualified stock options to employees,
officers, directors, agents, consultants, and independent contractors of the
Company. In connection with the introduction of the 1999 Stock Plan, 3,537,167
shares of common stock were reserved for future issuance. In June and September
1999, the Company increased the number of shares reserved for future issuance
under such plan by a total of 660,742 shares. Generally, the Company grants
stock options with exercise prices equal to the fair market value of the common
stock on the date of grant, as determined by the Company's Board of Directors.
Options generally vest over a four-year period and expire ten years from the
date of grant. The 1999 option plan also contains a restricted stock purchase
feature which provides the employee the opportunity to exercise their options
immediately and vest over their employment period as set out in their stock
option award. If the employee terminates before vesting, the Company may
repurchase the unvested options at the original strike price.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------
SHARES WEIGHTED-
AVAILABLE AVERAGE
FOR NUMBER OF EXERCISE
GRANT OPTIONS PRICE
---------- ---------- ---------
<S> <C> <C> <C>
1999 Plan introduction........................... 3,537,167 -- $ --
Restricted stock award issued.................... (1,157,023) -- .01
Additional authorization....................... 660,742 -- --
Options granted................................ (3,080,636) 3,080,636 .33
Options exercised.............................. -- (2,132,386) .18
Exercised shares repurchased................... -- (2,500) .75
Options canceled............................... 44,750 (44,750) .52
---------- ----------
Outstanding at September 30, 1999................ 5,000 901,000 $.67
========== ==========
</TABLE>
F-12
<PAGE> 84
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
5. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information regarding stock options
outstanding as of September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OF OPTIONS LIFE
-------- ---------- -----------
<S> <C> <C>
$0.15 115,000 9.7 years
$0.75 786,000 9.9 years
- ---------- ------- ---------
$.15 - .75 901,000 9.9 years
========== ======= =========
</TABLE>
All of the remaining stock options are exercisable at September 30, 1999,
but are subject to repurchase for the portion of options that have not yet
vested. At September 30, 1999, none of the above employee option awards had
reached their first vesting tranche.
For the period from February 17, 1999 (inception) to September 30, 1999,
pro forma net loss and pro forma net loss per share were as follows:
<TABLE>
<CAPTION>
(In thousands, except share amount)
<S> <C>
Net loss -- as reported..................................... $(19,355)
Incremental pro forma compensation expense under SFAS No.
123......................................................... (12)
--------
Net loss -- pro forma..................................... $(19,367)
========
Net loss per share -- pro forma........................... $ (10.84)
========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option pricing model, assuming no expected dividends and with
the following weighted-average assumptions for the period ended September 30,
1999:
<TABLE>
<S> <C>
Average risk-free interest rate............................. 6.3%
Average expected life....................................... 7 years
Dividend yield.............................................. 0.0%
</TABLE>
For purposes of the pro forma disclosures, the per share weighted-average
fair value of the options granted, estimated to be $0.11 at September 30, 1999,
is amortized to expense over the options' vesting period. Compensation expense
recognized in providing pro forma disclosures may not be representative of the
effects on pro forma earnings for future years because the amounts above include
only the amortization for the fair value of 1999 grants.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The following shares of common stock were reserved at September 30, 1999:
<TABLE>
<S> <C>
Stock option plan........................................... 906,000
Conversion of Series A preferred stock...................... 7,227,328
Conversion of Series B preferred stock...................... 6,622,517
----------
14,755,845
==========
</TABLE>
6. LEGAL PROCEEDINGS
On September 2, 1999 Biolink LLC dba ERI International filed suit against
the Company in Los Angeles County Superior Court for breach of contract,
anticipatory breach of contract, breach of the
F-13
<PAGE> 85
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
6. LEGAL PROCEEDINGS (CONTINUED)
implied covenant of good faith and fair dealing, and fraud arising out of a
contract entered into for the shipment of live animals, including fish and
reptiles. ERI International has stated four causes of action, three seeking
damages each in an amount in excess of $2,000,000 and one cause of action
seeking damages in an amount in excess of $500,000. The Company has answered and
asserted affirmative defenses to their complaint. No trial date has been set and
discovery has not yet commenced. The Company believes it has meritorious
defenses to these claims and intends to vigorously defend against them. The
Company believes that any liability that may ultimately result from the
resolution of these matters will not have a material adverse effect on the
Company's financial position, operating results, or cash flows.
From time to time, the Company is subject to other legal proceedings and
claims in the ordinary course of business, including claims of alleged
infringement of trademarks and other intellectual property rights. The Company
currently is not aware of any such legal proceedings or claims that it believes
will have, individually or in the aggregate, a material adverse effect on its
business, prospects, financial condition and operating results.
7. RELATED-PARTY TRANSACTIONS
In conjunction with the sale of its Series A preferred stock, the Company
entered into a co-marketing agreement with a shareholder, which allows for
certain reciprocal advertising, promotional and customer acquisition activities
for an initial term of 18 months. Under the agreement, both the Company and the
shareholder will pay each other in equal amounts for each customer acquired as a
result of the marketing agreement.
In connection with the above mentioned sale of Series A preferred stock,
the Company issued 275,863 Series A preferred shares with a total consideration
of $400,001 to a former officer in exchange for certain internet domain names.
For the period from February 17, 1999 (inception) to September 30, 1999, a
preferred stockholder provided legal services to the Company totaling
approximately $153,000.
8. SUBSEQUENT EVENTS
SALE OF SERIES B CONVERTIBLE PREFERRED STOCK
In November 1999 the Company issued 3,560,967 additional shares of Series B
convertible preferred stock and notes payable totaling $7,384,708, in a private
placement offering in exchange for cash proceeds of $34,270,008. The notes
payable are conditionally convertible, depending on the structure of an
anticipated second closing of the Series B offering.
In connection with the issuance of additional Series B convertible
preferred stock, the Articles of Incorporation were amended to increase the
total authorized number of common shares to 36,000,000, and authorized preferred
stock to 21,427,328 shares, including authorization of 1,300,000 Series B-1
preferred non-voting shares.
In December 1999, the Company completed the second closing of the November
1999 Series B convertible preferred stock private placement offering. In
conjunction with the closing, 1,986,756 shares of Series B convertible preferred
stock were issued in exchange for cash proceeds of $15,000,008. An additional
978,107 shares of Series B convertible preferred stock were issued in connection
with the conversion of the convertible notes payable issued at the initial
closing.
F-14
<PAGE> 86
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
8. SUBSEQUENT EVENTS (CONTINUED)
PURCHASE OF INTEREST IN COMPANY
In November 1999, the Company purchased 2,150,537 shares of Series A
convertible preferred stock of PetPlace.com, Inc. for consideration of
approximately $2.0 million. The Company is obligated to purchase an additional
1,612,903 shares of Series A convertible stock for approximately $1.5 million,
by February 1, 2000, concurrent with the launch of PetPlace.com, Inc.'s Web
site.
PROPOSED INITIAL PUBLIC OFFERING OF COMMON STOCK
In December 1999, the board of directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, all of the outstanding shares of preferred
stock will automatically convert into common stock upon the closing of the
initial public offering.
In December 1999, the board of directors also approved, subject to
stockholder approval, the reincorporation of the Company in Delaware, and a
change in the number of authorized shares of 155,000,000 shares of which
150,000,000 will be common stock and 5,000,000 will be undesignated preferred
stock.
1999 STOCK PLAN
In December 1999, the board of directors increased the number of shares
reserved under the 1999 stock plan by 2,000,000 shares. As of December 5, 1999,
the Company has reserved a total of 7,269,159 shares of common stock under the
1999 plan, plus an evergreen provision which allows for an increase in the
authorized number of shares on the first day of each of the fiscal years from
2001 to 2009, equal to the lesser of (i) 1,000,000 shares, (ii) 3% of the
Company's outstanding common stock on the last day of the preceding fiscal year,
or (iii) a lesser number of shares as determined by the board of directors.
2000 EMPLOYEE STOCK PURCHASE PLAN
In December 1999, the board of directors adopted the 2000 employee stock
purchase plan, effective upon completion of the Company's initial offering of
its common stock. A total number of 500,000 shares has been reserved for
issuance under the employee stock purchase plan. The plan also contains an
evergreen provision which allows for an annual increase in the authorized number
of shares on the first day of each fiscal year from 2001 to 2010, equal to the
lesser of (i) 300,000 shares, (ii) 1% of the Company's outstanding common stock
on the last day of the preceding fiscal year, or (iii) a lesser number of shares
as determined by the board of directors.
DEFINED CONTRIBUTION PLAN
In October 1999, the Company adopted a defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code which covers substantially all
employees. Eligible employees may contribute amounts to the plan, via payroll
withholding, subject to certain limitations. Under the 401(k) plan, employees
may elect to reduce their current compensation by up to the statutorily
prescribed annual limit ($10,000 in 1999) and to have the amount of such
reduction contributed to the 401(k) plan. The 401(k) plan permits, but does not
require, additional matching contributions to the 401(k) plan by the Company on
behalf of all participants in the plan.
F-15
<PAGE> 87
[DESCRIPTION OF ARTWORK]
[OUTSIDE OF FRONT GATEFOLD]
Outside of the gatefold contains the Pets.com logo and the following text:
The Pets.com logo is located at the top of the page. A picture of the Pets.com
sock puppet icon is located in the bottom right hand corner of the page. Above
this graphic is the heading "Pets.com is committed to serving pets and their
owners through products, information and services."
<PAGE> 88
[INSIDE OF FRONT GATEFOLD]
The first page of the inside of the front gatefold contains "Pets.com" at the
top of the page, with the sock puppet icon poking through to "O" in "Pets.com."
The following text and pictures are located on the first page:
"Shopping and Selection" followed by pictures of some products carried by
Pets.com and the Pets.complete branded product line. These pictures are
described by the following text: We carry many product lines including
bird cages, pet food, aquariums, pet collars and toys. We buy directly from
manufacturers. In the first half of 2000, we plan to introduce our Pets.complete
branded line."
"Shopping at our Web store" followed by a picture of Web site home page. This
picture is described by the following text: "Our resource center offers
databases with national and local information for pet owners. Consumers can
instantly find special offers on featured products. Navigation by type of pet is
simple and easy to use. Topical editorial helps consumers make purchase
decisions." Each sentence of text is preceded by an asterisk leading to an arrow
pointing to the highlighted feature on the screenshot of our Web store.
The second page of the inside of the front gatefold contains a picture of a
woman and child sitting on a chair looking at a laptop computer screen with a
dog sitting next to them. The following text and pictures are located on the
second page:
A picture of a product category page on the Pets.com Web store showing a dog
food bowl. The accompanying text describing the picture says "The shopping
experience is based on how consumers actually shop. Virtual aisles let consumers
move quickly to the product categories that interest them. Products are grouped
the way consumers naturally think about them."
A picture of the product lines within a product category page on the Pets.com
Web store showing types of dog food bowls available at. The accompanying text
describing the picture says "A visual browsing experience makes it easy for
consumers to find the product they're looking for."
A picture of an individual product page on the Pets.com Web store describing
product information about a dog treat jar. The accompanying text describing he
picture says "Product displays are large and clear, so consumers know what
they're buying."
A picture of the ordering steps for Nutro Natural Choice Dry Dog Food with
accompanying text stating "Simple steps will walk consumers through the ordering
process." Each sentence of text is preceded by an asterisk leading to an arrow
pointing to the highlighted feature on the screen shot of our Web store.
<PAGE> 89
[INSIDE OF BACK GATEFOLD]
The first page of the inside of the back gatefold contains the word
"Information" with three pictures.
The first picture is of the Pets.com magazine with accompanying text describing
the picture which says "The first issue of Pets.com, The Magazine for Pets and
Their Humans was published in November 1999."
The second picture is of the Pets Vet column on the Pets.com Web store with
accompanying text describing the picture which says "Web store features such as
Pets Vet and Pets Law provide pet owners with professional advice - information
to improve the lives of their pets. Experts on staff at Pets.com can help pet
owners with questions on pet issues."
The third is a picture of the Pets Law column on the Pets.com Web store with
accompanying text describing the picture which says "Within each article pet
owners are referred to related products they can purchase to help their pets."
The second and third pictures have accompanying text describing the pictures
which says "Topical articles on our Web store offer pet information authored by
our contributing writers." Each sentence of text is preceded by an asterisk
leading to an arrow pointing to the highlighted feature on the screen shot of
our Web store.
The second page of the inside of the back gatefold contains the word "Community"
with two pictures.
The first picture is of the message boards on the Pets.com Web store with
accompanying text describing the picture which says "We also bring people
together through online forums - a place for pet lovers to talk with each other
about pet-related topics."
The second picture is of the Pets.commitment page on the Pets.com Web store with
accompanying text describing the picture which says "We started Pets.commitment,
a national program that contributes funds and encourages support for
organizations devoted to people helping animals and animals helping people. For
the year 2000, we have inaugurated the Heroes of Pets.commitment program to
encourage volunteerism on behalf of animal organizations." Each sentence of text
is preceded by an asterisk leading to an arrow pointing to the highlighted
feature on the screen shot of our Web store.
The second page of the inside of back gatefold also contains the word "Service"
with a picture of the Pets.com's distribution center and a picture of a customer
service person with the following accompanying text describing the pictures: "We
operate our own distribution and order fulfillment process through our 227,232
square foot distribution center in the San Francisco area. We own and manage our
own customer service call center." Each sentence of text is preceded by an
asterisk leading to an arrow pointing to the highlighted feature on the screen
shot of our Web store.
<PAGE> 90
[OUTSIDE OF BACK GATEFOLD]
The outside page of the back gatefold contains a picture of the Pets.com sock
puppet icon with four of our boxes and the following accompany text: "Meet the
Pets.com Sock Puppet."
<PAGE> 91
[BACK PAGE OF PROSPECTUS]
The outside page of the prospectus contains the Pets.com logo at the bottom of
the page.
<PAGE> 92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
WARBURG DILLON READ LLC
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Pets.com in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 26,400
NASD filing fee............................................. $ 10,500
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky qualification fees and expenses.................... *
Transfer Agent and Registrar fees........................... *
Miscellaneous fees and expenses............................. *
----------
Total............................................. 1,000,000
==========
</TABLE>
- ---------------
* to be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's board of directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article XII of our proposed Amended and
Restated Certificate of Incorporation (Exhibit 3.2 hereto) and Article VI of our
proposed Amended and Restated Bylaws (Exhibit 3.4 hereto) provide for
indemnification of our directors, officers, employees and other agents to the
maximum extent permitted by Delaware Law. In addition, we have entered into
Indemnification Agreements (Exhibit 10.1 hereto) with our officers and
directors. The U.S. Purchase Agreement (Exhibit 1.1) also provides for
cross-indemnification among Pets.com and the Underwriters with respect to
certain matters, including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our formation on February 17, 1999, we have issued and sold (without
payment of any selling commission to any person) the following unregistered
securities:
1. On March 10, 1999, we issued two convertible promissory notes in the
principal amounts of $142,500 and $7,500 to two accredited investors. The notes
were canceled and converted into shares of Series A preferred stock on April 22,
1999.
2. On March 19, 1999, we issued two convertible promissory notes in the
principal amounts of $237,500 and $12,500 to two accredited investors. The notes
were canceled and converted into shares of Series A preferred stock on April 22,
1999.
3. On April 22, 1999, we issued 7,227,328 shares of our Series A preferred
stock to eight accredited investors for an aggregate cash consideration of
$10,479,625.60, which included conversion of the
II-1
<PAGE> 94
convertible promissory notes described in items 1 and 2 above into a total of
277,127 shares of our Series A preferred stock (including conversion of accrued
interest on the promissory notes).
4. On June 18, 1999, we issued 6,622,517 shares of our Series B preferred
stock to nine accredited investors for an aggregate cash consideration of
$50,000,003.35.
5. On November 5, 1999, we issued 3,560,967 shares of our Series B
preferred stock for cash consideration of $26,885,300.85 to eight accredited
investors; six convertible promissory notes in the aggregate principal amount of
$4,409,592.60 to six accredited investors, which notes were cancelled and
converted into 584,052 shares of our Series B preferred stock on December 8,
1999; and one convertible promissory note in the principal amount of
$2,975,115.25 to one accredited investor, which note was cancelled and converted
into 394,055 shares of our Series B preferred stock on December 8, 1999.
6. On December 8, 1999, we issued to a total of twenty-five accredited
investors 2,964,863 shares of our Series B preferred stock for cash
consideration of $15,000,007.80 and conversion of outstanding convertible
promissory notes in the aggregate principal amount of $7,384,707.85.
7. As of December 9, 1999, an aggregate of approximately 5,693,246 shares
of common stock had been issued upon exercise of options or pursuant to
restricted stock purchase agreement and an aggregate of approximately 1,335,250
shares of common stock were issuable upon exercise of outstanding options under
the registrant's stock plans.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 7 above were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 under the
Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with us, to information about Pets.com.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* Form of U.S. Purchase Agreement.
3.1 Third Amended and Restated Articles of Incorporation of
Pets.com.
3.2 Form of Certificate of Incorporation of Pets.com, to be
filed and effective upon completion of this offering.
3.3 Bylaws of Pets.com, as amended.
3.4 Form of Bylaws of Pets.com, to be effective upon completion
of this offering.
4.1* Form of Pets.com common stock certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1 Form of Indemnification Agreement between Pets.com and each
of its officers and directors.
10.2.1 1999 Stock Plan, as amended.
10.2.2 2000 Employee Stock Purchase Plan.
10.3 Common Stock Purchase Agreement with Greg McLemore dated
February 17, 1999.
10.4 Restricted Stock Purchase Agreement dated March 10, 1999
with Julia Wainwright.
10.5 Bill of Sale and Assignment with Greg McLemore and Koala
Computer Products dated February 17, 1999.
10.6 Offer Letter dated March 4, 1999 with Julia L. Wainwright.
10.7 Offer Letter dated March 19, 1999 with Kathryn C. Ringewald.
10.8 Offer Letter dated March 24, 1999 with Christopher E. Deyo.
10.9 Offer Letter dated March 26, 1999 with John M. Hollon.
</TABLE>
II-2
<PAGE> 95
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.10 Offer Letter dated April 7, 1999 with Paul G. Melmon.
10.11 Offer Letter dated April 21, 1999 with John R. Benjamin.
10.12 Offer Letter dated April 22, 1999 with Diane R. Hourany.
10.13 Offer Letter dated May 4, 1999 with Sue Ann Latterman.
10.14 Offer Letter dated May 5, 1999 with John A. Hommeyer.
10.15 Offer Letter dated August 20, 1999 with Paul G. Manca.
10.16 Offer Letter dated November 15, 1999 with Ralph E. Lewis.
10.17 Series A Preferred Stock Purchase Agreement dated April 22,
1999.
10.18** Advertising Agreement with Amazon.com dated April 22, 1999.
10.19** Software License and Service Agreement with BroadVision,
Inc. dated May 15, 1999.
10.20 Series B Preferred Stock Purchase Agreement dated June 18,
1999
10.21** License and Integration Agreement with Quality Software
Systems, Inc. dated June 25, 1999.
10.22 PetPlace.com, Inc. Series A Preferred Stock Purchase
Agreement dated November 12, 1999.
10.23 Series B Preferred Stock and Convertible Note Purchase
Agreement dated November 5, 1999.
10.24 Amended and Restated Investors' Rights Agreement dated
November 5, 1999.
10.25** Lease Agreement, as amended, with the Paulsen Family
Partnership dated April 8, 1999 for offices at 435 Brannan
Street, San Francisco, California.
10.26** Sublease Agreement, as amended, with National Distribution
Agency, Inc. dated July 1, 1999 for a warehouse and
distribution center at 33201 Dowe Avenue, Union City,
California.
10.27** Lease Agreement with Bryant Springs L.L.C. dated September
20, 1999 for offices at 945 Bryant Street, San Francisco,
California.
10.28** Lease Agreement with Rosenburg SOMA Investments IV, L.L.C.
dated September 27, 1999 for a warehouse and distribution
center at 150-160 King Street, San Francisco, California.
10.29 Lease Agreement with Whipple Properties 1001, L.L.C. dated
November 5, 1999 for a warehouse and distribution center at
1035 Whipple Road, Hayward, California.
10.30** Lease Agreement with Precedent Industrial Group L.L.C. dated
December 7, 1999, for a warehouse and distribution center at
Building Number 1, Precedent South Business Center,
Greenwood, Indiana.
10.31* Loan and Security Agreement with Paul Manca dated November,
1999.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be supplied by amendment.
** Material has been omitted pursuant to a request for confidential treatment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore,
II-3
<PAGE> 96
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Francisco, State of
California on December 9, 1999.
PETS.COM, INC.
By: /s/ JULIA L. WAINWRIGHT
------------------------------------
Julia L. Wainwright,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Julia
Wainwright and Paul Manca, and each of them, as his attorney-in-fact, with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective amendments),
and any and all Registration Statements filed pursuant to Rule 462 under the
Securities Act of 1933, as amended, in connection with or related to the
offering contemplated by this Registration Statement and its amendments, if any,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any and
all amendments to said Registration Statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JULIA L. WAINWRIGHT Chief Executive Officer and December 9, 1999
- ----------------------------------------------------- Director
Julia L. Wainwright
/s/ PAUL G. MANCA Chief Financial Officer December 9, 1999
- -----------------------------------------------------
Paul G. Manca
/s/ JOHN B. BALOUSEK Director December 9, 1999
- -----------------------------------------------------
John B. Balousek
/s/ MATTHEW T. COWAN Director December 9, 1999
- -----------------------------------------------------
Matthew T. Cowan
/s/ JOHN R. HUMMER Director December 9, 1999
- -----------------------------------------------------
John R. Hummer
/s/ RANDOLPH J. TINSLEY Director December 9, 1999
- -----------------------------------------------------
Randolph J. Tinsley
</TABLE>
II-5
<PAGE> 98
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* Form of U.S. Purchase Agreement.
3.1 Third Amended and Restated Articles of Incorporation of
Pets.com.
3.2 Form of Certificate of Incorporation of Pets.com, to be
filed and effective upon completion of this offering.
3.3 Bylaws of Pets.com, as amended.
3.4 Form of Bylaws of Pets.com, to be effective upon completion
of this offering.
4.1* Form of Pets.com common stock certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1 Form of Indemnification Agreement between Pets.com and each
of its officers and directors.
10.2.1 1999 Stock Plan, as amended.
10.2.2 2000 Employee Stock Purchase Plan.
10.3 Common Stock Purchase Agreement with Greg McLemore dated
February 17, 1999.
10.4 Restricted Stock Purchase Agreement dated March 10, 1999
with Julia Wainwright.
10.5 Bill of Sale and Assignment with Greg McLemore and Koala
Computer Products dated February 17, 1999.
10.6 Offer Letter dated March 4, 1999 with Julia L. Wainwright.
10.7 Offer Letter dated March 19, 1999 with Kathryn C. Ringewald.
10.8 Offer Letter dated March 24, 1999 with Christopher E. Deyo.
10.9 Offer Letter dated March 26, 1999 with John M. Hollon.
10.10 Offer Letter dated April 7, 1999 with Paul G. Melmon.
10.11 Offer Letter dated April 21, 1999 with John R. Benjamin.
10.12 Offer Letter dated April 22, 1999 with Diane R. Hourany.
10.13 Offer Letter dated May 1, 1999 with Sue Ann Latterman.
10.14 Offer Letter dated May 5, 1999 with John A. Hommeyer.
10.15 Offer Letter dated August 20, 1999 with Paul G. Manca.
10.16 Offer Letter dated November 15, 1999 with Ralph E. Lewis.
10.17 Series A Preferred Stock Purchase Agreement dated April 22,
1999.
10.18** Advertising Agreement with Amazon.com dated April 22, 1999.
10.19** Software License and Service Agreement with BroadVision,
Inc. dated May 15, 1999.
10.20 Series B Preferred Stock Purchase Agreement dated June 18,
1999
10.21** License and Integration Agreement with Quality Software
Systems, Inc. dated June 25, 1999.
10.22 PetPlace.com, Inc. Series A Preferred Stock Purchase
Agreement dated November 12, 1999.
10.23 Series B Preferred Stock and Convertible Note Purchase
Agreement dated November 5, 1999.
10.24 Amended and Restated Investors' Rights Agreement dated
November 5, 1999.
10.25** Lease Agreement, as amended, with the Paulsen Family
Partnership dated April 8, 1999 for offices at 435 Brannan
Street, San Francisco, California.
10.26** Sublease Agreement, as amended, with National Distribution
Agency, Inc. dated July 1, 1999 for a warehouse and
distribution center at 33201 Dowe Avenue, Union City,
California.
10.27** Lease Agreement with Bryant Springs L.L.C. dated September
20, 1999 for offices at 945 Bryant Street, San Francisco,
California.
10.28** Lease Agreement with Rosenburg SOMA Investments IV, L.L.C.
dated September 27, 1999 for a warehouse and distribution
center at 150-160 King Street, San Francisco, California.
10.29 Lease Agreement with Whipple Properties 1001, L.L.C. dated
November 5, 1999 for a warehouse and distribution center at
1035 Whipple Road, Hayward, California.
10.30** Lease Agreement with Precedent Industrial Group L.L.C. dated
December 7, 1999 for a warehouse and distribution center at
Building Number 1, Precedent South Business Center,
Greenwood, Indiana.
10.31* Loan and Security Agreement with Paul Manca dated November,
1999.
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be supplied by amendment.
** Material has been omitted pursuant to a request for confidential treatment.
<PAGE> 1
EXHIBIT 3.1
THIRD AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PETS.COM, INC.
The undersigned, Julie Wainwright and John V. Bautista, hereby certify
that:
1. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of Pets.com, Inc., a California corporation.
2. The Articles of Incorporation of this corporation shall be amended and
restated to read in full as follows:
"ARTICLE I
The name of this corporation is Pets.com, Inc. (the "Corporation").
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) CLASSES OF STOCK. The Corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the Corporation is authorized to issue is
Fifty-Seven Million Four Hundred Twenty-Seven Thousand Three Hundred
Twenty-Eight (57,427,328) shares, each with a par value of $0.001 per share.
Thirty-Six Million (36,000,000) shares shall be Common Stock and Twenty-One
Million Four Hundred Twenty-Seven Thousand Three Hundred Twenty-Eight
(21,427,328) shares shall be Preferred Stock.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred
Stock authorized by these Third Amended and Restated Articles of Incorporation
may be issued from time to time in one or more series. The first series of
Preferred Stock shall be designated "Series A Preferred Stock" and shall consist
of Seven Million Two Hundred Twenty-Seven Thousand Three Hundred Twenty-Eight
(7,227,328) shares, the second series of Preferred Stock shall be designated
"Series B Preferred Stock" and shall consist of Twelve Million Nine Hundred
Thousand (12,900,000) shares, and the third series of Preferred Stock shall be
designated "Series B-1 Preferred Stock" and shall consist of One Million Three
Hundred Thousand (1,300,000) shares. The rights, preferences, privileges, and
restrictions granted to and imposed
-1-
<PAGE> 2
on the Series A Preferred Stock and Series B Preferred Stock are as set forth
below in this Article III(B). The rights, preferences, privileges, and
restrictions granted to and imposed on the Series B-1 Preferred Stock shall be
identical to those of the Series B Preferred Stock, and each reference to the
Series B Preferred Stock shall also be deemed to be a reference to the Series
B-1 Preferred Stock, except for the rights, preferences, privileges,
restrictions and references set forth in Section 5 of this Article III(B).
1. DIVIDEND PROVISIONS. The holders of shares of Series A and Series
B Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the Corporation) on the
Common Stock of the Corporation, at the rate of (a) $0.15 per share
(appropriately adjusted to reflect subsequent stock splits, stock dividends,
combinations or other recapitalizations) per annum on each outstanding share of
Series A Preferred Stock and (b) $0.75 per share (appropriately adjusted to
reflect subsequent stock splits, stock dividends, combinations or other
recapitalizations) per annum on each outstanding share of Series B Preferred
Stock, payable when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative. No dividend shall be paid on the Common Stock
in any fiscal year unless a dividend shall first have been paid in full on the
Preferred Stock in an amount for each such share of Preferred Stock equal to or
greater than the aggregate amount of dividends for all Common Stock into which
each such share of Preferred Stock could then be converted. The holders of
outstanding Series A Preferred Stock can waive any dividend preference that such
holders shall be entitled to receive under this Section 1 upon the affirmative
vote or written consent of the holders of at least seventy percent (70%) of the
Series A Preferred Stock then outstanding. The holders of outstanding Series B
Preferred Stock can waive any dividend preference that such holders shall be
entitled to receive under this Section 1 upon the affirmative vote or written
consent of the holders of at least seventy percent (70%) of the Series B
Preferred Stock then outstanding.
2. LIQUIDATION.
(a) PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series A and Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to (i) $1.45 per share (appropriately adjusted to reflect subsequent
stock splits, stock dividends, combinations or other recapitalizations) for each
share of Series A Preferred Stock then held by them, plus declared but unpaid
dividends (appropriately adjusted to reflect subsequent stock splits, stock
dividends, combinations or other recapitalizations) and (ii) $7.55 per share
(appropriately adjusted to reflect subsequent stock splits, stock dividends,
combinations or other recapitalizations) for each share of Series B Preferred
Stock then held by them, plus declared but unpaid dividends (appropriately
adjusted to reflect subsequent stock splits, stock dividends, combinations or
other recapitalizations). If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A and Series B Preferred
Stock shall be insufficient to permit the payment to such holders
-2-
<PAGE> 3
of the full aforesaid preferential amounts, then, the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A and Series B Preferred Stock in proportion to
the preferential amount each such holder is otherwise entitled to receive.
(b) REMAINING ASSETS. Upon the completion of the distribution
required by Section 2(a) above, the remaining assets of the Corporation
available for distribution to shareholders shall be distributed among the
holders of the Series A Preferred Stock and the Common Stock pro rata based on
the number of shares of Common Stock held by each (assuming conversion of all
such Series A Preferred Stock) until the holders of the Series A Preferred Stock
shall have received an aggregate of $5.80 per share (including amounts paid
pursuant to Section 2(a) above)(appropriately adjusted to reflect subsequent
stock splits, stock dividends, combinations or other recapitalizations);
thereafter, if assets remain in the Corporation, the holders of the Common Stock
of the Corporation shall receive all of the remaining assets of the Corporation
pro rata based on the number of shares of Common Stock held by each.
(c) CERTAIN ACQUISITIONS.
(i) DEEMED LIQUIDATION. For purposes of this
Section 2, a liquidation, dissolution or winding up of the Corporation shall be
deemed to occur if the Corporation shall sell, convey, or otherwise dispose of
all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the Corporation is
disposed of, provided that this Section 2(c)(i) shall not apply to a merger
effected solely for the purpose of changing the domicile of the Corporation.
(ii) VALUATION OF CONSIDERATION. In the event of a
deemed liquidation as described in Section 2(c)(i) above, if the consideration
received by the Corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment
letter or other similar restrictions on free marketability:
(1) If traded on a securities exchange
or The Nasdaq Stock Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day (30)
period ending three (3) days prior to the closing;
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty-day (30) period ending
three (3) days prior to the closing; and
-3-
<PAGE> 4
(3) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
by the Corporation and the holders of at least a majority of the voting power of
all then outstanding shares of Preferred Stock.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a shareholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in Section 2(c)(ii)(A) to reflect the
approximate fair market value thereof, as mutually determined by the Corporation
and the holders of at least a majority of the voting power of all then
outstanding shares of Preferred Stock.
(iii) NOTICE OF TRANSACTION. The Corporation shall
give each holder of record of Series A Preferred Stock and each holder of record
of Series B Preferred Stock written notice of such impending transaction not
later than fifteen (15) days prior to the shareholders' meeting called to
approve such transaction, or fifteen (15) days prior to the closing of such
transaction, whichever is earlier, and shall also notify such holders in writing
of the final approval of such transaction. The first of such notices shall
describe the material terms and conditions of the impending transaction and the
provisions of this Section 2, and the Corporation shall thereafter give such
holders prompt notice of any material changes. The transaction shall in no event
take place sooner than fifteen (15) days after the Corporation has given the
first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then outstanding shares of such Preferred Stock.
(iv) EFFECT OF NONCOMPLIANCE. In the event the
requirements of this Section 2(c) are not complied with, the Corporation shall
forthwith either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A Preferred
Stock and Series B Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the date of the
first notice referred to in Section 2(c)(iii) hereof.
3. REDEMPTION. The Preferred Stock is not redeemable.
4. CONVERSION. The holders of the Series A and Series B Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Subject to Section 4(c), each share of
Series A and Series B Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing (i) $1.45 in the case of Series A Preferred Stock and (ii) $7.55 in the
case of Series B Preferred Stock by the Conversion Price applicable to such
share, determined as
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<PAGE> 5
hereafter provided, in effect on the date the certificate is surrendered for
conversion. The initial Conversion Price per share of Series A Preferred Stock
shall be $1.45 and per share of Series B Preferred Stock shall be $7.55. Such
initial Conversion Prices shall be subject to adjustment as set forth in Section
4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock and Series B Preferred Stock shall automatically be converted into shares
of Common Stock at the Conversion Price at the time in effect for such share
immediately upon the earlier of (i) except as provided below in Section 4(c),
the Corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), the public offering price of which is
not less than $10.00 per share (appropriately adjusted to reflect subsequent
stock splits, stock dividends, combinations or other recapitalizations) and
which results in aggregate cash proceeds to the Corporation of $10,000,000 (net
of underwriting discounts and commissions) or (ii) the date specified by written
consent or agreement of the holders of at least seventy percent (70%) of the
then outstanding shares of Preferred Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Series A or
Series B Preferred Stock shall be entitled to convert the same into shares of
Common Stock, it shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for such
series of Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of such series of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act the conversion may, at the option of any holder tendering such
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the
Series A and Series B Preferred Stock shall be subject to adjustment from time
to time as follows:
(i) ISSUANCE OF ADDITIONAL STOCK BELOW PURCHASE PRICE.
If the Corporation shall issue, after the date upon which any shares of Series A
or Series B Preferred Stock were first issued (the "Purchase Date" with respect
to such series), any
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<PAGE> 6
Additional Stock (as defined below) without consideration or for a consideration
per share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Additional Stock, the Conversion Price for such
series in effect immediately prior to each such issuance shall automatically be
adjusted as set forth in this Section 4(d)(i), unless otherwise provided in this
Section 4(d)(i).
(A) ADJUSTMENT FORMULA. Whenever the
Conversion Price is adjusted pursuant to this Section (4)(d)(i), the new
Conversion Price shall be determined by multiplying the Conversion Price then in
effect by a fraction, (x) the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance (the "Outstanding
Common") plus the number of shares of Common Stock that the aggregate
consideration received by the Corporation for such issuance would purchase at
such Conversion Price; and (y) the denominator of which shall be the number of
shares of Outstanding Common plus the number of shares of such Additional Stock.
For purposes of the foregoing calculation, the term "Outstanding Common" shall
include shares of Common Stock deemed issued pursuant to Section 4(d)(i)(E)
below.
(B) DEFINITION OF "ADDITIONAL STOCK". For
purposes of this Section 4(d)(i), "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to Section
4(d)(i)(E)) by the Corporation after the Purchase Date) other than
(1) Common Stock issued pursuant to a
transaction described in Section 4(d)(ii) hereof,
(2) Up to 4,623,909 shares of Common
Stock or such additional number of shares of Common Stock as shall have been
approved unanimously by the Corporation's Board of Directors (appropriately
adjusted to reflect subsequent stock splits, stock dividends, combinations or
other recapitalizations) issuable or issued to employees, consultants or
directors of the Corporation directly or pursuant to a stock option plan or
restricted stock plan approved by the Board of Directors of the Corporation,
(3) Capital stock, or options or
warrants to purchase capital stock, issued to financial institutions or lessors
in connection with commercial credit arrangements, equipment financings or
similar transactions, provided (i) that such transactions have been approved by
the Board of Directors of the Corporation and are not primarily for purposes of
an equity financing, and (ii) that any options or warrants for Preferred Stock
of the Corporation issued in connection therewith are exercisable for a price
that is equal to or greater than the Conversion Price set forth in Section 4(a)
above,
(4) Shares of Common Stock or Preferred
Stock issuable upon exercise of warrants outstanding as of the date of these
Amended and Restated Articles of Incorporation,
(5) Capital stock or warrants or
options to purchase capital stock issued in connection with bona fide
acquisitions, mergers or similar
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<PAGE> 7
transactions, the terms of which are approved by the Board of Directors of the
Corporation, and provided that any warrants or options for Preferred Stock of
the Corporation issued in connection therewith are exercisable for a price that
is equal to or greater than the Conversion Price set forth in Section 4(a)
above,
(6) Shares of Common Stock issued or
issuable upon conversion of the Preferred Stock, and
(7) Shares of Common Stock issued or
issuable in a public offering in which all outstanding shares of Preferred Stock
will be converted to Common Stock immediately prior to consummation of such
public offering.
(C) NO FRACTIONAL ADJUSTMENTS. No adjustment
of the Conversion Price for the Series A or Series B Preferred Stock shall be
made in an amount less than one cent per share, provided that any adjustments
that are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
(D) DETERMINATION OF CONSIDERATION. In the
case of the issuance of Common Stock for cash, the consideration shall be deemed
to be the amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof. In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) DEEMED ISSUANCES OF COMMON STOCK. In the
case of the issuance (whether before, on or after the applicable Purchase Date)
of options to purchase or rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments)(to the
extent then exercisable) of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Section 4(d)(i)(D)), if any, received by
the Corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into account
potential antidilution adjustments) for the Common Stock covered thereby.
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<PAGE> 8
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange (assuming
the satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments)(to the extent convertible or
exchangeable) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Section 4(d)(i)(D).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable to
the Corporation upon exercise of such options or rights or upon conversion of or
in exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each of the Series A Preferred Stock and the Series B
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of each of the Series A Preferred
Stock and the Series B Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) NO INCREASED CONVERSION PRICE.
Notwithstanding any other provisions of this Section (4)(d)(i), except to the
limited extent provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no
adjustment of the Conversion Price pursuant to this Section 4(d)(i) shall have
the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
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<PAGE> 9
(ii) STOCK SPLITS AND DIVIDENDS. In the event the
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of each of the Series A Preferred Stock and the
Series B Preferred Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 4(d)(i)(E).
(iii) REVERSE STOCK SPLITS. If the number of shares
of Common Stock outstanding at any time after the Purchase Date is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for each of the Series A
Preferred Stock and the Series B Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(ii), then, in
each such case for the purpose of this Section 4(e), the holders of Series A
Preferred Stock and the holders of Series B Preferred Stock shall be entitled to
a proportionate share of any such distribution as though they were the holders
of the number of shares of Common Stock of the Corporation into which their
shares of Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A Preferred Stock and the holders of Series B Preferred Stock shall
thereafter be entitled to receive upon conversion of such Preferred Stock the
number of shares of stock or other securities or property of the Corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of such Preferred Stock after
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<PAGE> 10
the recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of such Preferred Stock) shall be applicable after
that event and be as nearly equivalent as practicable.
(g) NO IMPAIRMENT. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock or Series B
Preferred Stock, and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share. The number of shares issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock or Series B Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock or Series B
Preferred Stock pursuant to this Section 4, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of such Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series A Preferred
Stock or Series B Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of such series of Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A or Series B Preferred Stock, at least ten
(10) days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
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<PAGE> 11
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A or Series B Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of such series of Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of such series of Preferred Stock, in addition to such other remedies as
shall be available to the holder of such Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to these articles.
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A or Series B Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of the Corporation.
5. VOTING RIGHTS.
(a) SERIES A AND SERIES B PREFERRED STOCK. Except as otherwise
required by law, the holder of each share of Series A or Series B Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Preferred Stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the bylaws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Series A
or Series B Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
(b) SERIES B-1 PREFERRED STOCK. The holder of each share of
Series B-1 Preferred Stock shall not have the right to vote with respect to each
share of Series B-1 Preferred Stock.
6. PROTECTIVE PROVISIONS.
(a) So long as any shares of Preferred Stock are outstanding
(as adjusted for stock splits, stock dividends or recapitalizations), the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least seventy percent (70%) of
the then outstanding shares of Preferred Stock, voting together as a class:
(i) effect a transaction described in Section
2(c)(i) above;
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<PAGE> 12
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of any class or series
of capital stock of the Corporation;
(iii) redeem, purchase or otherwise acquire (or pay into
or set funds aside for a sinking fund for such purpose) any share or
shares of Common Stock; provided, however, that this restriction shall not
apply to the repurchase of shares of Common Stock not in excess of
$250,000 in any fiscal year from employees, officers, directors,
consultants or other persons performing services for the Corporation or
any subsidiary pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost upon the occurrence of certain
events, such as the termination of employment, or through the exercise of
any right of first refusal;
(iv) authorize the payment of a cash dividend to holders
of any class or series of capital stock of the Corporation;
(v) increase the number of directors comprising the
Corporation's Board of Directors; or
(vi) undertake any action that would result in taxation
of the holders of Preferred Stock pursuant to Section 305 of the Internal
Revenue Code of 1986, as amended.
(b) So long as shares of Series A Preferred Stock are
outstanding (as adjusted for stock splits, stock dividends or
recapitalizations), the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a two-thirds (2/3rds) of the then outstanding shares of Series A Preferred
Stock, voting together as a series:
(i) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock so as to affect
adversely the shares of such series; or
(ii) authorize or issue, or obligate itself to
issue, any other equity security having a preference over, or being on a parity
with, the Series A Preferred Stock.
(c) So long as shares of Series B Preferred Stock are
outstanding (as adjusted for stock splits, stock dividends or
recapitalizations), the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a seventy-two percent (72%) of the then outstanding shares of Series B
Preferred Stock, voting together as a series:
(i) alter or change the rights, preferences or
privileges of the shares of Series B Preferred Stock so as to affect
adversely the shares of such series; or
(ii) authorize or issue, or obligate itself to issue,
any other equity security, including any other security convertible into or
exercisable for any equity
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<PAGE> 13
security, having any rights, preferences or privileges over, or being on a
parity with, the Series B Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of Preferred
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be cancelled and shall not be issuable by the Corporation. The Articles of
Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
8. REPURCHASE OF SHARES. In connection with repurchases by the
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
(C) COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
(A) The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
(B) The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) to the fullest
extent permissible under California law.
(C) Any amendment or repeal or modification of the foregoing provisions of
this Article IV by the shareholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
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<PAGE> 14
* * *
3. The foregoing amendment has been approved by the Board of Directors of
this corporation.
4. The foregoing amendment was approved by the holders of the requisite
number of shares of this corporation in accordance with Sections 902 and 903 of
the California General Corporation Law. The total number of outstanding shares
entitled to vote with respect to the foregoing amendment was 5,350,746 shares of
Common Stock, 7,227,328 shares of Series A Preferred Stock, and 6,622,517 shares
of Series B Preferred Stock. The number of shares voting in favor of the
foregoing amendment equaled or exceeded the vote required. The percentage vote
required was a majority of the outstanding shares of Common Stock, at least
seventy percent (70%) of the outstanding shares of Preferred Stock voting
together as a class, two-thirds (2/3rds) of the outstanding shares of Series A
Preferred Stock, and 72% of the Series B Preferred Stock.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 15
The undersigned certify under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Executed at Menlo Park, California, on November 1, 1999.
/s/ JULIE WAINWRIGHT
-----------------------------------------
Julie Wainwright, Chief
Executive Officer
/s/ JOHN V. BAUTISTA
-----------------------------------------
John V. Bautista, Secretary
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<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
PETS.COM, INC.
ARTICLE I
The name of this corporation is Pets.com, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The Corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the Corporation is authorized to issue is One
Hundred Fifty-Five Million shares (155,000,000), each with a par value of $0.001
per share. One Hundred Fifty Million (150,000,000) shares shall be Common Stock
and Five Million (5,000,000) shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them; and to
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<PAGE> 2
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
In the election of directors, each holder of shares of any class or
series of capital stock of the Corporation shall be entitled to one vote for
each share held. No stockholder will be permitted to cumulate votes at any
election of directors.
ARTICLE VII
No action shall be taken by the stockholders of the Corporation other
than at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Corporation's bylaws.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE IX
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal Bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI
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The Corporation shall have perpetual existence.
ARTICLE XII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. If
the General Corporation Law of Delaware is hereafter amended to authorize, with
the approval of a corporation's stockholders, further reductions in the
liability of the Corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this
Article XII shall not adversely affect any right or protection of a director of
the Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIII
(A) To the fullest extent permitted by applicable law, the Corporation
is also authorized to provide indemnification of (and advancement of expenses
to) such agents (and any other persons to which Delaware law permits the
Corporation to provide indemnification) though bylaw provisions, agreements with
such agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory), with respect to
actions for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of
this Article XIII shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
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Executed at San Francisco, California, on ____________, ____.
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Julie L. Wainwright, Chief Executive Officer
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John V. Bautista, Secretary
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EXHIBIT 3.3
BYLAWS
OF
PETS.COM
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE.
The Board of Directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the Board
of Directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES.
The Board of Directors may at any time establish branch or
subordinate offices at any place or places where the corporation is qualified to
do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of shareholders shall be held at any place within or
outside the State of California designated by the Board of Directors. In the
absence of any such designation, shareholders' meetings shall be held at the
principal executive office of the corporation.
2.2 ANNUAL MEETING.
The annual meeting of shareholders shall be held each year on a date
and at a time designated by the Board of Directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the second
Tuesday day of April. However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted.
2.3 SPECIAL MEETING.
A special meeting of the shareholders may be called at any time by the Board of
Directors, or by the chairman of the board, or by the president, or by one or
more shareholders
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holding shares in the aggregate entitled to cast not less than ten percent (10%)
of the votes at that meeting.
If a special meeting is called by any person or persons other than
the Board of Directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the Board of Directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS.
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (a) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (b) in
the case of the annual meeting, those matters which the Board of Directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (a)
a contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (b) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (c) a reorganization of the corporation, pursuant to Section
1201 of the Code, (d) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (e) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Written notice of any meeting of shareholders shall be given either
(a) personally or (b) by first-class mail or (c) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in
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Section 605 of the Code) on the record date for the shareholders' meeting, or
(d) by telegraphic or other written communication. Notices not personally
delivered shall be sent charges prepaid and shall be addressed to the
shareholder at the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of
any shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM.
The presence in person or by proxy of the holders of a majority of
the shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE.
Any shareholders' meeting, annual or special, whether or not a
quorum is present, may be adjourned from time to time by the vote of the
majority of the shares represented at that meeting, either in person or by
proxy. In the absence of a quorum, no other business may be transacted at that
meeting except as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than forty-five (45) days from the date
set for the original meeting, then notice of the adjourned meeting shall be
given. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws. At
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any adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
2.8 VOTING.
The shareholders entitled to vote at any meeting of shareholders
shall be determined in accordance with the provisions of Section 2.11 of these
bylaws, subject to the provisions of Sections 702 through 704 of the Code
(relating to voting shares held by a fiduciary, in the name of a corporation or
in joint ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as
may be otherwise provided in the articles of incorporation, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote of the shareholders. Any shareholder entitled to vote on any
matter may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or, except when the matter is the election of
directors, may vote them against the proposal; but, if the shareholder fails to
specify the number of shares which the shareholder is voting affirmatively, it
will be conclusively presumed that the shareholder's approving vote is with
respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (a) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (b) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though taken at a meeting duly held
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after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each person entitled to vote,
who was not present in person or by proxy, signs a written waiver of notice or a
consent to the holding of the meeting or an approval of the minutes thereof. The
waiver of notice or consent or approval need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 2.4 of these bylaws,
the waiver of notice or consent or approval shall state the general nature of
the proposal. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver
of notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be
effective only if signed by the holders of all outstanding shares entitled to
vote for the election of directors. However, a director may be elected at any
time to fill any vacancy on the Board of Directors, provided that it was not
created by removal of a director and that it has not been filled by the
directors, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (a) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (b) indemnification of a corporate "agent," pursuant to
Section 317 of the Code, (c) a reorganization of the corporation, pursuant to
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Section 1201 of the Code, or (d) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, OR GIVING CONSENTS.
For purposes of determining the shareholders entitled to notice of
any meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the Board of Directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in
Article VIII of these bylaws.
2.12 PROXIES.
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (a) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the corporation stating that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting or by voting in person at the
meeting, or (b) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless
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otherwise provided in the proxy. The dates contained on the forms of proxy
presumptively determine the order of execution, regardless of the postmark dates
on the envelopes in which they are mailed. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provisions of
Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION.
Before any meeting of shareholders, the Board of Directors may
appoint an inspector or inspectors of election to act at the meeting or its
adjournment. If no inspector of election is so appointed, then the chairman of
the meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (l) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to actions required to be
approved by the shareholders or
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by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the Board of Directors.
3.2 NUMBER OF DIRECTORS.
The authorized number of directors of the corporation shall be one
(1). The number of directors may be changed by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw adopted by the vote
or written consent of holders of a majority of the outstanding shares entitled
to vote; provided, however, that an amendment reducing the fixed number or the
minimum number of directors to a number less than five (5) cannot be adopted if
the votes cast against its adoption at a meeting, or the shares not consenting
in the case of an action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES.
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the Board of Directors may be filled by a majority of
the remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist (a) in the event of the death, resignation or removal of any director, (b)
if the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (c) if the authorized number of directors is increased, or
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(d) if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be
elected at that meeting.
The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
Regular meetings of the Board of Directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all directors participating in
the meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without
notice if the times of such meetings are fixed by the Board of Directors.
3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the chairman of the board, the president,
any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone (including a voice messaging system or other system
or technology designed to record and communicate messages), facsimile,
electronic mail, or other electronic means, to each director or sent by
first-class mail or telegram, charges prepaid, addressed to each director at
that director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telegram, facsimile, electronic mail or
other electronic means, it shall be delivered at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given personally
or by telephone, facsimile or electronic mail may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
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3.8 QUORUM.
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
Notice of a meeting need not be given to any director (a) who signs
a waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (b) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the Board of Directors.
3.10 ADJOURNMENT.
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need
not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.7 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
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3.13 FEES AND COMPENSATION OF DIRECTORS.
Directors and members of committees may receive such compensation,
if any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS.
The corporation may make loans of money or property to, or guarantee
the obligations of, any officer or director of the corporation to the extent
permitted by applicable law. Without limiting the foregoing, the corporation
may, upon the approval of the Board of Directors alone, make loans of money or
property to, or guarantee the obligations of, any officer of the corporation or
its parent or subsidiary, whether or not a director, or adopt an employee
benefit plan or plans authorizing such loans or guaranties provided that (a) the
Board of Directors determines that such a loan or guaranty or plan may
reasonably be expected to benefit the corporation, (b) the corporation has
outstanding shares held of record by 100 or more persons (determined as provided
in Section 605 of the Code) on the date of approval by the Board of Directors,
and (c) the approval of the Board of Directors is by a vote sufficient without
counting the vote of any interested director or directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution adopted by a majority of
the authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in
any committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
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(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the Board
of Directors; or
(g) the appointment of any other committees of the Board of
Directors or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held
and taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7
(special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of
notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and
Section 3.12 (action without meeting), with such changes in the context of those
bylaws as are necessary to substitute the committee and its members for the
Board of Directors and its members; provided, however, that the time of regular
meetings of committees may be determined either by resolution of the Board of
Directors or by resolution of the committee, that special meetings of committees
may also be called by resolution of the Board of Directors, and that notice of
special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The Board of
Directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the corporation shall be a president, a secretary,
and a chief financial officer. The corporation may also have, at the discretion
of the Board of Directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS.
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment. Any contract of employment with an
officer shall be unenforceable unless in writing and specifically authorized by
the Board of Directors.
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5.3 SUBORDINATE OFFICERS.
The Board of Directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the Board of Directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors at any regular or special meeting of the board or, except in
case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD.
The chairman of the board, if such an officer is elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
Board of Directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT.
Except as otherwise determined by the Board, and subject to such
supervisory powers, if any, as may be given by the Board of Directors to the
chairman of the board, if there is such an officer, the president shall be the
chief executive officer of the corporation and shall, subject to the control of
the Board of Directors, have general supervision, direction, and control of the
business and the officers of the corporation. He or she shall preside at all
meetings of the shareholders and, in the absence or nonexistence of a chairman
of the board, at all meetings of the Board of Directors. The President shall
have the general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these bylaws.
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5.8 VICE PRESIDENTS.
In the absence or disability of the president, the vice presidents,
if any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a vice president designated by the Board of Directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required to be given
by law or by these bylaws. He or she shall keep the seal of the corporation, if
any, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER.
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president and directors, whenever they request
it, an account of all of his or her transactions as chief financial officer and
of the financial condition of the
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corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Article VI, a "director" or "officer" of the corporation
includes any person (a) who is or was a director or officer of the corporation,
(b) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (c) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS.
The corporation shall have the power, to the extent and in the
manner permitted by the Code, to indemnify each of its employees and agents
(other than directors and officers) against expenses (as defined in Section
317(a) of the Code), judgments, fines, settlements, and other amounts actually
and reasonably incurred in connection with any proceeding (as defined in Section
317(a) of the Code), arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Article VI, an "employee" or
"agent" of the corporation (other than a director or officer) includes any
person (a) who is or was an employee or agent of the corporation, (b) who is or
was serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (c) who
was an employee or agent of a corporation which was a predecessor corporation of
the corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
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6.4 INDEMNITY NOT EXCLUSIVE.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the articles of
incorporation.
6.5 INSURANCE INDEMNIFICATION.
The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation against any liability asserted against or incurred by
such person in such capacity or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.6 CONFLICTS.
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the articles
of incorporation, these bylaws, a resolution of the shareholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.
The corporation shall keep either at its principal executive office
or at the office of its transfer agent or registrar (if either is appointed), as
determined by resolution of the Board of Directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14A with the Securities and Exchange Commission relating to the
election of directors, may (a) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
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days' prior written demand on the corporation, (b) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in
person or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS.
The corporation shall keep at its principal executive office or, if
its principal executive office is not in the State of California, at its
principal business office in California the original or a copy of these bylaws
as amended to date, which bylaws shall be open to inspection by the shareholders
at all reasonable times during office hours. If the principal executive office
of the corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and the minutes of proceedings of
the shareholders, of the Board of Directors, and of any committee or committees
of the Board of Directors shall be kept at such place or places as are
designated by the Board of Directors or, in absence of such designation, at the
principal executive office of the corporation. The minutes shall be kept in
written form, and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
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7.4 INSPECTION BY DIRECTORS.
Every director shall have the absolute right at any reasonable time
to inspect all books, records, and documents of every kind as well as the
physical properties of the corporation and each of its subsidiary corporations.
Such inspection by a director may be made in person or by an agent or attorney.
The right of inspection includes the right to copy and make extracts of
documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER.
The Board of Directors shall cause an annual report to be sent to
the shareholders not later than one hundred twenty (120) days after the close of
the fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (a) a balance sheet as of the end of
the fiscal year, (b) an income statement, (c) a statement of changes in
financial position for the fiscal year, and (d) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so
long as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 FINANCIAL STATEMENTS.
If no annual report for the fiscal year has been sent to
shareholders, then the corporation shall, upon the written request of any
shareholder made more than one hundred twenty (120) days after the close of such
fiscal year, deliver or mail to the person making the request, within thirty
(30) days thereafter, a copy of a balance sheet as of the end of such fiscal
year and an income statement and statement of changes in financial position for
such fiscal year.
If a shareholder or shareholders holding at least five percent (5%)
of the outstanding shares of any class of stock of the corporation makes a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the then current fiscal
year ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause such statement or statements to be prepared, if
not already prepared, and shall deliver personally or mail such statement or
statements to the person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the shareholders its
annual report for the last fiscal year, the statements referred to in the first
paragraph of this Section 7.6 shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
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The quarterly income statements and balance sheets referred to in
this section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the president, any vice president, the
chief financial officer, the secretary or assistant secretary of this
corporation, or any other person authorized by the Board of Directors or the
president or a vice president, is authorized to vote, represent, and exercise on
behalf of this corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by the person having such authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the Board of Directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
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8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.
The Board of Directors, except as otherwise provided in these
bylaws, may authorize any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES.
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for
shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the corporation and canceled at the same time. The
Board of Directors may, in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of
replacement certificates on such terms and conditions as the board may require;
in such case, the board may require indemnification of the corporation secured
by a bond or other adequate security sufficient to protect the corporation
against any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft or destruction of the
certificate or the issuance of the replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Code shall govern the construction of
these bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
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ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS.
New bylaws may be adopted or these bylaws may be amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the articles of
incorporation of the corporation set forth the number of authorized directors of
the corporation, then the authorized number of directors may be changed only by
an amendment of the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS.
Subject to the rights of the shareholders as provided in Section 9.1
of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing
the authorized number of directors (except to fix the authorized number of
directors pursuant to a bylaw providing for a variable number of directors), may
be adopted, amended or repealed by the Board of Directors.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
PETS.COM
ADOPTION BY INCORPORATOR
The undersigned person appointed in the articles of incorporation to act
as the Incorporator of Pets.com hereby adopts the foregoing Bylaws, comprising
_21_ pages, as the Bylaws of the corporation.
Executed this 17th day of February, 1999.
/s/ Greg McLemore
-----------------------------------------
Greg McLemore, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
The undersigned hereby certifies that the undersigned is the duly elected,
qualified, and acting Secretary of Pets.com, and that the foregoing Bylaws,
comprising _21_ pages, were adopted as the Bylaws of the corporation on February
17, 1999 , by the person appointed in the articles of incorporation to act as
the Incorporator of the corporation.
Executed this 17th day of February, 1999.
/s/ John V. Bautista
-----------------------------------------
John V. Bautista, Secretary
<PAGE> 23
CERTIFICATE OF AMENDMENT OF BYLAWS
The undersigned, John V. Bautista, hereby certifies that:
1. He is the duly elected and incumbent Secretary of Pets.com, Inc.
(the "Company").
2. At a meeting of the Board of Directors and by an Action by Written
Consent of the Shareholders each dated September 8, 1999, Article III, Section
3.2 of the Bylaws of the Company was amended to read in its entirety as follows:
"The authorized number of directors of the corporation shall be five
(5). The number of directors may be changed by a duly adopted amendment to the
corporation's Articles of Incorporation or by an amendment to this bylaw adopted
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that an amendment reducing the fixed
number or the minimum number of directors to a number less than five (5) cannot
be adopted if the votes cast against its adoption at a meeting, or the shares
not consenting in the case of an action by written consent, are equal to more
than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled
to vote thereon.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires."
3. The matters set forth in this certificate are true and correct of my
own knowledge.
Date: September 8, 1999
/s/ John V. Bautista
-----------------------------------------
John V. Bautista, Secretary
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
PETS.COM, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is Prentice-Hall Corporation System,
Inc.
1.2 OTHER OFFICES.
The Board of Directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING.
The annual meeting of stockholders shall be held on any date, time and
place, either within or without the State of Delaware, as may be designated by
resolution of the Board of Directors from time to time. At the meeting,
directors shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING.
A special meeting of the stockholders may be called at any time by the
Board of Directors, the Chairman of the Board, the President, or the holders of
shares entitled to cast not less than ten percent of the votes at the meeting.
No other person or persons are permitted to call a special meeting. No business
may be conducted at a special meeting other than the business
<PAGE> 2
brought before the meeting by the Board of Directors, the Chairman of the Board,
the President or the holders of shares entitled to cast not less than ten
percent of the votes at the meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.7 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Upon request by any
person or persons entitled to call a special meeting, the Chairman of the Board,
President, Vice President or Secretary shall cause within twenty (20) days after
receipt of the request cause notice to be given to the shareholders entitled to
vote that a special meeting will be held at a time requested by the person or
persons calling the meeting, but not less than thirty-five (35) nor more than
sixty (60) days after receipt of the request.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the discretion of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this Section. Such nominations, other than those made by
or at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than twenty (20) days
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event less than thirty (30) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such stockholder's notice shall set
forth (a) as to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director: (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation which are beneficially owned by such person, (iv) any other
information relating to such person that is required by law to be disclosed in
solicitations of proxies for election of directors, and (v) such person's
written consent to being named as a nominee and to serving as a director if
elected; and (b) as to the stockholder giving the notice: (i) the name and
address, as they appear on the corporation's books, of such stockholder, and
(ii) the class and number of shares of the corporation which are beneficially
owned by such stockholder, and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) relating to the nomination. At the
request of the Board of Directors any person nominated by the Board for election
as a director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be of eligible for election as a
director of the corporation unless nominated in
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accordance with the procedures set forth in this Section. The chairman of the
meeting shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
bylaws, and if he should so determine, he shall so declare at the meeting and
the defective nomination shall be disregarded.
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS.
At any meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before a meeting, business must be: (a) as specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. Business to be brought before a meeting by a
stockholder shall not be considered properly brought if the stockholder has not
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than twenty (20) nor
more than sixty (60) days prior to the meeting; provided, however, that in the
event less than thirty (30) days notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the
meeting: (i) a brief description of the business desired to be brought before
the meeting and the reasons for conducting such business at the meeting, (ii)
the name and address of the stockholder proposing such business, (iii) the class
and number of shares of the corporation, which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business, and
(v) any other information that is required by law to be provided by the
stockholder in his capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at any meeting except in accordance with the procedures set forth in
this Section. The chairman of the meeting shall, if the facts warrant, determine
and declare at the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section, and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
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2.8 QUORUM.
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the Chairman of the meeting or (ii)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.9 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.10 CONDUCT OF BUSINESS.
The Chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.11 VOTING.
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.14 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.12 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of
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notice of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.13 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of the corporation, or any action that may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
2.14 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed.
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(iii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.15 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section 212
of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
3.2 NUMBER OF DIRECTORS.
Unless otherwise determined by the Board of Directors of the Company,
the Board of Directors shall consist of five persons until changed by a proper
amendment of this Section 3.2. No reduction of the authorized number of
directors shall have the effect of removing any director before that director's
term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
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fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon written notice to the attention
of the Secretary of the corporation. When one or more directors so resigns and
the resignation is effective at a future date, a majority of the directors then
in office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
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3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM.
At all meetings of the Board of Directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
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A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the board
or committee may be executed by telex, telecopy or other facsimile transmission,
and such facsimile shall be valid and binding to the same extent as if it were
an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, the Board of Directors shall have the authority to fix the compensation
of directors. No such compensation shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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3.13 REMOVAL OF DIRECTORS.
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors or in the Bylaws of the corporation, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the
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stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v) amend
the Bylaws of the corporation; and, unless the board resolution establishing the
committee, the Bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS.
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
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5.3 SUBORDINATE OFFICERS.
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the Secretary of the corporation. Any resignation shall take effect
at the date of the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the corporation shall be filled
by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the chairman of the board, if any, the chief executive officer
of the corporation shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the corporation. He or she shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a chairman of the board, at all meetings
of the Board of Directors and shall have the general powers and duties of
management usually vested in the office of chief executive officer of a
corporation and shall have such other powers and duties as may be prescribed by
the Board of Directors or these bylaws.
5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the corporation. He or she shall have the
general powers and duties of management usually vested in the office of
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president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at stockholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the Board of Directors. He or she shall disburse the funds of
the corporation as may be ordered by the Board
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of Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS.
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments,
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fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director or officer)
includes any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
6.5 INSURANCE.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 CONFLICTS.
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the certificate of
incorporation, these Bylaws, a resolution of the stockholders or an agreement in
effect at the time of the accrual
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of the alleged cause of the action asserted in the proceeding in which the
expenses were incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
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ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS.
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or
vice-president, and by the chief financial officer or an assistant treasurer, or
the secretary or an assistant secretary of such corporation representing the
number of shares registered in certificate form. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon
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partly paid shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS.
The directors of the corporation, subject to any restrictions contained
in (i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such
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reserve. Such purposes shall include but not be limited to equalizing dividends,
repairing or maintaining any property of the corporation, and meeting
contingencies.
8.8 FISCAL YEAR.
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
PETS.COM, INC.
ADOPTION BY INCORPORATOR
The undersigned person appointed in the certificate of incorporation to
act as the Incorporator of Pets.com, Inc. hereby adopts the foregoing Bylaws,
comprising ____ pages, as the Bylaws of the corporation.
Executed this _____ day of ____________________.
------------------------------------
[Name], Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
The undersigned hereby certifies that the undersigned is the duly
elected, qualified, and acting Secretary of Pets.com, Inc. and that the
foregoing Bylaws, comprising ____ pages, were adopted as the Bylaws of the
corporation on ______________, by the person appointed in the certificate of
incorporation to act as the Incorporator of the corporation.
Executed this _____ day of ______________________.
------------------------------------
John V. Bautista, Secretary
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EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of
_______________, by and between Pets.com, Inc., a Delaware corporation (the
"Company"), and <<IndemniteeName>> (the "Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers and key employees, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance. The Company and Indemnitee further recognize
the substantial increase in corporate litigation in general, subjecting
directors, officers and key employees to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely
limited. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and agents of the Company may
not be willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
<PAGE> 2
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld), in
each case to the extent actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action or suit if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company and its stockholders, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudicated by court order or
judgment to be liable to the Company in the performance of Indemnitee's duty to
the Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referred to in Section l(a) or Section 1(b) hereof (including amounts actually
paid in settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
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writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company and
shall be given in accordance with the provisions of Section 12(d) below. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 3(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel
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by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be deemed to be
within the purview of Indemnitee's rights and the Company's obligations under
this Agreement. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested members of the Company's
Board of Directors, the General Corporation Law of the State of Delaware, or
otherwise, both as to action in Indemnitee's official capacity and as to action
in another capacity while holding such office. The indemnification provided
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though he or she may have
ceased to serve in any such capacity at the time of any action, suit or other
covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise.
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For example, the Company and Indemnitee acknowledge that the Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
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advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that if Indemnitee is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
11. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee
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<PAGE> 7
with respect to such action, unless as a part of such action, the court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted
to be given under this Agreement shall be in writing and shall be deemed
sufficient when delivered personally or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, and addressed to the party to be notified at such
party's address as set forth below or as subsequently modified by written
notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and its successors and assigns, and inure to the benefit of
Indemnitee and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of
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<PAGE> 8
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company to effectively
bring suit to enforce such rights.
[Signature Page Follows]
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<PAGE> 9
The parties hereto have executed this Agreement as of the day and year
set forth on the first page of this Agreement.
Pets.com, Inc.
By:
---------------------------------
Title:
------------------------------
Address: 435 Brannan Street
San Francisco, CA 94107
AGREED TO AND ACCEPTED:
<<IndemniteeName>>
- ---------------------------------
(Signature)
Address:
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<PAGE> 1
EXHIBIT 10.2.1
PETS.COM, INC.
1999 STOCK PLAN
(AS AMENDED DECEMBER 5, 1999)
1. PURPOSES OF THE PLAN. The purposes of this 1999 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an Option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock Purchase Rights may also be granted
under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or its Committee appointed
pursuant to Section 4 of the Plan.
(b) "AFFILIATE" means an entity other than a Subsidiary in which the
Company owns an equity interest or which, together with the Company, is under
common control of a third person or entity.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under applicable U.S. state corporate laws,
U.S. federal and applicable state securities laws, the Code, any Stock Exchange
rules or regulations and the applicable laws of any other country or
jurisdiction where Options or Stock Purchase Rights are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time to
time.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means one or more committees or subcommittees of the
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
(g) "COMMON STOCK" means the Common Stock of the Company.
(h) "COMPANY" means Pets.com, Inc., a Delaware corporation.
(i) "CONSULTANT" means any person, including an advisor, who renders
services to the Company, or any Parent, Subsidiary or Affiliate, and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
<PAGE> 2
(j) "CONTINUOUS SERVICE STATUS" means the absence of any interruption
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service Status shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than 90 days, unless reemployment upon
the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Parents, Subsidiaries or Affiliates or their respective successors.
Unless otherwise determined by the Administrator, a change in status from an
Employee to a Consultant or from a Consultant to an Employee will not constitute
an interruption of Continuous Service Status.
(k) "CORPORATE TRANSACTION" means a sale of all or substantially all
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(l) "DIRECTOR" means a member of the Board.
(m) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent, Subsidiary or Affiliate of the Company.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the fair market value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange on the date of determination, or if no trading
occurred on the date of determination, on the last market trading day prior to
the time of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
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<PAGE> 3
(p) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(q) "LISTED SECURITY" means any security of the Company that is listed
or approved for listing on a national securities exchange or designated or
approved for designation as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written document, the form(s) of which
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(u) "OPTION EXCHANGE PROGRAM" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(v) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
(w) "OPTIONEE" means an Employee or Consultant who receives an Option.
(x) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
(y) "PARTICIPANT" means any holder of one or more Options or Stock
Purchase Rights, or of the Shares issuable or issued upon exercise of such
awards, under the Plan.
(z) "PLAN" means this 1999 Stock Plan.
(aa) "REPORTING PERSON" means an officer, Director, or greater than
10% shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(bb) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 10 below.
(cc) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written document,
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
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<PAGE> 4
(dd) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
as the same may be amended from time to time, or any successor provision.
(ee) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ff) "STOCK EXCHANGE" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(gg) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 10 below.
(hh) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(ii) "TEN PERCENT HOLDER" means a person who owns stock representing
more than 10% of the voting power of all classes of stock of the Company or any
Parent or Subsidiary.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be sold under the Plan
is 7,269,159 Shares of Common Stock, plus an automatic annual increase on the
first day of each of the Company's fiscal years beginning in 2001 and ending in
2009 equal to the lesser of : (i) 1,000,000 Shares; (ii) three percent (3%) of
the Shares outstanding on the last day of the immediately preceding fiscal year;
or (iii) such lesser number of shares as is determined by the Board of
Directors. The Shares may be authorized, but unissued, or reacquired Common
Stock. If an Option expires or becomes unexercisable for any reason without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise shall be treated as not issued and shall
continue to be available under the Plan. Shares issued under the Plan and later
repurchased by the Company pursuant to any repurchase right that the Company may
have shall not be available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) GENERAL. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the Applicable Laws, the Board may
authorize one or more officers to grant Options or Stock Purchase Rights under
the Plan.
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<PAGE> 5
(b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS. With respect to
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) COMMITTEE COMPOSITION. If a Committee has been appointed pursuant
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2 (o) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have
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<PAGE> 6
declined since the date the Option was granted and to make any other amendments
or adjustments to any Option that the Administrator determines, in its
discretion and under the authority granted to it under the Plan, to be necessary
or advisable, provided however that no amendment or adjustment to an Option that
would materially and adversely affect the rights of any Optionee shall be made
without the prior written consent of the Optionee;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Participants.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees; provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An Employee
or Consultant who has been granted an Option or Stock Purchase Right may, if he
or she is otherwise eligible, be granted additional Options or Stock Purchase
Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of grant of such Option.
(c) AT-WILL RELATIONSHIP. The Plan shall not confer upon any
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
holder's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
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<PAGE> 7
(d) LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as
provided in Section 13 below, the maximum number of Shares which may be subject
to Options and Stock Purchase Rights and granted to any one Employee under this
Plan for any fiscal year of the Company shall be 2,000,000 Shares.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten years unless sooner
terminated under Section 15 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, is a Ten Percent Holder,
the term of such Option shall be five years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator and set forth in the Option Agreement, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to a person who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of the grant if required by the
Applicable Laws and, if not so required, shall be such price as is determined by
the Administrator.
(B) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to any other eligible person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant if required by the Applicable Laws and, if not so required,
shall be such price as is determined by the Administrator.
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<PAGE> 8
(C) granted on or after the date, if any, on which the
Common Stock becomes a Listed Security to any eligible person, the per share
Exercise Price shall be such price as determined by the Administrator; provided,
however, that if such eligible person is, at the time of the grant of such
Option, a Named Executive of the Company, the per share Exercise Price shall be
no less than 100% of the Fair Market Value on the date of grant if such Option
is intended to qualify as performance-based compensation under Section 162(m) of
the Code.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, 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) and may consist entirely of (1) cash; (2)
check; (3) delivery of Optionee's promissory note with such recourse, interest,
security and redemption provisions as the Administrator determines to be
appropriate (subject to the provisions of Section 409 of the California General
Corporation Law); (4) cancellation of indebtedness; (5) other Shares that (x) in
the case of Shares acquired upon exercise of an Option, either have been owned
by the Optionee for more than six months on the date of surrender or such other
period as may be required to avoid a charge to the Company's earnings or were
not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised; (6) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised; (7) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect exercise of the Option and prompt delivery
to the Company of the sale or loan proceeds required to pay the exercise price
and any applicable withholding taxes; (8) any combination of the foregoing
methods of payment; or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under the Applicable Laws. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company, and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if,
in its sole discretion, acceptance of such form of consideration is not in the
best interests of the Company at such time.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, consistent with the term of the Plan and
reflected in the Option Agreement, including vesting requirements and/or
performance criteria with respect to the Company and/or the Optionee; provided
however, that, if required by the Applicable Laws, any Option granted prior to
the date, if any, upon which the Common Stock becomes a Listed Security shall
become
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<PAGE> 9
exercisable at the rate of at least 20% per year over five years from the date
the Option is granted. In the event that any of the Shares issued upon exercise
of an Option (which exercise occurs prior to the date, if any, upon which the
Common Stock becomes a Listed Security) should be subject to a right of
repurchase in the Company's favor, such repurchase right shall, if required by
the Applicable Laws, lapse at the rate of at least 20% per year over five years
from the date the Option is granted. Notwithstanding the above, in the case of
an Option granted to an officer, Director or Consultant of the Company or any
Parent, Subsidiary or Affiliate of the Company, the Option may become fully
exercisable, or a repurchase right, if any, in favor of the Company shall lapse,
at any time or during any period established by the Administrator. The
Administrator shall have the discretion to determine whether and to what extent
the vesting of Options shall be tolled during any leave of absence.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when written notice of such exercise
has been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and the Company has received full payment
for the Shares with respect to which the Option is exercised. Full payment may,
as authorized by the Administrator, consist of any consideration and method of
payment allowable under Section 8(b) of the Plan. 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
shareholder shall exist with respect to the Optioned Stock, not withstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. 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 13 of the
Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event
of termination of an Optionee's Continuous Service Status with the Company, such
Optionee may, but only within three months (or such other period of time, not
less than 30 days, as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the date of such termination (but in no event later
than the expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise the Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan. Unless otherwise determined by the Administrator, no termination shall
be deemed to occur and this Section 9(b) shall not apply if (i) the Optionee is
a Consultant who becomes an Employee, or (ii) the Optionee is an Employee who
becomes a Consultant.
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<PAGE> 10
(c) DISABILITY OF OPTIONEE.
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Service Status as a result of his or her
total and permanent disability (within the meaning of Section 22(e)(3) of the
Code), such Optionee may, but only within twelve months (or such other period of
time as is determined by the Administrator, with such determination in the case
of an Incentive Stock Option made at the time of grant of the Option) from the
date of such termination (but in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
To the extent that the Optionee was not entitled to exercise the Option at the
date of termination, or if the Optionee does not exercise such Option to the
extent so entitled within the time specified above, the Option shall terminate
and the Optioned Stock underlying the unexercised portion of the Option shall
revert to the Plan.
(ii) In the event of termination of an Optionee's Continuous
Service Status as a result of a disability which does not fall within the
meaning of total and permanent disability (as set forth in Section 22(e)(3) of
the Code), such Optionee may, but only within twelve months (or such other
period of time as is determined by the Administrator, with such determination in
the case of an Incentive Stock Option made at the time of grant of the Option)
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option that is an Incentive Stock Option (within the meaning of Section 422 of
the Code) within three months of the date of such termination, the Option will
not qualify for Incentive Stock Option treatment under the Code. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time period specified above, the Option shall terminate and
the Optioned Stock underlying the unexercised portion of the Option shall revert
to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee during
the period of Continuous Service Status since the date of grant of the Option,
or within 30 days following termination of the Optionee's Continuous Service
Status, the Option may be exercised, at any time within twelve months following
the date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by such Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of death or, if earlier, the date of termination of the Optionee's
Continuous Service Status. To the extent that the Optionee was not entitled to
exercise the Option at the date of death or termination, as the case may be, or
if the Optionee does not exercise such Option to the extent so entitled within
the time specified above, the Option shall terminate and the Optioned Stock
underlying the unexercised portion of the Option shall revert to the Plan.
(e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have full
power and authority to extend the period of time for which an Option is to
remain exercisable following
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<PAGE> 11
termination of an Optionee's Continuous Status as an Employee or Consultant from
the periods set forth in Sections 9(b), 9(c) and 9(d) above or in the Option
Agreement to such greater time as the Board shall deem appropriate, provided,
that in no event shall such Option be exercisable later than the date of
expiration of the term of such Option as set forth in the Option Agreement.
(f) BUY-OUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted under the Plan
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time such offer is made.
10. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed 30 days from the date upon
which the Administrator made the determination to grant the Stock Purchase
Right. If required by the Applicable Laws, the purchase price of Shares subject
to Stock Purchase Rights shall not be less than 85% of the Fair Market Value of
the Shares as of the date of the offer, or, in the case of a person owning stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the price shall not be less
than 100% of the Fair Market Value of the Shares as of the date of the offer. If
the Applicable Laws do not impose restrictions on the purchase price, the
purchase price of Shares subject to Stock Purchase Rights shall be as determined
by the Administrator. The offer to purchase Shares subject to Stock Purchase
Rights shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided, however, that with respect to a purchaser
who is not an officer, Director or Consultant of the Company or of any Parent or
Subsidiary of the Company, it shall lapse at a minimum rate of 20% per year if
required by the Applicable Laws.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
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<PAGE> 12
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
11. TAXES.
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option) shall make such
arrangements as the Administrator may require for the satisfaction of any
applicable federal, state, local or foreign withholding tax obligations that may
arise in connection with the exercise of an Option or Stock Purchase Right and
the issuance of Shares. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option.
(c) This Section 11(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of a Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 11,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six months on the date of surrender, and (ii) have
a Fair Market Value determined as of the applicable Tax Date equal to the amount
required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 11(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 11(d) above must be made on or prior
to the applicable Tax Date.
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<PAGE> 13
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and
Stock Purchase Rights 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; provided however that, after the date, if any, upon
which the Common Stock becomes a Listed Security, the Administrator may in its
discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements specifying (i) the manner in which such Nonstatutory Stock Options
are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option or Stock Purchase Right may be exercised,
during the lifetime of the holder of the Option or Stock Purchase Right, only by
such holder or a transferee permitted by this Section 12.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, CORPORATE TRANSACTIONS AND
CERTAIN OTHER TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per Share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock (including
any change in the number of Shares of Common Stock effected in connection with a
change of domicile of the Company), or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; 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, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, 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 thereof shall be made with
respect to, the number or price of Shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the dissolution or
liquidation of the Company, each outstanding Option or Stock Purchase Right
shall terminate immediately prior to the consummation of such action, unless
otherwise provided by the Administrator.
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<PAGE> 14
(c) CORPORATE TRANSACTIONS. In the event of a Corporate Transaction,
each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right shall be substituted by the successor corporation or
a Parent or Subsidiary of such successor corporation, unless such successor
corporation does not agree to assume the outstanding Options or Stock Purchase
Rights or to substitute equivalent options or rights, in which case such Options
or Stock Purchase Rights shall terminate upon the consummation of the
transaction.
For purposes of this Section 13(c), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon a Corporate Transaction, each
holder of an Option or Stock Purchase Right would be entitled to receive upon
exercise of the Option or Stock Purchase Right the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option or the
Stock Purchase Right at such time (after giving effect to any adjustments in the
number of Shares covered by the Option or Stock Purchase Right as provided for
in this Section 13); provided however that if such consideration received in the
transaction is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option or
Stock Purchase Right to be solely common stock of the successor corporation or
its Parent equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator;
provided, however, that in the case of any Incentive Stock Option, the grant
date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time amend,
alter, suspend, discontinue or terminate the Plan, but no amendment, alteration,
suspension, discontinuation or termination (other than an adjustment made
pursuant to Section 13 above) shall be made that would materially and adversely
affect the rights of any Optionee or holder of
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<PAGE> 15
Stock Purchase Rights under any outstanding grant, without his or her consent.
In addition, to the extent necessary and desirable to comply with the Applicable
Laws, the Company shall obtain shareholder approval of any Plan amendment in
such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of
the Plan shall materially and adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other provision
of the Plan or any agreement entered into by the Company pursuant to the Plan,
the Company shall not be obligated, and shall have no liability for, failure to
issue or deliver any Shares under the Plan unless such issuance or delivery
would comply with the Applicable Laws, with such compliance determined by the
Company in consultation with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right 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 law.
17. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
19. SHAREHOLDER APPROVAL. If required by the Applicable Laws, continuance
of the Plan shall be subject to approval by the shareholders of the Company
within twelve months before or after the date the Plan is adopted. Such
shareholder approval shall be obtained in the degree and manner required under
the Applicable Laws.
20. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to the
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information. In addition, at the time of issuance of
any securities under the Plan, the Company shall provide to the Optionee or the
purchaser a copy of the Plan and any agreement(s) pursuant to which securities
granted under the Plan are issued.
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EXHIBIT 10.2.2
PETS.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Pets.com, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. 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 shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means Pets.com, Inc., a Delaware corporation.
(e) "COMPENSATION" means all regular straight time gross
earnings, and shall not include commissions, payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and other
compensation.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "CONTRIBUTIONS" means all amounts credited to the account of
a participant pursuant to the Plan.
(h) "CORPORATE TRANSACTION" means a sale of all or substantially
all of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan; provided however that the Board shall only
have the discretion to designate Subsidiaries if
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<PAGE> 2
the issuance of options to such Subsidiary's Employees pursuant to the Plan
would not cause the Company to incur adverse accounting charges.
(j) "EMPLOYEE" means any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "OFFERING DATE" means the first business day of each
Offering Period of the Plan.
(m) "OFFERING PERIOD" means a period of twenty-four (24) months
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "PLAN" means this Employee Stock Purchase Plan.
(p) "PURCHASE DATE" means the last day of each Purchase Period
of the Plan.
(q) "PURCHASE PERIOD" means a period of six (6) months within an
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(r) "PURCHASE PRICE" means with respect to a Purchase Period an
amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) of any increase in
the number of Shares available for issuance under the Plan as a result of a
stockholder-approved amendment to the Plan, and (ii) all or a portion of such
additional Shares are to be issued with respect to one or more Offering Periods
that are underway at the time of such increase ("Additional Shares"), and (iii)
the Fair Market Value of a Share of Common Stock on the date of such increase
(the "Approval Date Fair Market Value") is higher than the Fair Market Value on
the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to Additional Shares shall be 85% of the Approval
Date Fair Market Value or the Fair Market Value of a Share of Common Stock on
the Purchase Date, whichever is lower.
(s) "SHARE" means a share of Common Stock, as adjusted in
accordance with Section 19 of the Plan.
(t) "SUBSIDIARY" means a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
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<PAGE> 3
3. ELIGIBILITY.
(a) Any person who is an Employee as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) 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 (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company 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 subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
(a) OFFERING PERIODS. The Plan shall be implemented by a series
of Offering Periods of twenty-four (24) months duration, with new Offering
Periods commencing on or about February 1 and August 1 of each year (or at such
other time or times as may be determined by the Board of Directors). The first
Offering Period shall commence on the beginning of the effective date of the
Registration Statement on Form S-1 for the initial public offering of the
Company's Common Stock (the "IPO Date") and continue until January 31, 2002. The
Plan shall continue until terminated in accordance with Section 20 hereof. The
Board of Directors of the Company shall have the power to change the duration
and/or the frequency of Offering Periods with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall consist of four
(4) consecutive Purchase Periods of six (6) months' duration. The last day of
each Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on February 1 shall end on the next July 31. A
Purchase Period commencing on August 1 shall end on the next January 31. The
first Purchase Period shall commence on the IPO Date and shall end on July 31,
2000. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Purchase Period to be affected.
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<PAGE> 4
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll
following the Offering Date and shall end on the last payroll paid on or prior
to the last Purchase Period of the Offering Period to which the subscription
agreement is applicable, unless sooner terminated by the participant as provided
in Section 10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
(a) A participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than twenty percent (20%) (or such greater percentage as the
Board may establish from time to time before an Offering Date) of such
participant's Compensation on each payday during the Offering Period. All
payroll deductions made by a participant shall be credited to his or her account
under the Plan. A participant may not make any additional payments into such
account.
(b) A participant may discontinue his or her participation in
the Plan as provided in Section 10, or, on one occasion only during a Purchase
Period may increase and on one occasion only during a Purchase Period may
decrease the rate of his or her Contributions with respect to the Offering
Period by completing and filing with the Company a new subscription agreement
authorizing a change in the payroll deduction rate. The change in rate shall be
effective as of the beginning of the next calendar month following the date of
filing of the new subscription agreement, if the agreement is filed at least ten
(10) business days prior to such date and, if not, as of the beginning of the
next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b), a participant's
payroll deductions may be decreased by the Company to 0% at any time during a
Purchase Period. Payroll deductions shall re-commence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10. In addition, a
participant's payroll deductions may be decreased by the Company to 0% at any
time during a Purchase Period in order to avoid unnecessary payroll
contributions as a result of application of the maximum share limit set forth in
Section 7(a), in which case payroll deductions shall re-commence at the rate
provided in such participant's subscription agreement at the beginning of the
next Purchase Period, unless terminated by the participant as provided in
Section 10.
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<PAGE> 5
7. GRANT OF OPTION.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however that the maximum number of
Shares an Employee may purchase during each Purchase Period shall be 2000 Shares
(subject to any adjustment pursuant to Section 19 below), and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 13.
(b) The fair market value of the Company's Common Stock on a
given date (the "Fair Market Value") shall be determined by the Board in its
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Purchase Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, the Shares purchased upon exercise of his or her option. No
fractional Shares shall be purchased; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 below. Any other amounts left over in a participant's account after a
Purchase Date shall be returned to the participant.
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<PAGE> 6
10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as
an Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the Offering Period in which the employee is a participant, he or she
will be deemed to have elected to withdraw from the Plan and the Contributions
credited to his or her account will be returned to him or her and his or her
option terminated.
(d) A participant's withdrawal from an offering will not have
any effect upon his or her eligibility to participate in a succeeding offering
or in any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC WITHDRAWAL. If the Fair Market Value of the Shares on any
Purchase Date of an Offering Period is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
500,000 Shares, plus an annual increase on the first day of each of the
Company's fiscal years during the term of the Plan beginning in 2001 and ending
in 2010 equal to the lesser of (i) 300,000 Shares, (ii) one percent (1%) of the
Shares outstanding on the last day of the immediately preceding fiscal year, or
(iii) such lesser number of Shares as is determined by the Board. If the Board
determines that, on a given Purchase Date, the number of shares with respect to
which options are to be exercised may exceed (i) the number of shares of Common
Stock that were available for sale under the Plan on the Offering Date of the
applicable Offering Period, or (ii) the number of shares available for sale
-6-
<PAGE> 7
under the Plan on such Purchase Date, the Board may in its sole discretion
provide (x) that the Company shall make a pro rata allocation of the Shares of
Common Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and continue
all Offering Periods then in effect, or (y) that the Company shall make a pro
rata allocation of the shares available for purchase on such Offering Date or
Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date,
and terminate any or all Offering Periods then in effect pursuant to Section 20
below. The Company may make pro rata allocation of the Shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in
Shares covered by his or her option until such option has been exercised.
(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.
14. ADMINISTRATION. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may 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 such participant's death
subsequent to the end of a Purchase Period but prior to delivery to him or her
of such Shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
Purchase Date of an Offering Period. 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 his or her 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 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 Company),
the Company, in its discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant,
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<PAGE> 8
or if no spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
16. TRANSFERABILITY. Neither Contributions 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 15) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
17. USE OF FUNDS. All Contributions 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 Contributions.
18. REPORTS. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each option under
the Plan which has not yet been exercised and the number of Shares which have
been authorized for issuance under the Plan but have not yet been placed under
option (collectively, the "Reserves"), as well as the maximum number of shares
of Common Stock which may be purchased by a participant in a Purchase Period,
the number of shares of Common Stock set forth in Section 13(a) above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for 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 Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; 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 Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue 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 thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or
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<PAGE> 9
substitute for outstanding options, each Purchase Period and Offering Period
then in progress shall be shortened and a new Purchase Date shall be set (the
"New Purchase Date"), as of which date any Purchase Period and Offering Period
then in progress will terminate. The New Purchase Date shall be on or before the
date of consummation of the transaction and the Board shall notify each
participant in writing, at least ten (10) days prior to the New Purchase Date,
that the Purchase Date for his or her option has been changed to the New
Purchase Date and that his or her option will be exercised automatically on the
New Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this Section 19, an
option granted under the Plan shall be deemed to be assumed, without limitation,
if, at the time of issuance of the stock or other consideration upon a Corporate
Transaction, each holder of an option under the Plan would be entitled to
receive upon exercise of the option the same number and kind of shares of stock
or the same amount of property, cash or securities as such holder would have
been entitled to receive upon the occurrence of the transaction if the holder
had been, immediately prior to the transaction, the holder of the number of
Shares of Common Stock covered by the option at such time (after giving effect
to any adjustments in the number of Shares covered by the option as provided for
in this Section 19); provided however that if the consideration received in the
transaction is not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board may, with the
consent of the successor corporation, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per Share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of Shares of its outstanding Common
Stock, and in the event of the Company's being consolidated with or merged into
any other corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 19, no such termination of the
Plan may affect options previously granted, provided that the Plan or an
Offering Period may be terminated by the Board on a Purchase Date or by the
Board's setting a new Purchase Date with respect to an Offering Period and
Purchase Period then in progress if the Board determines that termination of the
Plan and/or the Offering Period is in the best interests of the Company and the
stockholders or if continuation of the Plan and/or the Offering Period would
cause the Company to incur adverse accounting charges as a result of a change
after the effective date of the Plan in the generally accepted accounting rules
applicable to the Plan. Except as provided in Section 19 and in this Section 20,
no amendment to the Plan shall make any change in any option previously granted
which adversely affects the rights of any participant. In addition, to the
extent necessary to comply with Rule 16b-3 under the Exchange Act, or under
Section 423 of the Code (or any
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<PAGE> 10
successor rule or provision or any applicable law or regulation), the Company
shall obtain stockholder approval in such a manner and to such a degree as so
required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been adversely affected, the
Board (or its committee) shall be entitled to change the Offering Periods and
Purchase Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, 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 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 Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
21. 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 Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. 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
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, 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
person exercising such option 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 provisions of law.
23. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
the IPO Date. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20.
24. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
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<PAGE> 11
PETS.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Pets.com, Inc. 2000 Employee Stock Purchase Plan (the "Plan") for the Offering
Period ______________, ____ to _______________, ____, and subscribe to purchase
shares of the Company's Common Stock in accordance with this Subscription
Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions on one
occasion only with respect to any increase and one occasion only with respect to
any decrease during any Purchase Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. Further, I may change the rate of deductions for future
Offering Periods by filing a new Subscription Agreement, and any such change
will be effective as of the beginning of the next Offering Period. In addition,
I acknowledge that, unless I discontinue my participation in the Plan as
provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
<PAGE> 12
5. I have received a copy of the Company's most recent description of
the Plan and a copy of the complete "Pets.com, Inc. 2000 Employee Stock Purchase
Plan." I understand that my participation in the Plan is in all respects subject
to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the
name(s) of (name of employee or employee and spouse only):
------------------------------------
------------------------------------
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print)
------------------------------------
(First) (Middle) (Last)
- -------------------- ------------------------------------
(Relationship) (Address)
------------------------------------
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
date of any such disposition, and I will make adequate provision for federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the
2-year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received compensation income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares under the option, or (2) 15% of the fair market
value of the
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<PAGE> 13
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
change. I further understand that I should consult a tax advisor concerning the
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:
--------------------------
SOCIAL SECURITY #:
------------------
DATE:
-------------------------------
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
- ------------------------------------
(Signature)
- ------------------------------------
(Print name)
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<PAGE> 14
PETS.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation
in the Pets.com, Inc. 2000 Employee Stock Purchase Plan (the "Plan") for the
Offering Period that began on _________ ___, _____. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid
to me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:
------------------------------ ------------------------------------
Signature of Employee
------------------------------------
Social Security Number
<PAGE> 1
EXHIBIT 10.3
PETS.COM
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of
February 17, 1999 by and between Pets.com, a California corporation (the
"Company"), and Greg McLemore ("Purchaser").
1. SALE OF STOCK. Subject to the terms and conditions of this Agreement,
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, 1,610,587 shares
of the Company's Common Stock (the "Shares") at a purchase price of $16,105.87
per Share for a total purchase price of $0.01. The term "Shares" refers to the
purchased Shares and all securities received in replacement of or in connection
with the Shares pursuant to stock dividends or splits, all securities received
in replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.
2. PURCHASE. The purchase and sale of the Shares under this Agreement
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by an assignment of certain assets as set
forth in the Bill of Sale and Instrument of Assignment in the form attached to
this Agreement as Exhibit A.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser
or any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "Notice") stating: (A) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
the number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
terms as similar as reasonably possible) to the Company or its assignee(s).
<PAGE> 2
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time
within 30 days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 3(a) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be made,
at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 3 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to
the contrary contained in this Section 3(a) notwithstanding, the transfer of any
or all of the Shares during Purchaser's lifetime or on Purchaser's death by will
or intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section 3, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER.
In the event, at any time after the date of this Agreement, of any transfer by
operation of law or
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<PAGE> 3
other involuntary transfer (including divorce or death, but excluding in the
event of death a transfer to Immediate Family as set forth in Section 3(a)(vi)
above) of all or a portion of the Shares by the record holder thereof, the
Company shall have the right to purchase all of the Shares transferred at the
greater of the purchase price paid by Purchaser pursuant to this Agreement or
the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary of
the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of 30 days following receipt by the Company
of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any
stock to be transferred pursuant to Section 3(b)(i), the price per Share shall
be a price set by the Board of Directors of the Company that will reflect the
current value of the stock in terms of present earnings and future prospects of
the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within 30 days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if Purchaser does not agree
with the valuation as determined by the Board of Directors of the Company,
Purchaser shall be entitled to have the valuation determined by an independent
appraiser to be mutually agreed upon by the Company and Purchaser and whose fees
shall be borne equally by the Company and Purchaser.
(c) ASSIGNMENT. The right of the Company to purchase any part of
the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the Shares
shall be void unless the provisions of this Agreement are satisfied.
(e) TERMINATION OF RIGHTS. The Right of First Refusal and the
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company 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, (the "Securities Act").
(f) MARKET STANDOFF AGREEMENT. In connection with the initial
public offering of the Company's securities and upon request of the Company or
the underwriters managing such offering of the Company's securities, Purchaser
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
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<PAGE> 4
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
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<PAGE> 5
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS
OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
(iii) Any legend required to be placed thereon by the
California Commissioner of Corporations.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) REMOVAL OF LEGEND. When all of the following events have
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in
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<PAGE> 6
writing signed by the parties to this Agreement. The failure by either party to
enforce any rights under this Agreement shall not be construed as a waiver of
any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address or fax number as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
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<PAGE> 7
The parties have executed this Agreement as of the date first set forth
above.
PETS.COM
By: /s/ Greg McLemore
-------------------------------
Title: President
----------------------------
Address:
87 N. Raymond Ave., Suite 850
Pasadena, CA 91103
PURCHASER:
GREG MCLEMORE
/s/ Greg McLemore
----------------------------------
(Signature)
Address:
1581 E. Mendocino St.
----------------------------------
Altadena, CA 91001
----------------------------------
I, N/A, spouse of Greg McLemore, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
irrevocably bound by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall be similarly bound by
the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to
any amendment or exercise of any rights under the Agreement.
----------------------------------
Spouse of Greg McLemore
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<PAGE> 1
EXHIBIT 10.4
PETS.COM
1999 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
March 10, 1999, by and between Pets.com, a California corporation (the
"Company"), and Julie Wainwright ("Purchaser") pursuant to the Company's 1999
Stock Plan. To the extent any capitalized terms used in this Agreement are not
defined, they shall have the meaning ascribed to them in the 1999 Stock Plan.
1. SALE OF STOCK. Subject to the terms and conditions of this Agreement,
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, 1,157,023 shares
of the Company's Common Stock (the "Shares") at a purchase price of $0.01 per
Share for a total purchase price of $11,570.23. The per share purchase price of
the Shares shall be not less than 85% of the Fair Market Value of the Shares as
of the date of the offer of such Shares to Purchaser, or, in the case of any
person owning stock representing more than 10% of the total combined voting
power of all classes of stock of the Company (or any affiliated company), the
per share purchase price shall be not less than 100% of the Fair Market Value of
the Shares as of such date. The term "Shares" refers to the purchased Shares and
all securities received in replacement of or in connection with the Shares
pursuant to stock dividends or splits, all securities received in replacement of
the Shares in a recapitalization, merger, reorganization, exchange or the like,
and all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. PURCHASE. The purchase and sale of the Shares under this Agreement
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties, or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by check made payable to the
Company.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) REPURCHASE OPTION.
(i) In the event of the voluntary or involuntary
termination of Purchaser's employment or consulting relationship with the
Company for any reason (including
<PAGE> 2
death or disability), with or without cause, the Company shall upon the date of
such termination (the "Termination Date") have an irrevocable, exclusive option
(the "Repurchase Option") for a period of 60 days from such date to repurchase
all or any portion of the Shares held by Purchaser as of the Termination Date
which have not yet been released from the Company's Repurchase Option at the
original purchase price per Share specified in Section 1 (adjusted for any stock
splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the
Company by written notice to Purchaser or Purchaser's executor and, at the
Company's option, (A) by delivery to Purchaser or Purchaser's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (B) in the event Purchaser is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (C) by a combination of (A)
and (B) so that the combined payment and cancellation of indebtedness equals
such purchase price. Upon delivery of such notice and payment of the purchase
price in any of the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interest
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being repurchased by the Company, without
further action by Purchaser.
(iii) 100% of the Shares shall initially be subject to
the Repurchase Option. 25% of the total number of Shares shall be released from
the Repurchase Option on the twelve-month anniversary of the Vesting
Commencement Date (as set forth on the signature page of this Agreement), and an
additional 1/48th of the total number of Shares shall be released from the
Repurchase Option each month thereafter, until all Shares are released from the
Repurchase Option. Fractional shares shall be rounded to the nearest whole
share.
Notwithstanding the foregoing, in the event that the Company
undergoes a Change of Control (as defined below) 50% of the Shares remaining
subject to the Repurchase Option as of the date of the Change of Control (or
such lesser number of Shares as then remain subject to the Repurchase Option)
shall immediately be released from the Repurchase Option.
(iv) A "Change of Control" shall mean a sale, conveyance or
other disposal of all or substantially all of the Company's property or
business, or a merger or consolidation with any other corporation (other than a
wholly-owned subsidiary corporation) or any other transaction or series of
related transactions in which more than sixty-six percent (50%) of the
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<PAGE> 3
voting power of the Company is disposed of; provided that this definition shall
not include a merger effected solely for the purpose of changing the domicile of
the Company.
(v) For purposes of this Agreement, "Cause" shall mean (i)
Purchaser's consistent refusal to perform her duties as agreed upon from time to
time between Purchaser and the Company's Board of Directors (as determined by
the Board of Directors, following appropriate written warning and failure to
cure within 30 days); (ii) Purchaser's consistent refusal to conform to or
follow any reasonable employee policy adopted by the Company's Board of
Directors (as determined by the Board of Directors, following appropriate
written warning and failure to cure within 30 days); (iii) Purchaser's material
breach of the Company's confidentiality and inventions assignment agreement;
(iv) Purchaser's conviction of a felony under the laws of the United States or
any state thereof; or (v) Purchaser's gross misconduct.
(vi) For purposes of this Agreement, "Constructive Termination"
shall be deemed to occur if there is a material adverse change in Purchaser's
position with the Company (currently Chief Executive Officer) with regard to
stature or responsibility.
(b) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser
or any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (A)
the Holder's bona fide intention to sell or otherwise transfer such Shares; (B)
the name of each proposed purchaser or other transferee ("Proposed Transferee");
(C) the number of Shares to be transferred to each Proposed Transferee; and (D)
the terms and conditions of each proposed sale or transfer. The Holder shall
offer the Shares at the same price (the "Offered Price") and upon the same terms
(or terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time
within 30 days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 3(b) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an
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<PAGE> 4
assignee, to the assignee), or by any combination thereof within 30 days after
receipt of the Notice or in the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
3(b), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 3 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to
the contrary contained in this Section 3(b) notwithstanding, the transfer of any
or all of the Shares during Purchaser's lifetime or on Purchaser's death by will
or intestacy to Purchaser's Immediate Family (as defined below) or a trust for
the benefit of Purchaser's Immediate Family shall be exempt from the provisions
of this Section 3(b). "Immediate Family" as used herein shall mean spouse,
lineal descendant or antecedent, father, mother, brother or sister. In such
case, the transferee or other recipient shall receive and hold the Shares so
transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this
Section 3.
(c) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY
TRANSFER. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including divorce or
death, but excluding, in the event of death, a transfer to Immediate Family as
set forth in Section 3(b)(vi) above) of all or a portion of the Shares by the
record holder thereof, the Company shall have the right to purchase all of the
Shares transferred at the greater of the purchase price paid by Purchaser
pursuant to this Agreement or the Fair Market Value of the Shares on the date of
transfer. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of 30 days following
receipt by the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any
stock to be transferred pursuant to Section 3(c)(i), the price per Share shall
be a price set by the Board of Directors of the Company that will reflect the
current value of the stock in terms of present earnings and future prospects of
the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within 30 days after receipt by it of written notice of the
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<PAGE> 5
transfer or proposed transfer of Shares. However, if Purchaser does not agree
with the valuation as determined by the Board of Directors of the Company,
Purchaser shall be entitled to have the valuation determined by an independent
appraiser to be mutually agreed upon by the Company and Purchaser and whose fees
shall be borne equally by the Company and Purchaser.
(d) ASSIGNMENT. The right of the Company to purchase any part of
the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the Parent or a 100%
owned Subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and Fair
Market Value, if the original purchase price is less than the Fair Market Value
of the Shares subject to the assignment.
(e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement, including, insofar as applicable,
the Repurchase Option. Any sale or transfer of the Shares shall be void unless
the provisions of this Agreement are satisfied.
(f) TERMINATION OF RIGHTS. The Right of First Refusal and the
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(c) above shall terminate upon the first sale of Common
Stock of the Company 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 (the "Securities Act"). Upon
termination of the Right of First Refusal and the expiration or exercise of the
Repurchase Option, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) below and delivered to Purchaser.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit A executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate 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 Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party). The escrow holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may resign at any time. Purchaser agrees that if the Secretary of
the Company, or the Secretary's designee, resigns as escrow holder for any or no
reason, the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.
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<PAGE> 6
5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of Purchaser's control,
and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY
TO THE COMPANY THAT SUCH
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<PAGE> 7
REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS
OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
8. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the Fair Market
Value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
the Internal Revenue Service within 30 days from the date of purchase. Even if
the Fair Market Value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the
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<PAGE> 8
income tax laws of any municipality, state or foreign country in which Purchaser
may reside, and the tax consequences of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company
with this executed Agreement a copy of the Acknowledgment and Statement of
Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached
hereto as Exhibit B. Purchaser further agrees that Purchaser will execute and
submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as
Exhibit C, if Purchaser has indicated in the Acknowledgment his or her decision
to make such an election.
9. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the Company's
initial public offering.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
-8-
<PAGE> 9
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-9-
<PAGE> 10
The parties have executed this Agreement as of the date first set forth
above.
PETS.COM
By: /s/ Julie Wainwright
---------------------------------
Title: CEO
------------------------------
Address:
12 Boardwalki
------------------------------------
Larkspur, CA 94939
------------------------------------
PURCHASER:
JULIE WAINWRIGHT
/s/ Julie Wainwright
------------------------------------
(Signature)
Address:
12 Boardwalki
------------------------------------
Larkspur, CA 94939
------------------------------------
Vesting Commencement
Date: March 10, 1999
I, David Agnew, spouse of Julie Wainwright, have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or similar interest that I may have in the
Shares shall be similarly bound by the Agreement. I hereby appoint my spouse as
my attorney-in-fact with respect to any amendment or exercise of any rights
under the Agreement.
/s/ David Agnew
------------------------------------
Spouse of Julie Wainwright
-10-
<PAGE> 11
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge and
Security Agreement between the undersigned ("Purchaser") and Pets.com, dated
_____________, (the "Agreement"), Purchaser hereby sells, assigns and transfers
unto _______________________________ (________) shares of the Common Stock of
Pets.com, standing in Purchaser's name on the books of said corporation
represented by Certificate No. ___ herewith and hereby irrevocably appoints
____________________________ to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
/s/ Julie Wainwright
------------------------------------
Julie Wainwright
/s/ David Agnew
------------------------------------
Spouse of Julie Wainwright
(if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to perfect the security interest of the Company
pursuant to the Agreement.
<PAGE> 12
EXHIBIT B
ACKNOWLEDGMENT AND STATEMENT OF DECISION
REGARDING SECTION 83(b) ELECTION
The undersigned (which term includes the undersigned's spouse), a
purchaser of 1,257,633 shares of Common Stock of Pets.com, a California
corporation (the "Company") by exercise of stock purchase right (the "Right")
granted pursuant to the Company's 1999 Stock Plan (the "Plan"), hereby states as
follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating
to the offering of such shares. The undersigned has carefully reviewed the Plan
and the stock purchase agreement pursuant to which the Right was granted.
2. The undersigned either [check and complete as applicable]:
(a)____ has consulted, and has been fully advised by, the
undersigned's own tax advisor, __________________________, whose
business address is _____________________________, regarding the
federal, state and local tax consequences of purchasing shares
under the Plan, and particularly regarding the advisability of
making elections pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code") and pursuant to
the corresponding provisions, if any, of applicable state law;
or
(b)____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a)____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the
undersigned's executed Restricted Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b)____ not to make an election pursuant to Section 83(b) of the
Code.
<PAGE> 13
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date: /s/ Jule Wainwright
------------------------------------
Julie Wainwright
Date: /s/ David Agnew
------------------------------------
Spouse of Julie Wainwright
-2-
<PAGE> 14
EXHIBIT C
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: Julie Wainwright
NAME OF SPOUSE: _____________________________
ADDRESS: _________________________________________________________
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described as
follows: 1,257,633 shares of the Common Stock $0.001 par value, of
Pets.com, a California corporation (the "Company").
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will
never lapse, of such property is: $ ________________.
6. The amount (if any) paid for such property: $_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: /s/ Julie Wainwright
-------------------- ------------------------------------
Julie Wainwright
Dated: /s/ Julie Wainwright
-------------------- ------------------------------------
Spouse of Julie Wainwright
<PAGE> 1
EXHIBIT 10.5
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment (the "Assignment") is made from Greg
McLemore ("Mr. McLemore"), an individual, and Koala Computer Products, a sole
proprietorship of Mr. McLemore (collectively, the "Sellers"), to Pets.com, a
California corporation (the "Buyer").
Sellers desire to assign to Buyer all of Sellers' right, title and
interest in and to the trademarks, copyrights and other assets set forth on
Schedule 1 hereto (the "Schedule 1 Assets"), and Mr. McLemore desires to assign
to Buyer all of Mr. McLemore's right, title and interest in and to the domain
names and other assets set forth on Schedule 2 hereto (the "Schedule 2 Assets")
all pursuant to the Common Stock Purchase Agreement entered into between Mr.
McLemore and Buyer as of February 17, 1999.
In consideration for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Sellers hereby assign, transfer,
grant, sell and otherwise convey to Buyer all of Sellers' right, title and
interest in and to the Schedule 1 Assets, including all common law rights
therein, all intellectual property rights therein including trademarks and
copyrights, and all registrations and applications to register therefor,
together with the good will of the business symbolized by the trademarks or the
other Schedule 1 Assets and the right to sue for all past, present and future
infringements of the trademarks and copyrights, including the right to collect
damages for such infringements, for Buyer's own use and benefit, and for the use
and benefit of Buyer's successors, assigns and other legal representatives.
Sellers agree to cooperate with Buyer to effect such assignment and transfer,
including, without limitation, by executing any further documentation as Sellers
may deem reasonably necessary.
In consideration for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mr. McLemore hereby assigns,
transfers, grants, sells and otherwise conveys to Buyer all of Mr. McLemore's
right, title and interest in and to the Schedule 2 Assets, including all common
law rights therein, all intellectual property rights therein including
trademarks and copyrights, and all registrations and applications to register
therefor, together with the good will of the business symbolized by the domain
names or the other Schedule 2 Assets and the right to sue for all past, present
and future infringements of the trademarks and copyrights relating thereto,
including the right to collect damages for such infringements, for Buyer's own
use and benefit, and for the use and benefit of Buyer's successors, assigns and
other legal representatives. Mr. McLemore agrees to cooperate with Buyer to
effect such assignment and transfer, including, without limitation, by executing
any further documentation as Mr. McLemore may deem reasonably necessary.
AGREED AND ACCEPTED:
GREG McLEMORE KOALA COMPUTER PRODUCTS
/s/ Greg McLemore By: /s/ Greg McLemore
- ---------------------------------- ---------------------------------
Print Name: Greg McLemore Print Name: Greg McLemore
----------------------- -------------------------
Date: 2/17/99 Title: Owner
----------------------------- ------------------------------
Date: 2/17/99
-------------------------------
PETS.COM
By: /s/ Greg McLemore
-------------------------------
Print Name: Greg McLemore
-----------------------
Title: CEO
----------------------------
Date: 2/17/99
-----------------------------
<PAGE> 2
Schedule 1 Assets
1. Pets.com logo on the Pets.com site
2. Pets specific data-used online including hotels which accept pets,
breeders, etc. located on the Pets.com site
3. Pets.com database of members
4. Pets.com forum messages on the Pets.com site
5. Pet-related articles contained on the Pets.com site
6. Product catalog of approximately 5,000 descriptions and 7,000 product
photos on the Pets.com site
7. HTML pages on the Pets.com site
<PAGE> 3
Schedule 2 Assets
A. Pets related domain names (see below)
P-e-t-s.com
Pets.com
Pets.net
Pets.org
<PAGE> 1
EXHIBIT 10.6
PETS.COM, INC.
87 N. Raymond Avenue, Suite 850
Pasadena, California 91103
March 4, 1999
Julie Wainwright
2 South Park
2nd Floor
San Francisco, CA 94107
Dear Julie:
Pets.com, Inc. (the "Company") is pleased to offer you employment on the
following terms:
1. POSITION. You will serve in a full-time capacity as the Chief
Executive Officer (CEO) of the Company commencing upon the closing of the Series
A financing, which is expected to occur in early March 1999. By signing this
letter agreement, you represent and warrant to the Company that you are under no
contractual commitments inconsistent with your obligations to the Company.
2. SALARY AND BENEFITS. You will be paid a salary at the annual rate of
$l85,000, payable in semi-monthly installments in accordance with the Company's
standard payroll practices for salaried employees. All other benefits, such as
vacation time, health and medical benefits will be in accordance with the
Company's benefits policies, which you will help to define, and which will be
approved by the Company's Board of Directors.
3. STOCK OPTIONS. You will receive an option to purchase shares of
Common Stock representing 9.2% of the fully diluted capitalization of the
Company, after taking into account the Company's Series A Preferred Stock
financing. The exercise price per share will be equal to the fair market value
per share on the date the option is granted or on your first day of employment,
whichever is later. The option will be immediately exercisable, but the
purchased shares will be subject to repurchase by the Company at the exercise
price in the event that your service as an employee terminates before you vest
in the shares. You will vest in 25% of the option shares after 12 months of
service, and the balance will vest in monthly installments over the next 36
months of service, as described in the applicable stock option agreement. In the
event of a sale or merger of the Company, in which more than 51% of the voting
power of the Company is transferred to a third party, 50% of your remaining
unvested shares will accelerate and become fully vested. The option grant will
be subject to the Company's Stock Plan and the execution by you of the form of
Option Agreement under such plan.
4. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Like all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement.
-1-
<PAGE> 2
5. PERIOD OF EMPLOYMENT. Your employment with the Company will be "at
will," meaning that either you or the Company will be entitled to terminate your
employment at any time and for any reason, with or without cause. Any contrary
representations which may have been made to you are superseded by this offer.
This is the full and complete agreement between you and the Company on this
term. Should the Company be acquired, you agree that upon request of the
acquiring company you will assist the Company with post-acquisition transitional
matters for a period of up to six months.
6. OUTSIDE ACTIVITIES. While you render services to the Company, you
will not engage in any other gainful employment, business or activity without
the written consent of the Company. While you render services to the Company,
you also will not assist any person or organization in competing with the
Company, in preparing to compete with the Company or in hiring any employees of
the Company.
7. WITHHOLDING TAXES. All forms of compensation referred to in this
letter are subject to reduction to reflect applicable withholding and payroll
taxes.
8. ENTIRE AGREEMENT. Except for the Company's standard Optional
Agreement and Proprietary Inventions and Assignment Agreement, this letter
contains all of the terms of your employment with the Company and supersedes any
prior understandings or agreements, whether oral or written, between you and the
Company.
9. AMENDMENT AND GOVERNING LAW. This letter agreement may not be amended
or modified except by an express written agreement signed by you and a duly
authorized officer of the Company. The terms of this letter agreement and the
resolution of any disputes will be governed by California law.
We hope that you find the foregoing terms acceptable. We are excited to
have you join the Company and value your role in helping make Pets.com a great
success. You may indicate your agreement with these terms and accept this offer
by signing and dating the enclosed duplicate original of this letter and
returning it to me. As required by law, your employment with the Company is also
contingent upon your providing legal proof of your identity and authorization to
work in the United States.
-2-
<PAGE> 3
We look forward to having you join us as soon as possible.
Very truly yours,
GREG McLEMORE ANN WINBLAD
By: /s/ Greg McLemore By: /s/ Ann Winblad
--------------------------------- ---------------------------------
I have read and accept this employment offer:
/s/ Julie Wainwright
- ---------------------------------
Signature of Julie Wainwright
Dated: March 4, 1999
-3-
<PAGE> 1
EXHIBIT 10.7
Ms. KC Ringewald
Larkspur, CA
March 19, 1999
Dear KC,
I am pleased to offer you the position of Vice President of Human Resources for
Pets.com. In this position you will be responsible for creating a great working
environment, for recruiting, for recommending and implementing a benefits
package, for ensuring that Pets.com meets all local and national laws for its
employees and for contributing to the strategy and tactics directed by the
senior management team. In this position you will be reporting to the CEO.
As you know, Pets.com is a cross-functional team environment, therefore, you
will be expected to work with all departments to effectively maximize company
goals.
Your salary is $120,000 per year with stock of 125,763 shares (1% of outstanding
shares). Your salary will be paid in accordance with company pay periods and
your stock will vest over four years with a one year cliff and then monthly
vesting. You will also be eligible for two weeks vacation the first year of
employment and three weeks thereafter.
Your start date will be April 5, 1999.
KC, I look forward to working with you once again. I believe that this is going
to be a fun, challenging and rewarding experience. This offer expires at 5 pm on
March 22, 1999.
Please sign this letter and return it to me to signify your acceptance.
Warm regards,
/s/ Julie Wainwright
- ---------------------
Julie L. Wainwright
CEO
Pets.com
I accept
/s/ KC Ringewald March 19th, 1999
- ----------------- ----------------
KC Ringewald Date
-1-
<PAGE> 1
EXHIBIT 10.8
PETS.COM, INC.
87 N. Raymond Avenue, Suite 850
Pasadena, California 91103
March 24, 1999
Chris Deyo
224 Upper Terrace
San Francisco, CA 94117
Dear Chris
Pets.com, Inc. (the "Company") is pleased to offer you employment on the
following terms:
1. POSITION. You will serve in a full-time capacity as the President of
the Company commencing upon the closing of the Series A financing, which is
expected to occur in late March 1999. By signing this letter agreement, you
represent and warrant to the Company that you are under no contractual
commitments inconsistent with your obligations to the Company.
2. SALARY AND BENEFITS. You will be paid a salary at the annual rate of
$185,000, payable in semi-monthly installments in accordance with the Company's
standard payroll practices for salaried employees. All other benefits, such as
vacation time, health and medical benefits will be in accordance with the
Company's benefits policies, which you will help to define, and which will be
approved by the Company's Board of Directors.
3. STOCK OPTIONS. You will receive an option to purchase shares of
Common Stock representing 5.2% of the fully diluted capitalization of the
Company, after taking into account the Company's Series A Preferred Stock
financing. The exercise price per share will be equal to the fair market value
per share on the date the option is granted or on your first day of employment
whichever is later. The option will be immediately exercisable, but the
purchased shares will be subject to repurchase by the Company at the exercise
price in the event that your service as an employee terminates before you vest
in the shares. You will vest in 25% of the option shares after 12 months of
service, and the balance will vest in monthly installments over the next 36
months of service, as described in the applicable stock option agreement. In the
event of a sale or merger of the Company, in which more than 51% of the voting
power of the Company is transferred to a third party, 50% of your remaining
unvested shares will accelerate and become fully vested. The option grant wilt
be subject to the Company's Stock Plan and the execution by you of the form of
Option Agreement under such plan.
4. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Like all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement.
5. PERIOD OF EMPLOYMENT. Your employment with the Company will be "at
will," meaning that either you or the Company will be entitled to terminate your
employment at any time and for any reason, with or without cause. Any contrary
representations which may have been made to you are superseded by this offer.
This is the full and complete agreement between
-1-
<PAGE> 2
you and the Company on this term. Should the Company be acquired, you agree that
upon request of the acquiring company you will assist the Company with
post-acquisition transitional matters for a period of up to six months.
6. OUTSIDE ACTIVITIES. While you render services to the Company, you
will not engage in any other gainful employment, business or activity without
the written consent of the Company. While you tender services to the Company,
you also will not assist any person or organization in competing with the
Company, in preparing to compete with the Company or in hiring any employees of
the Company.
7. WITHHOLDING TAXES. All forms of compensation referred to in this
letter are subject to reduction to reflect applicable withholding and payroll
taxes.
8. ENTIRE AGREEMENT. Except for the Company's standard Option Agreement
and Proprietary Inventions and Assignment Agreement, this letter contains all of
the terms of your employment with the Company and supersedes any prior
understandings or agreements, whether oral or written, between you and the
Company.
9. AMENDMENT AND GOVERNING LAW. This letter agreement may not be amended
or modified except by an express written agreement signed by you and a duly
authorized officer of the Company. The terms of this letter agreement and the
resolution of any dispute will be governed by California law.
We hope that you find the foregoing terms acceptable. We are excited to
have you join the Company and value your role in helping make Pets.com a great
success. You may indicate your agreement with these terms and accept this offer
by signing and dating the enclosed duplicate original of this letter and
returning it to me. As required by law, your employment with the Company is also
contingent upon your providing legal proof of your identity and authorization to
work in the United States.
We look forward to having you join us as soon as possible.
Very truly yours,
/s/ Julie Wainwright
------------------------------------
Julie Wainwright
CEO
-2-
<PAGE> 3
I have read and accept this employment offer:
/s/ Chris Deyo
- --------------------------------
Signature of Chris Deyo
-3-
<PAGE> 1
EXHIBIT 10.9
Mr. John Hollon
March 26, 1999
Dear John,
I am pleased to offer you the position of Vice President of Editorial for
Pets.com pending successful completion of your reference checks. In this
position you will be responsible for building a team, recommending and
implementing an editorial plan and directing the content of the site to maximize
consumer retention and generally provide superior content to pet owners. In this
position you will be reporting to the President.
As you know, Pets.com is a cross-functional team environment, therefore, you
will be expected to work with all departments to effectively maximize company
goals.
Your salary is $100,000 per year with stock of 125,000 shares. Your salary will
be paid in accordance with company pay periods and your stock will vest over
four years with a one year cliff and then monthly vesting. You will also be
eligible for two weeks vacation the first year of employment and three weeks
thereafter. You will also receive a signing bonus of $10,000 payable within the
first thirty days of your employment. Pets.com will also be providing you with a
relocation package to be negotiated.
You will be considered an "at will" employee.
Your start date will be no later than April 19, 1999.
John, I look forward to working with you. I believe that this is going to be a
fun, challenging and rewarding experience.
Please sign this letter and return it to me to signify your acceptance.
This offer expires on April 8, 1999 at 5pm PST.
Warm regards,
Julie L Wainwright
CEO
Pets.com
-1-
<PAGE> 2
I accept
/s/ John W. Hollon 5-5-99
- ------------------------ -------------
John Hollon Date
-2-
<PAGE> 1
EXHIBIT 10.10
April 7, 1999
Paul Melmon
1408 Cordilleras Avenue
San Carlos, CA 94070
Dear Paul,
On behalf of Pets.com, Inc. (the "Company"), I am pleased to offer you
the position of Vice President of Engineering of the Company. Speaking for
myself, as well as the other members of the Company's management team, we are
all very impressed with your background and experience and look forward to
working with you.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become the Vice President of Engineering of the
Company, working out of the Company's headquarters which will be located in San
Francisco. As Vice President of Engineering you will have overall responsibility
for hiring and leading the teams in Engineering and Development, Network
Operations and Quality Assurance. As a member of the senior management team you
will participate in setting strategy for the Company and you will set technology
strategy and be responsible for the successful and timely implementation of the
Company's technology roadmaps. This includes building a world class team. In
this position you will report to the Company's Chief Executive Officer, Julie
Wainwright
b. You agree to the best of your ability and experience that you
will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from -accepting speaking or presentation
engagements in exchange for honoraria or from serving on
<PAGE> 2
boards of charitable organizations, or from owning no more than one percent (1%)
of the outstanding equity securities of a corporation whose stock is listed on a
national stock exchange.
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on April
26, 1999.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $13,333.33,
which is equivalent to $160,000.00 on an annualized basis. Your salary will be
payable pursuant to the Company's regular payroll policy.
5. STOCK OPTIONS.
[a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 238,950 (1.9%) shares of the Company's Common Stock
("Shares") with an exercise price equal to the fair market value on the date of
the grant. These option shares will vest at the rate of 25% one year after your
hire date and 1/48th per month thereafter. Vesting will, of course, depend on
your continued employment with the Company. The option will be an incentive
stock option to the maximum extent allowed by the tax code and will be subject
to the terms of the Company's 1999 Stock Plan and the Stock Option Agreement
between you and the Company.
b. PERSONAL TIME OFF. You will be entitled to 10 days paid
personal time off (PTO) per year, pro-rated for the remainder of this calendar
year. Vacation accrues from your first day of employment.
6. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
Agreement"), prior to or on your Start Date.
7. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
-2-
<PAGE> 3
8. AT-WILL EMPLOYMENT. Notwithstanding the Company's obligation
described in Section 8 above, your employment with the Company will be on an "at
will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
We are all delighted to be able to extend you this offer and look
forward to working with you. To indicate your acceptance of the Company's offer,
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the Confidentiality Agreement. This
letter, together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
This offer expires April 8, 1999 at 5 PM PST.
Very truly yours,
PETS.COM, INC.
/s/ Julie Wainwright
------------------------------------
Julie Wainwright, Chief Executive
Officer
ACCEPTED AND AGREED:
Paul MelmOn
/s/ Paul Melmon
- ---------------------------------
Signature
4/8/99
- ---------------------------------
Date
-3-
<PAGE> 1
EXHIBIT 10.11
PETS.COM, INC.
5903 Christie Avenue
Emeryville, CA 94608
April 21, 1999
John Benjamin
2016 Troy Place
Vista, CA 92084
Dear John,
On behalf of Pets.com, Inc. (the "Company"), I am pleased to offer you
the position of Vice President of Merchandising of the Company. Speaking for
myself, as well as the other members of the Company's management team, we are
all very impressed with your experience and we look forward to working with you.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become Vice President of Merchandising of the
Company, working out of the Company's headquarters office in San Francisco. As
Vice President of Merchandising you will have overall responsibility for hiring
and leading a world class team. You will report to the Company's Chief Executive
Officer.
b. You agree to the best of your ability and experience that you
will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on May
17, 1999.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for
-1-
<PAGE> 2
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $10,416.66,
which is equivalent to $125,000. on an annualized basis. Your salary will be
payable pursuant to the Company's regular payroll policy.
b. RELOCATION EXPENSES. In connection with your relocation from
Vista to San Francisco, the Company will provide you with a $25,000. Relocation
allowance. In the unlikely event that you voluntarily terminate your employment
with the Company before the end of six months of employment, you agree to repay
the Company the relocation allowance amount, pro-rated for months of service
with the Company.
Any amounts received by you for relocation expense reimbursement will be
reported as taxable income to you in the year received as required by applicable
tax law.
5. STOCK OPTIONS.
a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 90,000 shares of the Company's Common Stock ("Shares") with
an exercise price equal to the fair market value on the date of the grant. These
option shares will vest at the rate of 25% one year after your hire date and
1/48th per month thereafter. Vesting will, of course, depend on your continued
employment with the Company. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Stock Plan and the Stock Option Agreement between you and the
Company.
6. BENEFITS.
a. EMPLOYEE BENEFITS. You will be eligible for employee medical,
dental and 401(k) benefits, once established by the Company.
Prior to that time, the Company will reimburse you for your
COBRA payments.
b. PERSONAL TIME OFF(PTO). You will be entitled to 10 days paid
time off per year, pro-rated for the remainder of this calendar
year. You will begin accruing PTO from your first day of
employment. After your first year, your accrual rate will
increase to 15 days paid time off.
c. COMPANY HOLIDAYS. You will be eligible for all Company
holidays, once established by the Company.
7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential
-2-
<PAGE> 3
Information and Invention Assignment Agreement, a copy of which is enclosed for
your review and execution (the "Confidentiality Agreement"), prior to or on your
Start Date.
8. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. AT-WILL EMPLOYMENT. Your employment with the Company will be on an
"at will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
John, we are all delighted to be able to extend you this offer and look
forward to working with you. To indicate your acceptance of the Company's offer,
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the Confidentiality Agreement. This
letter, together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
This offer of employment expires at 5:00 PM (PST) on Wednesday, April 21, 1999.
Very truly yours,
PETS.COM, INC.
/s/ Julie Wainwright
-----------------------------------
Julie Wainwright, Chief Executive Officer
ACCEPTED AND AGREED:
/s/ John Benjamin
- ----------------------------------
John Benjamin
Date: April 21, 1999
-3-
<PAGE> 1
EXHIBIT 10.12
PETS.COM, INC.
5903 Christie Avenue
Emeryville, CA 94608
April 22, 1999
Diane Hourany
870 Florida Street
San Francisco, CA 94110
Dear Diane,
On behalf of Pets.com, Inc. (the "Company"), I am pleased to offer you
the position of Vice President of Operations. Speaking for myself, as well as
the other members of the Company's management team, we are all very excited
about you joining the team and we look forward to working with you.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become Vice President of Operations, working out of
the Company's headquarters office in San Francisco. As Vice President of
Operations you will have overall responsibility for hiring, training and leading
a world class Operations team. You will report to the Chief Executive Officer.
b. You agree to the best of your ability and experience that you
will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on or
before April 28, 1999.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for
-1-
<PAGE> 2
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $12,500
which is equivalent to $150,000. on an annualized basis. Your salary will be
payable pursuant to the Company's regular payroll policy.
b. BONUS. You will be eligible to receive a one time bonus of
$10,000 payable with your first eligible payroll. In the unlikely event that you
voluntarily terminate your employment with the Company before the end of six
months of employment, you agree to repay the Company the bonus amount, pro-rated
for months of service with the Company.
5. STOCK OPTIONS.
a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 157,204 shares of the Company's Common Stock ("Shares") with
an exercise price equal to the fair market value on the date of the grant. These
option shares will vest at the rate of 25% one year after your hire date and
1/48th per month thereafter. Vesting will, of course, depend on your continued
employment with the Company. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Stock Plan and the Stock Option Agreement between you and the
Company.
6. BENEFITS.
a. EMPLOYEE BENEFITS. You will be eligible for employee medical,
dental and 401(k) benefits, once established by the Company.
Prior to that time, the Company will reimburse you for your
COBRA payments.
b. PERSONAL TIME OFF(PTO). You will be entitled to 10 days paid
time off per year, pro-rated for the remainder of this calendar
year. You will begin accruing PTO from your first day of
employment. After your first year, your accrual rate will
increase to 15 days paid time off.
c. COMPANY HOLIDAYS. You will be eligible for all Company
holidays, once established by the Company.
7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
Agreement"), prior to or on your Start Date.
-2-
<PAGE> 3
8. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. AT-WILL EMPLOYMENT. Your employment with the Company will be on an
"at will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
10. STOCK ACCELERATION. In the event of a sale or merger of the Company,
in which more than 51% of the voting power of the Company is transferred to a
third party, 25% of your remaining unvested shares will accelerate and become
fully vested.
11. TERMINATION. In the event of a sale or merger of the Company, in
which more than 51% of the voting power of the Company is transferred to a third
party and your employment is terminated with or without cause within one year
after the acquisition or the office is moved within 50 miles of its San
Francisco location you will receive a severance equal to three months of your
current monthly salary.
Diane, we are all delighted to be able to extend you this offer and look
forward to working with you. To indicate your acceptance of the Company's offer,
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the Confidentiality Agreement. This
letter, together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
This offer of employment expires at 5:00 PM (PST) on Monday, April 26, 1999.
Very truly yours,
PETS.COM, INC.
/s/ Julie Wainwright
-----------------------------------
Julie Wainwright, Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Diane Hourany
- ---------------------------------
Diane Hourany
Date: April 23, 1999
-3-
<PAGE> 1
EXHIBIT 10.13
PETS.COM, INC.
May 1, 1999
Sue Ann Latterman VMD
860 Murchison Drive
Millbrae, CA 94030
Dear Sue Ann,
On behalf of Pets.com, Inc. (the "Company"), I am pleased to offer you
the position of Vice President of Business Development. Speaking for myself, as
well as the other members of the Company's management team, we continue to be
impressed with your experience and we look forward to your future success with
the Company.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become the Vice President of Business Development of
the Company, working out of the Company's headquarters office in San Francisco,
California. As Vice President of Business Development you will be a key member
of the Company's senior management team and will have overall responsibility for
building strategic relationships with companies in the Internet and pet segment.
You will report to the Company's President.
b. You agree to the best of your ability and experience that you
will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
-1-
<PAGE> 2
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on May
17, 1999.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $12,500.00
which is equivalent to $150,000 on an annualized basis. Your salary will be
payable pursuant to the Company's regular payroll policy.
b. BONUS. You will be eligible to receive a one time bonus of
$10,000 payable with your first eligible payroll. In the unlikely event that you
voluntarily terminate your employment with the Company before the end of six
months of employment, you agree to repay the Company the bonus amount, pro-rated
for months of service with the Company.
5. STOCK OPTIONS.
a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 150,000 shares of the Company's Common Stock ("Shares") with
an exercise price equal to the fair market value on the date of the grant. These
option shares will vest at the rate of 25% one year after your hire date and
1/48th per month thereafter. Vesting will, of course, depend on your continued
employment with the Company. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Stock Plan and the Stock Option Agreement between you and the
Company.
6. BENEFITS.
a. EMPLOYEE BENEFITS. You will be eligible for employee
medical, dental and 401(k) benefits, once established by
the Company. Prior to that time, the Company will
reimburse you for your COBRA payments.
b. PERSONAL TIME OFF(PTO). You will be entitled to 10 days
paid time off per year, pro-rated for the remainder of
this calendar year. You will begin accruing PTO from
your first day of employment.
c. COMPANY HOLIDAYS. You will be eligible for all Company
holidays, once established by the Company.
7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential
-2-
<PAGE> 3
Information and Invention Assignment Agreement, a copy of which is enclosed for
your review and execution (the "Confidentiality Agreement"), prior to or on your
Start Date.
8. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. AT-WILL EMPLOYMENT. Your employment with the Company will be on an
"at will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
Sue Ann, we are all delighted to be able to extend you this offer and
look forward to working with you. To indicate your acceptance of the Company's
offer, please sign and date this letter in the space provided below and return
it to me, along with a signed and dated copy of the Confidentiality Agreement.
This letter, together with the Confidentiality Agreement, set forth the terms of
your employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
This offer of employment expires at 5:00 PM PST on May 4, 1999.
Very truly yours,
PETS.COM, INC.
/s/ Chris Deyo
------------------------------------
President, Chris Deyo
ACCEPTED AND AGREED:
/s/ Sue Ann Latterman VMD
- ---------------------------------
Sue Ann Latterman VMD
Date: May 4, 1999
----------------------------
-3-
<PAGE> 1
EXHIBIT 10.14
PETS.COM, INC.
May 5, 1999
John Hommeyer
111 Terrace Place
Terrace Park, OH 45174
Dear John,
On behalf of Pets.com, Inc. (the "Company"), I am pleased to offer you
the position of Vice President of Marketing. Speaking for myself, as well as the
other members of the Company's management team, we continue to be impressed with
your experience and we look forward to your future success with the Company.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become the Vice President of Marketing of the
Company, working out of the Company's headquarters office in San Francisco,
California. As Vice President of Marketing you will be a key member of the
Company's senior management team and will have overall responsibility for
hiring, training and managing a world class team. You will report to the
Company's President.
b. You agree to the best of your ability and experience that you
will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
-1-
<PAGE> 2
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on May
19, 1999.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $13,750
which is equivalent to $165,000 on an annualized basis. Your salary will be
payable pursuant to the Company's regular payroll policy.
b. BONUS. You will be eligible to receive a one time bonus of
$20,000.00 payable with your first eligible payroll. In the unlikely event that
you voluntarily terminate your employment with the Company before the end of six
(6) months of employment, you agree to repay the Company the bonus amount,
pro-rated for months of service with the Company.
c. RELOCATION EXPENSE. In connection with your relocation from
Ohio to San Francisco, the Company will provide you with a $25,000 Relocation
allowance. In the unlikely event that you voluntarily terminate your employment
with the Company before the end of six months of employment, you agree to repay
the Company the relocation allowance amount, pro-rated for months of service
with the Company. Any amounts received by you for relocation expense
reimbursement will be reported as taxable income to you in the year received as
required by applicable tax law.
5. STOCK OPTIONS.
a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 150,000 shares of the Company's Common Stock ("Shares") with
an exercise price equal to the fair market value on the date of the grant. These
option shares will vest at the rate of 25% one year after your hire date and
1/48th per month thereafter. Vesting will, of course, depend on your continued
employment with the Company. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Stock Plan and the Stock Option Agreement between you and the
Company.
6. BENEFITS.
a. EMPLOYEE BENEFITS. You will be eligible for employee medical,
dental and 401(k) benefits, once established by the Company. Prior to that time,
the Company will reimburse you for your COBRA payments.
-2-
<PAGE> 3
b. PERSONAL TIME OFF(PTO). You will be entitled to 10 days paid
time off per year, pro-rated for the remainder of this calendar year. You will
begin accruing PTO from your first day of employment.
c. COMPANY HOLIDAYS. You will be eligible for all Company
holidays, once established by the Company.
7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
Agreement"), prior to or on your Start Date.
8. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. AT-WILL EMPLOYMENT. Your employment with the Company will be on an
"at will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason.
10. TERMINATION. In the event of a sale or merger of the Company, in
which more than fifty-one percent (51%) of the voting power of the Company is
transferred to a third party and your employment is terminated with or without
cause within one (1) year after the acquisition or the office is moved more than
fifty (50) miles of its San Francisco location, you will receive a severance
equal to three (3) months of your current monthly salary.
John, we are all delighted to be able to extend you this offer and look
forward to working with you. To indicate your acceptance of the Company's offer,
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the Confidentiality Agreement. This
letter, together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
This offer of employment expires at 5:00 PM PST on May 6, 1999.
Very truly yours,
PETS.COM, INC.
-3-
<PAGE> 4
/s/ Chris Deyo
------------------------------------
President, Chris Deyo
ACCEPTED AND AGREED:
/s/ John Hommeyer
- ---------------------------------
John Hommeyer
Date: May 6, 1999
----------------------------
-4-
<PAGE> 1
EXHIBIT 10.15
August 20, 1999
Paul G. Manca
6654 Pineneedle Drive
Oakland, CA 94611
Dear Paul,
On behalf of Pets.com, Inc. (the "Company"), I am pleased to offer you
the position of Chief Financial Officer. Speaking for myself, as well as the
other members of the Company's management team, we continue to be impressed with
your experience and we look forward to your future success with the Company.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become our Chief Financial Officer, working out of
the Company's headquarters office in San Francisco, California. As a member of
the Company's senior management team you will report to the Chief Executive
Officer of the Company.
b. You agree to the best of your ability and experience that you
will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on or
before August 30, 1999.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
-1-
<PAGE> 2
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $14,583.33,
which is equivalent to $175,000.00 on an annualized basis. Your salary will be
payable pursuant to the Company's regular payroll policy.
5. STOCK OPTIONS.
a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 250,000 shares of the Company's Common Stock ("Shares") with
an exercise price equal to the fair market value on the date of the grant. These
option shares will vest at the rate of 25% one year after your hire date and
l/48th per month thereafter. Vesting will, of course, depend on your continued
employment with the Company. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Stock Plan and the Stock Option Agreement between you and the
Company.
6. BENEFITS.
a. EMPLOYEE BENEFITS On the first of the month following your
hire date, you will be eligible to participate in employee medical, dental and
vision benefits.
b. PERSONAL TIME OFF (PTO) You will be entitled to 10 days paid
time off per year, pro-rated for the remainder of this calendar year. You will
begin accruing PTO from your first day of employment.
c. COMPANY HOLIDAYS You will be eligible for all Company
holidays.
7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
Agreement"), prior to or on your Start Date.
8. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. AT-WILL EMPLOYMENT. Your employment with the Company will be on an
"at will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason.
Paul, we are all delighted to be able to extend you this offer and look
forward to working with you. You indicate your acceptance of the Company's offer
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the
-2-
<PAGE> 3
Confidentiality Agreement. This letter, together with the Confidentiality
Agreement, set forth the terms of your employment with the Company and supersede
any prior representations or agreements, whether written or oral. This letter
may not be modified or amended except by a written agreement, signed by the
Company and by you.
THIS OFFER EXPIRES MONDAY, AUGUST 23, 1999, 9:00 AM (PST).
Very truly yours,
PETS.COM, INC.
/s/ Julie Waninwright
Julie Wainwright, Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Paul Manca
- -------------------------------
Paul G. Manca
Date: 8/21/99
-3-
<PAGE> 1
EXHIBIT 10.16
November 15, 1999
REVISED OFFER LETTER
Ralph E. Lewis
1479 Brookfield Road
Yardley PA 19067
Dear Ralph,
I am pleased to offer you the position of Vice President, Distribution
and Logistics. Speaking for myself, as well as the other members of the
Company's management team, we continue to be impressed with your experience and
we look forward to your future success with the Company.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become Vice President, Distribution and Logistics,
working out of the Company's headquarters office in San Francisco, California.
As a member of the Company's management team you will report to the Chief
Executive Officer.
b. You agree to the best of your ability and experience that you
will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
-1-
<PAGE> 2
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on or
before November 18, 1999.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $16,666.66,
which is equivalent to $200,000.00 on an annualized basis. Your salary will be
payable pursuant to the Company's regular payroll policy.
b. BONUS. You will be eligible to receive a one time bonus of
$20,000.00 and an additional option to purchase 25,000 shares of the Company's
Common Stock if you begin employment with the Company on or before December 1,
1999. In the unlikely event that you voluntarily terminate your employment with
the Company before the end of six (6) months of employment, you agree to repay
the Company the bonus.
c. RELOCATION BONUS. In connection with your relocation from
Pennsylvania to California, the Company will provide you with a $50,000.00
Relocation allowance, grossed up to cover taxes you would be expected to pay on
the $50,000.00 allowance. In the unlikely event that you voluntarily terminate
your employment with the Company before the end of one year of employment, you
agree to repay the Company the relocation allowance amount, pro-rated for months
of service with the Company. Any amounts received by you for relocation expense
reimbursement will be reported as taxable income to you in the year received as
required by applicable tax law.
5. STOCK OPTIONS.
a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 150,000 shares of the Company's Common Stock ("Shares") with
an exercise price equal to the fair market value on the date of the grant. These
option shares will vest at the rate of 25% one year after your hire date and
1/48th per month thereafter. Vesting will, of course, depend on your continued
employment with the Company. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Stock Plan and the Stock Option Agreement between you and the
Company.
6. BENEFITS.
-2-
<PAGE> 3
a. EMPLOYEE BENEFITS On the first of the month following your
hire date, you will be eligible to participate in employee medical, dental and
vision benefits.
b. PERSONAL TIME OFF (PTO) You will be entitled to 10 days paid
time off per year, pro-rated for the remainder of this calendar year. You will
begin accruing PTO from your first day of employment. Your accrual amount will
increase to 15 days in the next calendar year.
c. COMPANY HOLIDAYS You will be eligible for all Company
holidays.
7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
Agreement"), prior to or on your Start Date.
8. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. AT-WILL EMPLOYMENT. Your employment with the Company will be on an
"at will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason.
10. TERMINATION. In the event of a sale or merger of the Company, in
which more than fifty-one percent (51%) of the voting power of the Company is
transferred to a third party and your employment is terminated with or without
cause within one (1) year after the acquisition or the office is moved more than
fifty (50) miles of its San Francisco location, you will receive a severance
equal to three (3) months of your current monthly salary. If you are terminated
from the company with or without cause, you will receive a severance equal to
three (3) months of your current monthly salary.
Ralph, we are all delighted to be able to extend you this offer and look
forward to working with you. To indicate your acceptance of the Company's offer,
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the Confidentiality Agreement. This
letter, together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
-3-
<PAGE> 4
THIS OFFER EXPIRES MONDAY NOVEMBER 15, 1999, 6:00 PM (PST).
Very truly yours,
PETS.COM, INC.
/s/ Julie Wainwright
Julie Wainwright, Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Ralph Lewis
- ------------------------
Ralph Lewis
Date: 11-15-99
-4-
<PAGE> 1
EXHIBIT 10.17
PETS.COM, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (the "Agreement") is
made as of the 22nd of April, 1999 by and between Pets.com, Inc., a California
corporation (the "Company") and the investors listed on Exhibit A attached
hereto (each a "Purchaser" and together the "Purchasers").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES A PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary
of State of the State of California on or before the Closing (as defined below)
the First Amended and Restated Articles of Incorporation in the form attached
hereto as Exhibit B (the "Restated Articles").
(b) Subject to the terms and conditions of this
Agreement, each Purchaser agrees, severally and not jointly, to purchase at the
Closing and the Company agrees to sell and issue to each Purchaser at the
Closing that number of shares of Series A Preferred Stock set forth opposite
each such Purchaser's name on Exhibit A attached hereto at a purchase price of
$1.45 per share. The shares of Series A Preferred Stock issued to the Purchaser
pursuant to this Agreement shall be hereinafter referred to as the "Stock."
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take place
at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park,
California, at 10:00 a.m., on April 22, 99, or at such other time and place as
the Company and the Purchasers mutually agree upon, orally or in writing (which
time and place are designated as the "Closing").
(b) At the Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased thereby against
payment of the purchase price therefor by check payable to the Company or by
wire transfer to the Company's bank account or by cancellation of indebtedness,
or any combination thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now
<PAGE> 2
conducted and as proposed to be conducted in the future. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties.
2.2 CAPITALIZATION. The authorized capital of the Company
consists, or will consist, immediately prior to the Closing, of:
(a) 7,500,000 shares of Preferred Stock, all of which
shares have been designated Series A Preferred Stock, none of which are issued
and outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Articles.
(b) 25,000,000 shares of Common Stock, 2,968,860 shares
of which are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws.
(c) The Company has reserved 3,537,167 shares of Common
Stock for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Stock Plan duly adopted by the Board of Directors
and approved by the Company shareholders (the "Stock Plan"). Of such reserved
shares of Common Stock, 1,157,023 shares have been issued pursuant to restricted
stock purchase agreements, no options to purchase shares have been granted or
are currently outstanding, and 2,380,144 shares of Common Stock remain available
for issuance to officers, directors, employees and consultants pursuant to the
Stock Plan.
(d) Except for (a) the conversion privileges of the
Series A Preferred Stock to be issued pursuant to this Agreement, (b) the Right
of First Offer set forth in Section 2.3 of the Investors Rights Agreement to be
entered into by the Company, Greg McLemore and the Purchasers at the Closing,
and (c) outstanding options issued pursuant to the Stock Plan, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal or similar rights) or agreements, orally or in
writing, for the purchase or acquisition from the Company of any shares of its
capital stock. The Company is not a party or subject to any agreement or
understanding, and to the best of its knowledge, there is no agreement or
understanding between any persons and/or entities, that affects or relates to
the voting or giving of written consents with respect to any security or by a
director of the Company.
2.3 SUBSIDIARIES. The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Investors' Rights
Agreement, in the form attached hereto as Exhibit D (the "Investors' Rights
Agreement") and the Right of First Offer and Co-Sale Agreement in the form
attached hereto as Exhibit E (the "Co-Sale Agreement" and collectively with this
Agreement and the Investors' Rights Agreement, the "Agreements"), the
performance of all obligations of the
<PAGE> 3
Company hereunder and thereunder and the authorization, issuance (or reservation
for issuance), sale and delivery of the Stock and the Common Stock issuable upon
conversion of the Stock (together, the "Securities") has been taken or will be
taken prior to the Closing, and the Agreements, when executed and delivered by
the Company, shall constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, or (ii) to the extent the indemnification provisions contained in the
Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being issued
to the Purchasers hereunder, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Investors' Rights Agreement and applicable state and federal securities laws.
Based in part upon the representations of the Purchasers in this Agreement and
subject to the provisions of Section 2.6 below, the Stock will be issued in
compliance with all applicable federal and state securities laws. The Common
Stock issuable upon conversion of the Stock has been duly and validly reserved
for issuance, and upon issuance in accordance with the terms of the Restated
Articles, shall be duly and validly issued, fully paid and nonassessable and
free of restrictions on transfer other than restrictions on transfer under this
Agreement, the Investors' Rights Agreement and applicable federal and state
securities laws and will be issued in compliance with all applicable federal and
state securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, other applicable state securities laws and Regulation D of the
Securities Act of 1933, as amended (the "Securities Act").
2.7 OFFERING. Subject in part to the truth and accuracy of each
Purchaser's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series A Preferred Stock as contemplated by this
Agreement are, to the Company's knowledge, exempt from the registration
requirements of any applicable state and federal securities laws, and neither
the Company nor any authorized agent acting on its behalf will knowingly take
any action hereafter that would cause the loss of such exemption.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of the Agreements or the right
of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the assets, condition or
affairs of the Company,
<PAGE> 4
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions, suits or proceedings or
investigations pending or threatened involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with former employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its subsidiaries currently pending or which the Company or any
of its subsidiaries intends to initiate.
2.9 INTELLECTUAL PROPERTY. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, licenses, information and proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted in the future without any conflict with, or infringement of, the
rights of others and believes it can obtain, on commercially reasonable terms,
any additional rights necessary for the conduct of its business as proposed to
be conducted. The Company has not received any communications alleging that the
Company has violated or, by conducting its business, would violate any of the
patents, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interest of the Company or that would conflict with the Company's
business as proposed to be conducted. Neither the execution or delivery of the
Agreements, nor the carrying on of the Company's business by the employees of
the Company, nor the conduct of the Company's business as proposed, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument under which any such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company. The Schedule of Exceptions includes a list of all
patents, copyrights, trademarks and domain names claimed or owned by the Company
and all licenses by the Company of any intellectual property or technology from
third parties.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provisions of its Restated Articles or Bylaws or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound
or, to its knowledge, of any provision of federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
the Agreements and the consummation of the transactions contemplated hereby or
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision,
<PAGE> 5
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) To its knowledge, the Company has avoided every
condition, and has not performed any act, the occurrence of which would result
in the Company's loss of any right granted under any license, permit,
authorization, distribution agreement or other agreement.
2.11 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, affiliates, or any
affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $15,000, (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company, (iii) the grant of
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person or affect the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products or services, or
(iv) indemnification by the Company with respect to infringement of proprietary
rights.
(c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in excess of $15,000 or,
in the case of indebtedness and/or liabilities individually less than $15,000,
in excess of $50,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(d) For purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by
any contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that, to its knowledge, adversely affects its
business as now conducted and as proposed to be conducted in the future, its
properties or its financial condition.
(f) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the merger of the Company with or into any such
corporation or corporations, (ii) with any representative of
<PAGE> 6
any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of the Company or a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company would be disposed of, or (iii) regarding any other form of liquidation,
dissolution or winding up of the Company.
2.12 DISCLOSURE. The Company has fully provided the Purchasers
with all the information that the Purchasers have requested for deciding whether
to acquire the Stock and all information that the Company believes is reasonably
necessary to enable the Purchasers to make such a decision. No representation or
warranty of the Company contained in this Agreement and the exhibits attached
hereto, any certificate furnished or to be furnished to Purchasers at the
Closing, or other information furnished to the Purchasers (when read together)
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
2.13 NO CONFLICT OF INTEREST. The Company is not indebted (or
committed to make loans or extend or guarantee credit), directly or indirectly,
to any of its employees, officers or directors or to their respective spouses or
children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. None of the Company's employees, officers or directors,
or any members of their immediate families, are, directly or indirectly,
indebted to the Company (other than in connection with purchases of the
Company's stock) or, to the Company's knowledge, have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company except that employees, officers,
directors and/or shareholders of the Company may own stock in (but not exceeding
two percent of the outstanding capital stock of) any publicly traded company
that may compete with the Company. To the Company's knowledge, none of the
Company's officers or directors or any members of their immediate families are,
directly or indirectly, interested in any material contract with the Company.
The Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
2.14 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the Investors' Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. To the Company's knowledge, no shareholder of the Company has
entered into any agreements with respect to the voting of capital shares of the
Company.
2.15 TITLE TO PROPERTY AND ASSETS. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
<PAGE> 7
2.16 BALANCE SHEET. The Company has delivered to each Purchaser
that has requested a copy its unaudited balance sheet as of March 31, 1999 (the
"Balance Sheet"). The Balance Sheet has been prepared in accordance with
generally accepted accounting principles and fairly presents the financial
condition of the Company as of the date indicated therein, subject to normal
year-end audit adjustments. Except as set forth in the Balance Sheet, the
Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to March 31,
1999 that are not material, individually or in the aggregate, and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Balance Sheet, which, in both cases, individually or in the
aggregate are not material to the financial condition of the Company. Except as
disclosed to the Purchasers, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.17 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.18 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the knowledge of the Company threatened, which could have
a material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as is presently conducted and as
it is proposed to be conducted), nor is the Company aware of any labor
organization activity involving its employees. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have the
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company is terminable at the will
of the Company. To its knowledge, the Company has complied in all material
respects with all applicable state and federal equal employment opportunity laws
and with other laws related to employment. The Company is not a party to or
bound by any currently effective employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation agreement.
2.19 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AND
EMPLOYEE STOCK PURCHASE AGREEMENTS. Each employee, consultant and officer of the
Company has executed agreements with the Company regarding confidentiality and
proprietary information and any stock purchases substantially in the form or
forms delivered to the counsel for the Purchasers. The Company is not aware that
any of its employees or consultants is in violation thereof, and the Company
will use its best efforts to prevent any such violation.
<PAGE> 8
2.20 PERMITS. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, prospects,
or financial condition of the Company. The Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.21 CORPORATE DOCUMENTS. The Restated Articles and Bylaws of
the Company are in the form provided to counsel for the Purchasers. The copy of
the minute books of the Company provided to the Purchasers' counsel contains
minutes of all meetings of directors and shareholders and all actions by written
consent without a meeting by the directors and shareholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and shareholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.22 QUALIFIED SMALL BUSINESS STOCK. As of the Closing: (i) the
Company will not have made any purchases of its own stock during the one-year
period proceeding the Closing having an aggregate value exceeding 5% of the
aggregate value of all its stock as of the beginning of such period and (ii) the
Company's aggregate gross assets, as defined by Code Section 1202(d)(2), at no
time between October 7, 1998, and through the Closing have exceeded or will
exceed $50 million, taking into account the assets of any corporations required
to be aggregated with the Company in accordance with Code Section 1202(d)(3).
2.23 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted exclusive rights to manufacture, produce, assemble, license, market, or
sell its products or services to any other person and is not bound by any
agreement that affects the Company's exclusive right to develop, manufacture,
assemble, distribute, market or sell its products or services.
2.24 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed
all tax returns and reports (including information returns and reports) as
required by law. These returns and reports are true and correct in all material
respects. The Company has paid all taxes and other assessments due. The Company
has not elected pursuant to the Code to be treated as a Subchapter S corporation
or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of
the Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company has never had
any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of the Company's federal income tax returns and
none of its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. Since the date of the Balance Sheet,
the Company has not incurred any taxes, assessments or governmental charges
other than in the ordinary course of business and the Company has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with
<PAGE> 9
respect to its business, properties and operations for such period. The Company
has withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositories.
2.25 SECTION 83(b) ELECTIONS. To the best of the Company's
knowledge, all individuals who have purchased unvested shares of the Company's
Common Stock have timely filed elections under Section 83(b) of the Code and any
analogous provisions of applicable state tax laws.
2.26 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
2.27 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.28 YEAR 2000. To the Company's knowledge, each hardware and
software product used by the Company in its business (collectively, the
"Software") will accurately process date data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, including, without limitation, leap year calculations,
without a decrease in the functionality of the Software. To the Company's
knowledge, the Software is designed to be used prior to, during and after the
calendar year 2000 A.D. and will operate during each such time period without
error relating to date data, specifically including any error relating to, or
the product of, date data which represents or references different centuries or
more than one century. Without limiting the generality of the foregoing, to the
Company's knowledge, the Software (a) will not abnormally end or provide invalid
or incorrect results as a result of date data, specifically including date data
which represents or references different centuries or more than one century, (b)
has been designed to ensure year 2000 compatibility, including, but not limited
to, date data century recognition, calculations which accommodate same century
and multi-century formulas and date values, and date data interface values that
reflect the century, and (c) includes "Year 2000 Capabilities," meaning that the
Software (i) will manage and manipulate data involving dates, including single
century formulas and multi-century formulas, and will not cause an abnormally
ending scenario within the application or generate incorrect values or invalid
results involving such dates, (ii) provides that all date-related user interface
functionalities and data fields include the indication of century, and (iii)
provides that all date-related data interface functionalities include the
indication of century.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. Such Purchaser has full power and authority
to enter into the Agreements. The Agreements, when executed and delivered by the
Purchaser, will constitute
<PAGE> 10
valid and legally binding obligations of the Purchaser, enforceable in
accordance with their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors' rights
generally, and as limited by laws relating to the availability of a specific
performance, injunctive relief, or other equitable remedies, and (b) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representation to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. The Purchaser has not been formed
for the specific purpose of acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Stock with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as any other written
information delivered by the Company to the Purchaser, were intended to describe
the aspects of the Company's business which it believes to be material. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the investors to
rely thereon.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
<PAGE> 11
3.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 LEGENDS. The Purchaser understands that the Securities, and
any securities issued in respect of or exchange for the Securities, may bear one
or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
3.7 ACCREDITED INVESTOR. The Purchaser is an accredited investor
as defined in Rule 501(a) of Regulation D promulgated under the Securities Act,
as presently in effect.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled, and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Balance Sheet.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in
<PAGE> 12
connection with the lawful issuance and sale of the Stock pursuant to this
Agreement shall be obtained and effective as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Purchasers' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it has
reasonably requested. This may include, without limitation, good standing
certificates and certification by the Company's Secretary regarding the
Company's Restated Articles and Bylaws and Board of Director and shareholder
resolutions relating to this transaction.
4.6 OPINION OF COMPANY COUNSEL. The Purchasers shall have
received from Venture Law Group, counsel for the Company, an opinion, dated as
of the Closing, in substantially the form of Exhibit F.
4.7 BYLAWS. The Bylaws of the Company shall provide that the
Board of Directors of the Company shall consist of four (4) persons, which
number shall not be changed by an amendment to the Restated Articles or the
Bylaws without consent of holders of two-thirds (2/3rds) of the Preferred Stock.
4.8 BOARD OF DIRECTORS. As of the Closing, the Board shall be
comprised of four (4) directors: Greg McLemore, one representative to be
designated by Hummer Winblad Venture Partners, one director to be designated by
Amazon.com, Inc. ("Amazon.com"), and the Company's Chief Executive Officer.
4.9 INVESTORS' RIGHTS AGREEMENT. The Company, each Purchaser and
Greg McLemore shall have executed and delivered the Investors' Rights Agreement
in substantially the form attached as Exhibit D.
4.10 RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The Company,
each Purchaser, and all holders of more than 100,000 shares of the Company's
Common Stock shall have executed and delivered the Right of First Refusal and
Co-Sale Agreement in substantially the form attached as Exhibit E.
4.11 RESTATED ARTICLES. The Company shall have filed the
Restated Articles with the Secretary of State of California on or prior to the
Closing Date, which shall continue to be in full force and effect as of the
Closing Date.
4.12 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AND
EMPLOYEE STOCK PURCHASE AGREEMENTS. The Company and each of its employees and
consultants shall have entered into the Company's standard form Confidential
Information and Invention Assignment Agreement, in substantially the form
provided to the Purchasers' legal counsel. Each holder of Common Stock of the
Company shall have entered into an Employee Stock Purchase Agreement, in
substantially the form provided to the Purchasers' legal counsel.
<PAGE> 13
4.13 VOTING AGREEMENT. The Company, each Purchaser, Greg
McLemore, and Julie Wainwright shall have executed and delivered the Voting
Agreement in substantially the form attached hereto as Exhibit G.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing for a period of one (1)
year following the Closing, and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of the Purchasers or the
Company.
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties (including transferees of any
securities). Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
6.3 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
<PAGE> 14
6.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page or Exhibit A hereto, or as
subsequently modified by written notice, and
(a) if to the Company, with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: John V. Bautista
Tel: 650-854-4488
Fax: 650-854-1121
(b) if to the Purchasers (other than Amazon.com), with a copy to:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attn: Steven M. Spurlock
Tel: 650-321-2400
Fax: 650-321-2800
or (c) if to Amazon.com, with a copy to:
Perkins Coie LLP
1201 Third Avenue, Suite 4800
Seattle, WA 98101-3099
Attn: Scott L. Gelband
Tel: 206-583-8888
Fax: 206-583-8500
6.7 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee
<PAGE> 15
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 FEES AND EXPENSES. Upon the Closing, the Company shall pay
the reasonable fees and expenses of Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, the counsel for Hummer Winblad Venture Partners and its
affiliated funds, incurred with respect to this Agreement, the documents
referred to herein and the transactions contemplated hereby and thereby,
provided such fees and expenses do not exceed $15,000. The remaining Purchasers
shall pay their own legal fees and expenses incurred with respect to the
foregoing.
6.9 ATTORNEY'S FEES. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
the Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
6.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of at least two-thirds (2/3rds) of the Common Stock issued or
issuable upon conversion of the Stock. Any amendment or waiver effected in
accordance with this Section 6.10 shall be binding upon the Purchasers and each
transferee of the Stock (or the Common Stock issuable upon conversion thereof),
each future holder of all such securities, and the Company.
6.11 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
6.12 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
6.13 ENTIRE AGREEMENT. This Agreement, and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter
<PAGE> 16
hereof, and any and all other written or oral agreements relating to the subject
matter hereof existing between the parties hereto are expressly canceled.
6.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
6.15 CONFIDENTIALITY. Each party hereto agrees that, except with
the prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder, provided however, that Hummer Winblad
Venture Partners III, L.P. and Hummer Winblad Technology Fund III, L.P. may
distribute information concerning the Company to their respective limited
partners. The provisions of this Section 6.15 shall be in addition to, and not
in substitution for, the provisions of any separate nondisclosure agreement
executed by the parties hereto with respect to the transactions contemplated
hereby.
6.16 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Securities.
6.17 WAIVER OF CONFLICTS. Each party to this Agreement
acknowledges that Venture Law Group, counsel for the Company, has in the past
performed and may continue to perform legal services for certain of the
Purchasers in matters unrelated to the transactions described in this Agreement,
including the representation of such Purchasers in venture capital financings
and other matters. Accordingly, each party to this Agreement hereby (a)
acknowledges that they have had an opportunity to ask for information relevant
to this disclosure; and (b) gives its informed consent to Venture Law Group's
representation of certain of the Purchasers in such unrelated matters and to
Venture Law Group's representation of the Company in connection with this
Agreement and the transactions contemplated hereby.
<PAGE> 17
6.18 AGGREGATION OF STOCK. All shares of stock held or acquired
by affiliated entities or persons hereunder shall be aggregated together for the
purpose of determining the availability of rights under this Agreement.
The parties have executed this Series A Preferred Stock Purchase
Agreement as of the date first written above.
COMPANY:
PETS.COM, INC.
By: /s/ Greg McLemore
---------------------------------
Name: Greg McLemore
-------------------------------
(print)
Title:
------------------------------
Address: 87 N. Raymond Avenue
Suite 850
Pasadena, CA 91103
Tel: 626-794-5000
Fax: 626-794-8500
PURCHASERS:
Amazon.com Inc.
------------------------------------
(Print Name of Purchaser)
By: /s/ Randy Tinsley
---------------------------------
Name: Randy Tinsley
-------------------------------
(print)
Title: Treasurer
------------------------------
Address: 1516 Second Avenue
Seattle, WA 98101
Hummer Winblad Venture
Partners III, L.P.
------------------------------------
(Print Name of Purchaser)
By: /s/ John Hummer
---------------------------------
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 18
Name: John Hummer
---------------------------------
(print)
Title: Partner
------------------------------
Address:
Hummr Winblad Technology Fund,
III, L.P.
------------------------------------
(Print Name of Purchaser)
By: /s/ John Hummer
---------------------------------
Name: John Hummer
-------------------------------
(print)
Title: Partner
------------------------------
Address:
Greg McLemore
------------------------------------
(Print Name of Purchaser)
By: /s/ Greg McLemore
---------------------------------
Name: Greg McLemore
-------------------------------
(print)
Title:
------------------------------
Address: 1581 E. Mendocino St.
Altadena, CA 91001
VLG Investments 1999
------------------------------------
(Print Name of Purchaser)
By: /s/ Elis J. Blawie
---------------------------------
Name: Elias J. Blawie
-------------------------------
(print)
Title: Managing Partner
------------------------------
Address:
<PAGE> 19
CNA Trust, TTEE, FBO Venture Law
Group 401(k),
John V. Bautista
------------------------------------
(Print Name of Purchaser)
By: /s/ John V. Bautista
---------------------------------
Name: John V. Bautista
-------------------------------
(print)
Title:
------------------------------
Address:
Glen R. Van Ligten
------------------------------------
(Print Name of Purchaser)
By: /s/ Glen Van Ligten
---------------------------------
Name:
---------------------------------
(print)
Title:
------------------------------
Address:
------------------------------------
(Print Name of Purchaser)
By: /s/ Frances Johnston
---------------------------------
Name: Frances Johnston
-------------------------------
(print)
Title:
------------------------------
Address: c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
<PAGE> 20
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Schedule of Purchasers
Exhibit B - Form of First Amended and Restated Articles of Incorporation
Exhibit C - Schedule of Exceptions to Representations and Warranties
Exhibit D - Form of Investors' Rights Agreement
Exhibit E - Form of Right of First Refusal and Co-Sale Agreement
Exhibit F - Form of Legal Opinion of Venture Law Group
Exhibit G - Form of Voting Agreement
</TABLE>
<PAGE> 21
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series A Purchase Price
-------------------- ----------- --------------
<S> <C> <C>
Amazon.com, Inc. 4,401,716 $6,382,488.20
1516 2nd Avenue, Floor 2
Seattle, WA 98101
Tel: 206-622-2335
Fax: 206-834-7010
Attn: General Counsel
Hummer Winblad Venture 2,389,503 $3,464,779.35
Partners III, L.P.1
2 South Park, 2nd Floor
San Francisco, CA 94107
Tel: 415-979-9600
Fax: 415-979-9601
Attn: John Hummer
Hummer Winblad Technology 2 125,763 $ 182,356.35
Fund III, L.P.
2 South Park, 2nd Floor
San Francisco, CA 94107
Tel: 415-979-9600
Fax: 415-979-9601
Attn: John Hummer
Greg McLemore 275,863 $ 400,001.35
87 N. Raymond Avenue, Suite 850
Pasadena, CA 91103
Tel: 626-794-5000
Fax: 626-794-8500
VLG Investments 1999 17,241 $ 24,999.45
Venture Law Group
</TABLE>
- --------
1 Payment includes conversion of $380,000 principal amount and $1,743.17 accrued
interest from Promissory Notes (canceled as of the Closing) that were originally
issued by the Company to Hummer Winblad Venture Partners III, L.P. on March 10,
1999 and March 19, 1999.
2 Payment includes conversion of $20,000 principal amount and $91.58 accrued
interest from Promissory Notes (canceled as of the Closing) that were originally
issued by the Company to Hummer Winblad Technology Fund III, L.P. on March 10,
1999 and March 19, 1999.
<PAGE> 22
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series A Purchase Price
-------------------- ----------- --------------
<S> <C> <C>
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-1121
Attn: Elias J. Blawie
CNA Trust, TTEE, FBO Venture Law Group 12,413 $ 17,998.85
401(k), John V. Bautista
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-1121
Glen Van Ligten 3,449 $ 5,001.05
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-1121
Frances Johnston 1,380 $ 2,001.00
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-1121
</TABLE>
-2-
<PAGE> 1
EXHIBIT 10.18
ADVERTISING AGREEMENT
This Agreement, dated as of April 22, 1999, is made and entered into by
and between Amazon.com. Inc. ("Amazon.com"), and Pets.com. Inc. ("Company"),
Amazon.com and Company sometimes are referred to collectively as the "Parties"
and individually as a "Party." Amazon.com and Company agree as follows:
SECTION 1. DEFINITIONS
"ADVERTISING PLACEMENT" means, [*] or other [*] provided for in Section
2 or Section 3.
"AFFILIATE" means, with respect to either Party, any individual or
entity that directly or indirectly controls, is controlled by or is under common
control with that Party, or which Party beneficially owns at least [*] of the
equity interests therein.
"AMAZON.COM SITE" means the Web Site identified by the URL
www.amazon.com (and any successors or replacements).
"COMPANY SITE" means the Web Site identified by the URL www.Pets.com
(and any successors or replacements).
"CONFIDENTIAL INFORMATION" means non-public information and know-how of
the Disclosing Party which, by the nature of the circumstances surrounding
disclosure, ought in good faith to be treated as proprietary and/or
confidential, or which has been or is designated as proprietary and/or
confidential, including without limitation any information exchanged between the
Parties under Sections 5.2 and 5.3 of this Agreement. Confidential Information
does not include information that the Receiving Party can show: (a) was known by
the Receiving Party prior to disclosure thereof by the Disclosing Party; (b) was
in or entered the public domain through no fault of the Receiving Party; (c) is
disclosed to the Receiving Party by a third party legally entitled to make such
disclosure without violation of any obligation of confidentiality; or (d) is
independently developed by the Receiving Party without reference to any
Confidential Information of the Disclosing Party.
"DISCLOSING PARTY" means a Party that discloses Confidential Information
to the other Party in connection with this Agreement.
"HOME PAGE" means, with respect to a Web Site, the Web page designated
by the operator of the Web Site as the initial and primary end user interface
for the Web Site.
"INTELLECTUAL PROPERTY RIGHT" means any patent, copyright, trademark,
trade dress, trade name or trade secret right and any other intellectual
property or proprietary right.
"JUMP PAGE" means the Web page maintained on the Amazon.com Site, by or
for Amazon.com. in accordance with Section 2.1.1.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 2
"NEW COMPANY CUSTOMER" means any individual or entity that accesses the
Company site via a hypertext link embedded in any Advertisement Placement on the
Amazon.com Site and that either (a) [*] from Company or any or its Affiliates
before leaving the Company Site by any means, or (b) places at least one product
or service [*] or on a shopping list (or similar data construct) or otherwise
identifies, selects or takes other affirmative steps [*] in a manner that is
recorded and maintained on the Company Site, then [*] by any means, and
subsequently [*] and purchases any such identified product or service.
"NEW AMAZON.COM CUSTOMER" means any individual or entity that accesses
the Amazon.com Site via a hypertext link embedded in any Advertising Placement
on the Company Site and that either (a) [*] from Amazon.com or any of its
Affiliates before leaving the Amazon.com Site by any means, or (b) places at
least one product or service [*] or on a shopping list (or similar data
construct) or otherwise identifies, selects or takes other affirmative steps to
order a product or service in a manner that is recorded and maintained on the
Company Site, then leaves [*] by any means, and subsequently returns to [*] such
identified product or service.
"RECEIVING PARTY" means a Party that receives Confidential Information
from the other Party in connection with this Agreement.
"TERM" means the term of this Agreement as defined in Section 9.
"WEB SITE" means any point of presence maintained on the Internet or on
any other public data network. With respect to any Web Site maintained on the
World Wide Web or any successor public data network, such Web Site includes all
HTML pages (or similar unit of information presented in any relevant data
protocol) that either (a) are identified by the same second-level domain (such
as http://www.amazon.com) or by the same equivalent level identifier in any
relevant address scheme, or (b) contain branding, graphics, navigation or other
characteristics such that a user reasonably would conclude that the pages are
part of an integrated information or service offering.
SECTION 2. [*]
2.1 [*]
2.1.1 During the Term, Amazon.com will create and maintain a Web
page within the Amazon.com Site that contains (a) [*] Amazon.com users [*], and
(b) a hypertext link that [*] Amazon.com [*] to the [*] of the [*]. The content,
[*] and the [*]-related text and/or graphics contained in the Jump Page will be
solely determined by Amazon.com after [*], subject to the implementation process
outlined in Section 4 and the requirements of Section 6.3.
2.1.2 During the Term, Amazon.com [*] on the Amazon.com Site [*]
from [*] of the [*] to the
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-2-
<PAGE> 3
Jump Page, in accordance with and subject to the terms and conditions of this
Agreement. The [*] links will be determined by Amazon.com after [*], subject to
the implementation process outlined in Section 4, and will be limited by, among
other things, the impact on user experience, availability of space and other
business considerations. Notwithstanding anything to the contrary contained in
this Agreement, [*] to place a [*] on the Home Page of the Amazon.com Site.
2.1.3 Subject to Amazon.com's specific approval, and by way of
example only, [*] (a) certain order confirmation and (b) relevant [*].
2.1.4 If, during the Term, Amazon.com creates and maintains an
area within the Amazon.com Site that [*] for the Web Sites [*]. Amazon.com will
include a [*] in such area of the Amazon.com Site. The [*] will be determined by
Amazon.com in [*].
2.2 LAUNCH-RELATED PROMOTIONS
2.2.1 Promptly after the execution of this Agreement, Amazon.com
and Company will (a) prepare and distribute a press release announcing the
transaction, and (b) [*]. If mutually agreed, [*]. The contents and timing
of the release (or releases) [*], if any, will be mutually agreed by the
Parties. Neither Party will [*], make any other disclosures regarding this
Agreement or its terms [*] without the other Party's prior written consent.
2.2.2 For a period of [*] following the date of this Agreement,
Amazon.com will [*] to Company (as established by the Parties based on their
reasonable determination as to [*] and subject to Amazon.com's [*]) to assist
Company in the [*] of the [*] contemplated herein and the Company Site.
SECTION 3. OBLIGATIONS OF COMPANY
During the Term, Company will place and maintain [*] of the Company Site
such [*] as Amazon.com may [*] to Company, in accordance with and subject to the
implementation process outlined in Section 4 and the other terms and conditions
of this Agreement. The [*] will include a [*] on the Amazon.com Site as is [*].
The placement and size [*] will be determined by Company [*], subject to the
implementation process outlined in Section 4, and will be
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-3-
<PAGE> 4
limited by, among other things, the impact on user experience, availability of
space and other business considerations.
SECTION 4. IMPLEMENTATION
4.1 ACCOUNT MANAGERS. Each Party will assign an account manager (which
manager shall be subject to change from time to time by the assigning Party upon
written notice to the other Party) to facilitate coordination of the Parties'
performance of their obligations hereunder (including, without limitation, in
the creation and monitoring of the Advertising Placements).
4.2 COOPERATION. During the Term, the Parties will cooperate in good
faith and use commercially reasonable efforts to (a) establish and implement
procedures and processes for [*] under this Agreement, and (b) [*] in accordance
with such procedures and processes and the terms and conditions of this
Agreement.
4.3 APPROVAL. [*] placed on a [*] will be subject to such [*] prior to
the time the same go live [*]. No such approval will be unreasonably withheld or
delayed.
SECTION 5. [*]
5.1 GENERAL. Except as expressly provided for elsewhere in this
Agreement, each Party will be responsible for all [*] by such Party in [*] under
this Agreement, and the [*] under this Agreement will be provided and undertaken
by the Parties [*].
5.2 [*]. Beginning with the [*] of the Term and for each [*] of the Term
thereafter ("Quarter"), Company will, within [*] after the end of such Quarter,
[*] for each [*] by the Company during the Quarter. Each [*] will be accompanied
by a written statement setting forth the [*] and the Company's calculation of
the [*] for such Quarter. Any [*] by Company [*] under this Section 5.2 will be
[*] equal to [*] for [*] that Amazon.com acquires during the Quarter covered by
such [*]. Any [*] when [*] will be subject to a [*] equal [*] per month or the
[*] allowable by [*], [*] is less, determined and [*] from the date due until
the date [*]. Payment of such [*] will not excuse or cure any breach or default
for [*]. In no event will the Company be required to make more [*] to
Amazon.com, nor Amazon.com be required to [*] made by the Company, during the
Term with respect to any individual or entity that constitutes a [*] or a [*]
Amazon.com [*], respectively.
5.3 RECORDS AND AUDIT. Company will maintain complete and accurate
records of [*]. Amazon.com will maintain complete and accurate records of [*].
Each Party may, at its expense, [*] no more than once every twelve months in
order to [*] under this
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-4-
<PAGE> 5
Agreement. Any such [*] be conducted, to the extent possible, in a manner that
does not unreasonably [*] with the [*] operations. To the extent a Party uses an
[*] to conduct such [*], the [*] shall agree in writing to maintain the
confidentiality of information obtained during [*]. If any [*] an [*] of more
than [*] of the [*] for any month, Company will [*] for the [*].
SECTION 6. PROPRIETARY RIGHTS
6.1 [*]. Subject to the [*] to Company under Section 6.2, Amazon.com
hereby reserves all of its right, title and interest in its Intellectual
Property Rights including, without limitation, all right, title and interest in
and to all trademarks, trade dress, logos, insignia and copyrightable materials
supplied by Amazon.com to Company hereunder. Subject to the foregoing and [*]
under Section 6.3. Company reserves all of its right, title and interest in its
Intellectual Property Rights, including, without limitation, all right, title
and interest in and to all trademarks, trade dress, logos, insignia and
copyrightable materials supplied by the Company to Amazon.com.
6.2 AMAZON.COM LICENSE. Arnazon.com hereby [*], during the Term, a [*]
to use the [*], trademarks, service names and other proprietary marks [*] as [*]
to perform its obligations under this Agreement; provided, however, that any [*]
containing any of [*] will be subject to Amazon.com's prior written approval.
All [*] out of any use of any of [*] by, through or under Company will inure
solely to the benefit of [*].
6.3 COMPANY LICENSE. Company [*] during the Term, a non-exclusive, [*]
to use the [*] trademarks, service names and other proprietary marks and/or
copyrightable materials supplied by Company as is reasonably necessary to
perform its obligations under this Agreement; provided, however, that any [*]
any of Company's marks will be subject to Company's prior written approval. All
goodwill arising out of any use of any of Company's marks by, through or under
Amazon.com will inure solely to the [*].
6.4 NON-DISPARAGEMENT. Neither Company nor Amazon.com will use the other
Party's [*] in a manner that disparages the other Party or its products or
services, and/or portrays the other Party or its products or services in a
false, competitively adverse or poor light. Each of Company and Amazon.com will
comply with the other Party's requests as to the use of the other Party's
proprietary marks and will avoid knowingly taking any action that diminishes the
value of such marks. Either Party's use of the other [*] except as [*] is
strictly prohibited.
6.5 [*]. Each Party expressly acknowledges and agrees that the rights
granted to the other Party in this Agreement [*] and that, without limiting the
generality of the foregoing, nothing in this Agreement shall be deemed to [*]
links, banner ads or other material, serving content, links, banner ads or other
materials [*] or hosting or permitting [*]
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-5-
<PAGE> 6
place links, content, banner ads or other material on [*] whether or not, in
each such case, such content, links, banner ads or other materials [*] with the
products, services, content or banner ads of [*].
SECTION 7. INDEMNITY
7.1 AMAZON.COM. Amazon.com will defend and indemnify Company and its
Affiliates against any claim or action brought by a third party, to the extent
it is based on (a) the operation of the Amazon.com Site or (b) infringement of
such third-party's Intellectual Property Rights by any materials provided by
Amazon.com for display on the Company Site. Subject to Section 7.3, Amazon.com
will pay any award against Company and its Affiliates, or their respective
employees, directors or representatives and any costs and attorneys' fees
reasonably incurred by them resulting from any such claim or action.
7.2 COMPANY. Company will defend and indemnify Amazon.com and its
Affiliates (and their respective employees, directors and representatives)
against any claim or action brought by a third party, to the extent it is based
on (a) the operation of the Company Site or (b) infringement of such
third-party's Intellectual Property Rights by any materials provided by Company
for display on any the Amazon.com Site. Subject to Section 7.3, Company will pay
any award against Amazon.com or its Affiliates (or their respective employees,
directors or representatives) and any costs and attorneys' fees reasonably
incurred by Amazon.com and its Affiliates resulting from any such claim or
action.
7.3 PROCEDURE. In connection with any claim or action described in this
Section 7, the Party seeking indemnification will (a) give the indemnifying
Party prompt written notice of the claim, (b) cooperate with the indemnifying
Party (at the indemnifying Party's expense) in connection with the defense and
settlement of the claim, and (c) permit the indemnifying Party to control the
defense and settlement of the claim, provided that the indemnifying Party may
not settle the claim without the indemnified Party's prior written consent
(which will not be unreasonably withheld). Further, the indemnified Party (at
its cost) may participate in the defense and settlement of the claim.
SECTION 8. DISCLAIMERS, LIMITATIONS AND RESERVATIONS
8.1 COMPANY. COMPANY DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES REGARDING THE COMPANY SITE OR ANY PORTION THEREOF,
INCLUDING (WITHOUT LIMITATION) IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
COMPANY SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING (A) THE
AMOUNT OF SALES REVENUE THAT AMAZON.COM MAY RECEIVE DURING THE TERM, AND (B) ANY
ECONOMIC OR OTHER BENEFIT THAT AMAZON.COM MIGHT OBTAIN THROUGH ITS PARTICIPATION
IN THIS AGREEMENT.
8.2 AMAZON.COM. AMAZON.COM DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES REGARDING THE
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-6-
<PAGE> 7
AMAZON.COM SITE OR ANY PORTION THEREOF, INCLUDING (WITHOUT LIMITATION) IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, AMAZON.COM SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY REGARDING (A) THE AMOUNT OF SALES REVENUES THAT MAY
OCCUR DURING THE TERM, AND (B) ANY ECONOMIC OR OTHER BENEFIT THAT COMPANY MIGHT
OBTAIN THROUGH ITS PARTICIPATION IN THIS AGREEMENT.
8.3 NO CONSEQUENTIAL DAMAGES. NEITHER PARTY WILL BE LIABLE TO THE OTHER
PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING,
WITHOUT LIMITATION, LOST PROFITS OR LOST DATA) ARISING OUT OF THIS AGREEMENT.
EACH PARTY'S ENTIRE LIABILITY ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT (EXCEPT FOR LIABILITIES ARISING UNDER SECTION 6, RESULTING FROM THE
PARTY'S WILLFUL MISCONDUCT OR GROSS NEGLIGENCE, OR CONCERNING LIABILITY FOR
DEATH OR PERSONAL INJURY), WHETHER IN CONTRACT OR TORT (INCLUDING NEGLIGENCE),
WILL NOT EXCEED THE AMOUNTS TO BE PAID TO AMAZON.COM UNDER SECTION 5, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY REMEDY.
8.4 RESPONSIBILITY FOR WEB SITES. Amazon.com will remain solely
responsible for the operation of the Amazon.com Site, and Company will remain
solely responsible for the operation of the Company Site. Each Party (a)
acknowledges that the Amazon.com Site and the Company Site may be subject to
temporary shutdowns due to causes beyond the operating Party's reasonable
control, and (b) subject to the specific terms of this Agreement, retains sole
right and control over the programming, content and conduct of transactions over
its respective site or service.
SECTION 9. TERM AND TERMINATION
9.1 TERM. The Term of this Agreement will begin as of the date of this
Agreement and, unless earlier terminated as provided elsewhere in this
Agreement, will end automatically [*] of the date of this Agreement; provided
that, not less than [*] days prior to the end of the Term, the Parties will
negotiate in good faith in an attempt to agree on the terms and conditions of an
extension of the Term (including, without limitation, [*] for [*] provided
during such [*]). If, after using reasonable efforts, the Parties are unable to
agree upon such terms and conditions, neither Party will have any obligation to
continue its participation in the negotiations.
9.2 TERMINATION FOR BREACH. Without limiting any other rights or
remedies (including, without limitation, any right to seek damages and other
monetary relief) that either Party may have in law or otherwise, either Party
may terminate this Agreement if the other Party materially breaches its
obligations hereunder, provided that (a) the non-breaching Party sends written
notice to the breaching Party describing the breach, and (b) the breaching Party
does not cure the breach within thirty (30) days following its receipt of such
notice.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-7-
<PAGE> 8
9.3 OTHER TERMINATION RIGHTS. Either Party may terminate this Agreement
if the other Party (a) has a receiver or administrative receiver appointed for
it or over its undertakings or assets, (b) passes a resolution for winding up or
a court of competent jurisdiction makes an order to that effect and such order
is not discharged within ninety (90) days, (c) enters into any voluntary
arrangement with its creditors for the benefit of its creditors, (d) becomes
subject to an administration order, or (e) ceases to carry on business.
9.4 EFFECT OF TERMINATION. On termination of this Agreement: (a) each
Party in receipt, possession or control of the other Party's intellectual or
proprietary property, information and materials pursuant to this Agreement must
return to the other Party (or at the other Party's written request, destroy)
such property, information and materials, (b) each Party must, subject to
receiving written consent to the contrary from the other Party, immediately
remove all links to the other Party's Web Site from its own Web Site, and (c)
each Party must cease use of, and remove from its Web Site, all of the
trademarks, trade dress, logos, insignia and copyrightable materials supplied by
the other Party hereunder. Sections 5, 6, 7, 8, 9 and 10 (together with all
other provisions that reasonably may be interpreted as surviving termination or
expiration of this Agreement) will survive the termination or expiration of this
Agreement.
SECTION 10. MISCELLANEOUS
10.1 INDEPENDENT CONTRACTORS. The Parties are entering this Agreement as
independent contractors, and this Agreement will not be construed to create a
partnership, joint venture or employment relationship between them. Neither
Party will represent itself to be an employee or agent of the other or enter
into any agreement or legally binding commitment or statement on the other's
behalf of or in the other's name.
10.2 NONDISCLOSURE. Each Party will protect the Confidential Information
of the other Party from misappropriation and unauthorized use or disclosure, and
at a minimum, will take precautions at least as great as those taken to protect
its own confidential information of a similar nature. Without limiting the
foregoing, the Receiving Party will: (a) use such Confidential Information
solely for the purposes for which it has been disclosed; and (b) disclose such
Confidential Information only to those of its employees, agents, consultants,
and others who have a need to know the same for the purpose of performing this
Agreement and who are informed of and agree to a duty of nondisclosure. The
Receiving Party may also disclose Confidential Information of the Disclosing
Party to the extent necessary to comply with applicable law or legal process,
provided that the Receiving Party uses reasonable efforts to give the Disclosing
Party prompt advance notice thereof. Upon request of the other Party, or in any
event upon any termination or expiration of the Term, each Party shall return to
the other all-materials, in any medium, which contain, embody, reflect or
reference all or any part of any Confidential Information of the other Party.
10.3 COMPLIANCE WITH LAWS. In its performance of this Agreement, each
Party will comply with all applicable laws, regulations, orders and other
requirements, now or hereafter in effect, of governmental authorities having
jurisdiction. Without limiting the generality of the foregoing, each Party will
pay, collect, remit and otherwise be responsible such taxes as may be imposed
upon such Party in the first instance with respect to any compensation,
royalties or transactions under this Agreement. Except as expressly provided
herein, each Party will be
-8-
<PAGE> 9
responsible for all costs and expenses incurred by it in connection with the
negotiation, execution and performance of this Agreement.
10.4 NOTICES. Any notice or other communication under this Agreement
given by either Party to the other Party will be in writing and will be deemed
properly given when sent to the intended recipient by registered letter,
receipted commercial courier, or electronically receipted facsimile transmission
(acknowledged in like manner by the intended recipient) at its address specified
below its signature at the end of this Agreement, and in the case of Amazon.com.
with a copy to Amazon.com. Inc., 1516 Second Avenue, Seattle, WA 98101, USA,
Facsimile: 206-834-7010, Attn: General Counsel; provided, that no notice of
termination of this Agreement shall be deemed properly given unless sent by
registered mail to such address(es) and to the attention of such officer(s).
Either Party may from time to time change such address or individual by giving
the other Party notice of such change in accordance with this Section 10.4.
10.5 ASSIGNMENT. Neither Amazon.com nor Company may assign this
Agreement, in whole or in part, without the other Party's prior written consent
(which will not be withheld unreasonably), except to (a) any corporation
resulting from any merger, consolidation, or other reorganization involving the
assigning Party, (b) any of its Affiliates, or (c) any person or entity to which
the assigning Party may transfer substantially all of its assets; provided that
the assignee agrees in writing to be bound by all the terms and conditions of
this Agreement. Subject to the foregoing, this Agreement will be binding on and
enforceable by the Parties and their respective successors and permitted
assigns.
10.6 NONWAIVER. The failure of either Party to enforce any provision of
this Agreement will not constitute a waiver of the Party's rights to
subsequently enforce the provision. The remedies specified in this Agreement are
in addition to any other remedies that may be available in law.
10.7 ENTIRE AGREEMENT. This Agreement (a) represents the entire
agreement between the Parties with respect to the subject matter hereof and
supersedes any previous or contemporaneous oral or written agreements regarding
such subject matter, (b) may be amended or modified only by a written instrument
signed by a duly authorized agent of each Party, and (c) will be interpreted,
construed and enforced in all respects in accordance with the laws of the laws
of the State of Washington, without reference to its choice of law rules. If any
provision of this Agreement is held to be invalid, such invalidity will not
effect the remaining provisions. No breach of this Agreement by either Party
shall affect the rights or obligations of either Party under any other Agreement
between the Parties; rather, the same will remain in full force and effect.
-9-
<PAGE> 10
amended or modified only by a written instrument signed by a duly authorized
agent of each Party, and (c) will be interpreted, construed and enforced in all
respects in accordance with the laws of the laws of the State of Washington,
without reference to its choice of law rules. If any provision of this Agreement
is held to be invalid, such invalidity will not effect the remaining provisions.
No breach of this Agreement by either Party shall affect the rights or
obligations of either Party under any other Agreement between the Parties;
rather, the same will remain in full force and effect.
Amazon: Company:
AMAZON.COM, INC. PETS.COM, INC.
By: /s/ RAM SHRIRAM By: /s/ JULIE WAINWRIGHT
------------------------------- ---------------------------------
Title: V.P. Business Development Title: CEO
---------------------------- ------------------------------
Date: April 20, 1999 Date: 4/22/99
---------------------------- -------------------------------
Notice Address: Notice Address
Amazon.com Incorporated Pets.com, Inc.
1516 Second Ave., Floor 2 87 N. Raymond Avenue, Suite 850
Seattle, WA 98101 Pasadena, CA 91103
Facsimile: 206.834.7010 Facsimile: 626.794.8500
-10-
<PAGE> 1
EXHIBIT 10.19
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement ("Agreement") is made and entered
into as of this 21st day of May, 1999, between BroadVision, Inc.
("BroadVision") and
Company Pets.com
-------------------------------------
("Customer")
Address 5903 Christie Ave.
-------------------------------------
Emeryville, CA 94608
-------------------------------------
In consideration of the mutual covenants and conditions contained in this
Agreement, the parties agree as stated herein. The following attachments,
required when applicable, are also part of this Agreement:
A. Current Licensing Practices
B. Required Provisions of Sublicenses
C. Professional Services Terms & Conditions
1. LICENSE.
A. BroadVision hereby grants to Customer a perpetual (unless terminated as
set forth herein), [*] , subject to the terms and conditions of this
Agreement, to use the object code for the Software. For the purpose of
this Agreement, "Software" shall mean all versions, including current,
previous, and subsequent versions, of all software products, together with
operating instructions, user manuals, training material, and other
documentation as may, in BroadVision's sole discretion, be supplied to
Customer.
B. Customer may use the Software in accordance with [*] in force at the time
of delivery of the applicable Software products. BroadVision's current
licensing practices are [*] A.
C. Customer [*] (a) [*] the Software; (b) electronically transmit the
Software over a network except as necessary for Customer's licensed use of
the Software; (c) use run-time versions of third-party products embedded
in the Software, if any, for any use other than the intended use of the
Software, (d) modify, disassemble, decompile, or reverse engineer the
Software; (e) transfer possession of any copy of the Software to another
party, except as expressly permitted herein; or (f) use the Software in
any way not expressly provided for in this Agreement. There are no implied
licenses. Customer agrees not to exceed the scope of the licenses granted
herein.
D. BroadVision also grants to Customer the right to grant nontransferable
sublicenses to portions of the Software, where such grants are explicitly
permitted by BroadVision's licensing practices. Customer shall require
each such sublicensee, before it may use or install the sublicensed
Software, to execute a written license agreement containing, at a minimum,
the required provisions specified in Attachment B. Customer shall
indemnify BroadVision for all losses, costs, damages, expenses, and
liabilities caused by Customer's failure to include required terms in its
sublicense agreements with its sublicensees.
2. PAYMENT, PRICES.
A. Invoices shall be issued upon delivery of the products or services, unless
specified herein to the contrary, and shall be due and payable in United
States currency upon receipt by Customer. Payment shall be overdue thirty
(30) days after the delivery date specified on the invoice. Overdue
payments shall be subject to a finance charge of one and one-half percent
(1 1/2%) for each month or fraction thereof that the invoice is overdue,
or the highest interest rate permitted by applicable law, whichever is
lower. BroadVision shall also be reimbursed for its collection costs in
the event of late payments, including reasonable attorney's fees.
B. Software will be shipped FOB BroadVision's facility in Redwood City,
California, U.S.A., by commercial surface transportation. Transportation
charges in excess of such rates will be billed to Customer. Software shall
be deemed accepted upon delivery.
C. The prices stated in BroadVision quotations are exclusive of any federal,
state, municipal, value-added, foreign withholding or other governmental
taxes, duties, fees, excises, or tariffs now or hereafter imposed on the
production, storage, licensing, sale, transportation, import, export, or
use of the Software or any improvements, alterations, or amendments to the
Software. Customer shall be responsible for, and if necessary reimburse,
BroadVision for all such taxes, duties, fees, excises, or tariffs, except
for governmental or local taxes imposed on BroadVision's corporate net
income.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SLSA 1/98 BroadVision, Inc. Page 1 of 5
<PAGE> 2
3. SOFTWARE MAINTENANCE.
A. BroadVision agrees to provide Customer with software maintenance subject
to the following provisions and conditions:
i. At Customer's request, BroadVision shall provide software maintenance
at prices to be quoted to Customer. Software maintenance shall include
(i) telephone and electronic mail support provided during BroadVision's
normal working hours, and (ii) standard releases containing
improvements or modifications to the Software, where such improvements
or modifications are not priced as separate new products or options
("Standard Release").
ii. BroadVision shall provide software maintenance for any Standard
Release until 180 days after shipment of the subsequent Standard
Release.
iii. Customer shall designate one or, with BroadVision's prior written
approval, more than one Support Contact Person, who shall be
responsible for communicating support issues to BroadVision. Customer
agrees to provide BroadVision with timely written notification
containing all details of software problems necessary for BroadVision
to diagnose such problems. Customer agrees to cooperate fully in
providing BroadVision with Customer's source code, in machine-readable
form, and other materials necessary to reproduce a reported software
problem. Subject to Customer's security requirements, Customer agrees
to provide BroadVision reasonable direct or remote access and test time
on Customer's BroadVision system, for the purpose of diagnosing
reported software problems. If BroadVision provides on-site services at
Customer's request in connection with software maintenance, Customer
shall reimburse BroadVision for all travel and other reasonable
out-of-pocket expenses incurred with respect to such services.
iv. Software maintenance may also include any patch releases ("Patch
Releases") that BroadVision, in its sole discretion, makes available.
Patch Releases are intended to address material deviations between the
Software and its published specifications until a Standard Release can
be made available. Customer may install Patch Releases at its option.
v. BroadVision shall not be responsible for maintaining Software that
fails to comply with its published specifications if such
non-compliance is the result of modification of the Software by
Customer or third parties. If BroadVision expends its time on a
noncompliance found to be the result of any of the preceding, Customer
shall pay BroadVision for such time at BroadVision's then-current
hourly consulting rate.
B. Unless terminated by either party with at least ninety days notice,
software maintenance will automatically be renewed for successive one-year
periods at BroadVision's then-current prices for software maintenance. In
the event of termination for Customer's breach or Customer's convenience,
all maintenance fees shall be immediately due and payable without notice;
in the event of termination for any other reason, Customer shall be
entitled to a refund of maintenance fees already paid, prorated for the
unused portion of such fees.
C. Annual software maintenance fees are due and payable in advance; in all
other respects payments are subject to the terms and conditions of the
Agreement.
D. If Customer initially declines software maintenance and then subsequently
elects to commence maintenance, or if maintenance for an item of Software
is discontinued at Customer's request and then subsequently renewed,
Customer shall pay the maintenance fees that would have been due for the
period during which maintenance was not provided.
4. TITLE TO SOFTWARE.
A. Customer shall include BroadVision's copyright or proprietary rights
notice on any copies of the Software or associated documentation,
including copyright or proprietary rights notices of third parties that
are included on media or in documentation provided by BroadVision.
Customer acknowledges that the Software is the property of BroadVision or
its licensors.
B. Unless otherwise requested by BroadVision, Customer shall ensure that the
phrase, "Personalized by BroadVision One-To-One" shall appear prominently
on the logon screen, splash screen, or other first view of the Customer's
application seen by consumers or other end-users when they enter such
application. The above phrase shall be a hypertext link to a URL specified
by BroadVision. Customer's use of the phrase
SLSA 1/98 BroadVision, Inc. Page 2 of 5
<PAGE> 3
shall be in accordance with BroadVision's guidelines for use of the mark.
5. WARRANTY.
BroadVision warrants that the Software will conform in all material respects
to its written specifications when installed and for 90 days thereafter. For
purposes of this Agreement, the sole source of such specifications shall be
BroadVision's written user documentation. Customer will notify BroadVision
within 10 days after the expiration of the warranty period of any
nonconformity. Where a material nonconformity exists within the warranty
period, and proper notice has been given to BroadVision, BroadVision will, as
its sole and exclusive liability to Customer, use due diligence to correct
the nonconformity and provide Customer with one copy of any such corrected
version of the Software, or, if BroadVision is unable to correct such
nonconformances within a reasonable period of time, refund all license fees
paid to it for the Software, or the most recent software maintenance fee paid
for the Software, if the nonconformity relates to a Standard Release
delivered pursuant to Section 3 herein. THIS WARRANTY IS IN LIEU OF ALL OTHER
WARRANTIES AND CONDITIONS, EXPRESSED OR IMPLIED, AND BROADVISION EXPRESSLY
DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, TITLE, OR NONINFRINGEMENT.
6. LIMITATION OF LIABILITY.
BroadVision's liability to Customer under this Agreement or for any other
reason relating to the products and services provided under this Agreement,
including claims for contribution or indemnity, shall be limited to the
amount paid to BroadVision under this Agreement. NOTWITHSTANDING THE FAILURE
OF ESSENTIAL PURPOSE OF ANY REMEDY UNDER THIS AGREEMENT, THE PARTIES AGREE
THAT IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS OR LOSS OF USE, PROVIDED THAT
FOR PURPOSES OF THIS SECTION 6 LOST REVENUES RELATED TO UNAUTHORIZED USE OR
DISCLOSURE OF THE SOFTWARE SHALL BE DEEMED A DIRECT DAMAGE.
7. INTELLECTUAL PROPERTY RIGHTS INDEMNITY.
BroadVision will defend and hold harmless Customer against any claim that the
Software constitutes infringement of a patent, copyright, trademark, or trade
secret. BroadVision shall also indemnify Customer for any reasonable expense
incurred by Customer in connection with the foregoing. BroadVision's
obligations under this section are conditioned upon BroadVision having sole
control of any such action, and upon Customer notifying BroadVision
immediately in writing of the claim and giving authority, information, and
assistance necessary to settle or defend such claim. If the use of the
Software infringes or is enjoined, or BroadVision believes it is likely to
infringe or be enjoined, BroadVision may, at its sole option, (i) procure for
Customer the right to continue use of the licensed Software as furnished;
(ii) replace the licensed Software; (iii) modify the licensed Software to
make it non-infringing, provided that the Software still substantially
conforms to the applicable specifications; or (iv) if BroadVision, after
using all commercially reasonable efforts, is unable to accomplish the
foregoing remedies, terminate the license and refund the license fee for the
Software, less a proportional adjustment for the time the Software was used
by Customer, equal to the ratio of the time elapsed since the delivery date
to five (5) years. The indemnity provided herein shall not apply if the
alleged infringement arises from: (a) the use of other than a currently
supported, unaltered release of the licensed Software; (b) the use of
Software that has been modified or merged with other programs by Customer; or
(c) the use of the licensed Software in combination with software or hardware
not provided under this Agreement. The foregoing states BroadVision's sole
and exclusive liability for patent, copyright, or other proprietary rights
infringement.
8. CONFIDENTIALITY OF SOFTWARE AND DOCUMENTS.
A. Customer shall not reproduce, duplicate, copy, sell, or otherwise
disclose, or disseminate the Software, including operating instructions,
user manuals, and training materials, in any medium except as authorized
herein. Customer may make copies of the Software, in machine readable
form, only as is reasonably necessary for archival and backup purposes.
B. Customer expressly undertakes, using reasonable efforts not less than it
exercises for its own confidential materials, to retain in confidence, and
to require its employees or consultants to retain the Software in
confidence, and will make no use of such information, except under the
terms and during the existence of this Agreement, and only to the extent
that such use is necessary to Customer's employees or consultants in the
course of their employment.
SLSA 1/98 BroadVision, Inc. Page 3 of 5
<PAGE> 4
C. The provisions of this section shall survive the termination of this
Agreement for a period of five (5) years.
D. Customer shall not release the results of any benchmark of the Software,
or of any third party products embedded in the Software, without
BroadVision's prior written approval.
9. AUDIT RIGHTS.
At BroadVision's request, but in no event more than twice annually, Customer
shall provide BroadVision with a report detailing its use of the Software. No
more than once annually, BroadVision may audit Customer's records to ensure
that license and other fees have been properly paid in compliance with this
Agreement. Any such audit will be conducted during regular business hours at
Customer's offices and shall not interfere unreasonably with Customer's
business activities. If an audit reveals that Customer has underpaid its
total fees by more than five percent (5%), then Customer shall pay
BroadVision's reasonable costs of conducting the audit, in addition to the
underpaid amount.
10. TERM/TERMINATION.
This Agreement is effective on the earlier of (i) the date of shipment of the
Software or (ii) the date set forth above, and continues until terminated as
provided herein, or by agreement of both parties. BroadVision may terminate
this Agreement upon: (a) any material breach of this Agreement by Customer
that is not cured within 30 days following written notice thereof; or (b)
failure by Customer to pay license fees for Software under the payment terms
specified in this Agreement or as stated on BroadVision's invoice for such
Software, which failure remains uncured after thirty (30) days written notice
thereof. Upon termination of this Agreement for any of the above reasons, all
licenses granted hereunder terminate and Customer will immediately destroy
the Software and all copies in any form. Upon termination for any other
reason, Customer may continue to use the Software, provided that Sections 1,
2 (to the extent that any amounts are owed to BroadVision as of the
termination date), 4, 6, 7, 8, 9, and 11 shall survive the termination of
this Agreement, and BroadVision may terminate Customer's use of the Software
upon a material breach of any of the surviving sections.
11. GENERAL.
A. WAIVER/AMENDMENT. No waiver, amendment, or modification of any provision
of this Agreement shall be effective unless in writing and signed by the
party against whom such waiver, amendment, or modification is sought to be
enforced. No failure or delay by either party in exercising any right,
power or remedy under this Agreement, except as specifically provided
herein, shall be deemed as a waiver of any such right, power, or remedy.
B. ASSIGNMENT. Either party may assign this Agreement to an entity acquiring
substantially all of its assets or merging with it, provided that such
assignee agree in writing to assume all obligations under this Agreement.
Except as set forth above, neither party may assign any of its rights or
delegate any of its obligations under this Agreement to any third party
without the express written consent of the other. Any attempted assignment
in violation of the foregoing shall be void and of no effect. Subject to
the above, this Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the parties hereto.
C. DISPUTES. The rights of the parties hereunder shall be governed by the
laws of the State of California without giving effect to principles of
conflicts of laws. Any suits brought hereunder may be brought in the
federal or state courts in Santa Clara County, California, and Customer
submits to the jurisdiction thereof. The parties expressly exclude the
application of the 1980 United Nations Convention on Contracts for the
International Sale of Goods, if applicable.
Customer acknowledges that the Software contains trade secrets, the
disclosure of which would cause substantial harm to BroadVision that could
not be remedied by the payment of damages alone. Accordingly, BroadVision
will be entitled to preliminary and permanent injunctive relief and other
equitable relief for any breach of BroadVision's intellectual property
rights in the Software.
D. SEVERABILITY. If any provision of this Agreement shall be held by a court
of competent jurisdiction to be contrary to law, the remaining provisions
of this Agreement shall remain in full force and effect.
E. EXPORT. Customer acknowledges that the laws and regulations of the United
States restrict the export of the Software. Customer agrees that it will
not export or re-export the Software in any form without first obtaining
the appropriate United States and foreign government approvals.
SLSA 1/98 BroadVision, Inc. Page 4 of 5
<PAGE> 5
F. NOTICE. Any notice, consent, or other communication hereunder shall be in
writing, and shall be given personally, by confirmed fax or express
delivery to either party at their respective addresses:
(i) to BroadVision at:
BroadVision, Inc.
585 Broadway
Redwood City, CA 94063, USA
Attn: Chief Financial Officer
(ii) to Customer at:
Pets.com
435 Brannan St.
San Francisco, CA
Attn: Julie Wainwright
or such other address as may be designated by written notice of either
party. Notices shall be deemed given when delivered or transmitted, or
seven days after deposit in the mail.
G. INDEPENDENT CONTRACTORS. The parties' relationship shall be solely that of
independent contractor and nothing contained in this Agreement shall be
construed to make either party an agent, partner, joint venturer, or
representative of the other for any purpose.
H. FORCE MAJEURE. If the performance of this Agreement, or any obligation
hereunder, except the making of payments, is prevented, restricted, or
interfered with by reason of any act or condition beyond the reasonable
control of the affected party, the party so affected will be excused from
performance to the extent of such prevention, restriction, or
interference.
I. ENTIRE AGREEMENT. This Agreement, including all Attachments hereto,
constitutes the complete and exclusive agreement between the parties with
respect to the subject matter hereof and supersedes all proposals, oral,
or written, all previous negotiations, and all other communications
between the parties with respect to the subject matter hereof. The terms
of this Agreement shall prevail notwithstanding any different,
conflicting, or additional terms that may appear in any purchase order or
other Customer document. All products and services delivered by
BroadVision to Customer are subject to the terms of this Agreement, unless
specifically addressed in a separate agreement.
AGREED TO BY: BROADVISION, INC.
/s/ Randall Bolten
--------------------------------
Signature
Randall Bolten
--------------------------------
Printed Name
CFO
--------------------------------
Title
CUSTOMER: Pets.com
--------------------------------
Company Name
/s/ Paul Melmon
--------------------------------
Signature
Paul Melmon
--------------------------------
Printed Name
Vice President, Engineering
--------------------------------
Title
SLSA 1/98 BroadVision, Inc. Page 5 of 5
<PAGE> 1
EXHIBIT 10.20
PETS.COM, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (the "Agreement") is
made as of the 18th of June, 1999 by and between Pets.com, Inc., a California
corporation (the "Company"), and the investors listed on Exhibit A attached
hereto (each a "Purchaser" and together the "Purchasers").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of
State of the State of California on or before the Closing (as defined below) the
Second Amended and Restated Articles of Incorporation in the form attached
hereto as Exhibit B (the "Restated Articles").
(b) Subject to the terms and conditions of this Agreement,
each Purchaser agrees, severally and not jointly, to purchase at the Closing and
the Company agrees to sell and issue to each Purchaser at the Closing that
number of shares of Series B Preferred Stock set forth opposite each such
Purchaser's name on Exhibit A attached hereto at a purchase price of $7.55 per
share. The shares of Series B Preferred Stock issued to the Purchaser pursuant
to this Agreement shall be hereinafter referred to as the "Stock."
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take place at
the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California,
at 10:00 a.m., on June 18, 1999, or at such other time and place as the Company
and the Purchasers mutually agree upon, orally or in writing (which time and
place are designated as the "Closing").
(b) At the Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased thereby against
payment of the purchase price therefor by check payable to the Company or by
wire transfer to the Company's bank account or by cancellation of indebtedness,
or any combination thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of
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<PAGE> 2
California and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted in the future. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 CAPITALIZATION. The authorized capital of the Company
consists, or will consist, immediately prior to the Closing, of:
(a) 14,127,328 shares of Preferred Stock, 7,227,328 of
which shares have been designated Series A Preferred Stock, all of which are
issued and outstanding immediately prior to the Closing, and 6,900,000 of which
shares have been designated Series B Preferred Stock, none of which are issued
and outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Articles. All
of the outstanding shares of Preferred Stock have been duly authorized, fully
paid and are nonassessable and issued in compliance with all applicable federal
and state securities laws.
(b) 30,000,000 shares of Common Stock, 2,973,860 shares of
which are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws.
(c) The Company has reserved 4,187,167 shares of Common
Stock for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Stock Plan duly adopted by the Board of Directors
and approved by the Company shareholders (the "Stock Plan"). Of such reserved
shares of Common Stock, 1,162,023 shares have been issued pursuant to restricted
stock purchase agreements, options to purchase 2,145,636 shares have been
granted or are currently outstanding, and 879,508 shares of Common Stock remain
available for issuance to officers, directors, employees and consultants
pursuant to the Stock Plan. Except as set forth on the Schedule of Exceptions,
options and Common Stock granted to employees by the Company pursuant to the
Stock Plan are subject to the following vesting schedule: 25% of the shares
comprising each grant to employees shall vest on the one-year anniversary of the
vesting commencement date for such grant, and thereafter 1/48th of the shares
comprising the grant shall vest on each monthly anniversary of the vesting
commencement date for such grant over the following 36 months. Unvested shares
of Common Stock issued to employees pursuant to the Stock Plan are subject to
the Company's right of repurchase at the original grantee's purchase price.
(d) Except for (a) the conversion privileges of the
outstanding Series A Preferred Stock and the Series B Preferred Stock to be
issued pursuant to this Agreement, (b) the Right of First Offer set forth in
Section 2.3 of the Amended and Restated Investors Rights Agreement to be entered
into by the Company, Greg McLemore, the Purchasers and the holders of Series A
Preferred Stock at the Closing, and (c) outstanding options issued pursuant to
the Stock Plan, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock. Other than
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<PAGE> 3
the Amended and Restated Voting Agreement of even date herewith by and among the
Company, Greg McLemore, Julie Wainwright, the holders of Series A Preferred
Stock and the Purchasers hereunder, the Company is not a party or subject to any
agreement or understanding, and to the best of its knowledge, there is no
agreement or understanding between any persons and/or entities, that affects or
relates to the voting or giving of written consents with respect to any security
or by a director of the Company.
2.3 SUBSIDIARIES. The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Amended and
Restated Investors' Rights Agreement, in the form attached hereto as Exhibit D
(the "Investors' Rights Agreement"), the Amended and Restated Right of First
Refusal and Co-Sale Agreement in the form attached hereto as Exhibit E (the
"Co-Sale Agreement") and the Amended and Restated Voting Agreement in the form
attached hereto as Exhibit F (the "Voting Agreement" and collectively with this
Agreement, the Investors' Rights Agreement and the Co-Sale Agreement, the
"Agreements"), the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance (or reservation for issuance), sale
and delivery of the Stock and the Common Stock issuable upon conversion of the
Stock (together, the "Securities") has been taken or will be taken prior to the
Closing, and the Agreements, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws of general application affecting enforcement of
creditors' rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies, or (ii) to
the extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws. The
sale of the Securities is not and will not be subject to any preemptive rights
or rights of first refusal, except for those rights waived or exercised by
certain Purchasers purchasing the Stock set forth on Exhibit A.
2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being issued
to the Purchasers hereunder, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Investors' Rights Agreement and applicable state and federal securities laws.
Based in part upon the representations of the Purchasers in this Agreement and
subject to the provisions of Section 2.6 below, the Stock will be issued in
compliance with all applicable federal and state securities laws. The Common
Stock issuable upon conversion of the Stock has been duly and validly reserved
for issuance, and upon issuance in accordance with the terms of the Restated
Articles, shall be duly and validly issued, fully paid and nonassessable and
free of restrictions on transfer other than restrictions on transfer under this
Agreement, the Investors' Rights Agreement
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<PAGE> 4
and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing of the Restated Articles
and filings pursuant to Section 25102(f) of the California Corporate Securities
Law of 1968, as amended, and the rules thereunder, other applicable state
securities laws and Regulation D of the Securities Act of 1933, as amended (the
"Securities Act").
2.7 OFFERING. Subject in part to the truth and accuracy of each
Purchaser's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series B Preferred Stock as contemplated by this
Agreement are, to the Company's knowledge, exempt from the registration
requirements of any applicable state and federal securities laws, and neither
the Company nor any authorized agent acting on its behalf will knowingly take
any action hereafter that would cause the loss of such exemption.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of the Agreements or the right
of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the assets, condition or
affairs of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with former
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality nor has the Company received any notice thereof. There is no
action, suit, proceeding or investigation by the Company or any of its
subsidiaries currently pending or which the Company or any of its subsidiaries
intends to initiate.
2.9 INTELLECTUAL PROPERTY. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted in the future without any conflict with, or
infringement of, the rights of others and believes it can obtain, on
commercially reasonable terms, any additional rights necessary for the conduct
of its business as proposed to be conducted. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as currently conducted or as presently proposed, would violate any of
the patents, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or
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<PAGE> 5
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interest of the Company
or that would conflict with the Company's business as currently conducted or as
proposed to be conducted. Neither the execution or delivery of the Agreements,
nor the carrying on of the Company's business by the employees of the Company,
nor the conduct of the Company's business as proposed, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any such employee is now obligated. The Company does not
believe it is or will be necessary to use any inventions, trade secrets or
proprietary information of any of its employees (or persons it currently intends
to hire) made prior to their employment by the Company. The Schedule of
Exceptions includes a list of all patents, copyrights, trademarks and domain
names claimed or owned by the Company and all licenses by the Company of any
intellectual property or technology from third parties.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provisions of its Restated Articles or Bylaws or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound
or, to its knowledge, of any provision of federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
the Agreements and the consummation of the transactions contemplated hereby or
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
(b) To its knowledge, the Company has avoided every
condition, and has not performed any act, the occurrence of which would result
in the Company's loss of any right granted under any license, permit,
authorization, distribution agreement or other agreement.
2.11 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, members of their
immediate families, affiliates, or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs, or decrees to which the Company
is a party or by which it is bound that involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $15,000, (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company, (iii) the grant of rights to manufacture, produce, assemble,
license, market, or sell its products to any other person or affect the
Company's exclusive right to develop, manufacture,
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assemble, distribute, market or sell its products or services, or (iv)
indemnification by the Company with respect to infringement of proprietary
rights.
(c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or Series of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in excess of $15,000
nor, in the case of indebtedness and/or liabilities individually less than
$15,000, in excess of $50,000 in the aggregate, (iii) made any loans or advances
to any person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(d) For purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that, to its knowledge, adversely affects its
business as now conducted and as proposed to be conducted in the future, its
properties or its financial condition.
(f) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the merger of the Company with or into any such
corporation or corporations, (ii) with any representative of any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the Company or a transaction or Series of related transactions in which more
than fifty percent (50%) of the voting power of the Company would be disposed
of, or (iii) regarding any other form of liquidation, dissolution or winding up
of the Company.
2.12 DISCLOSURE. The Company has fully provided the Purchasers
with all the information that the Purchasers have requested for deciding whether
to acquire the Stock and all information that the Company believes is reasonably
necessary to enable the Purchasers to make such a decision, including certain
financial projections. No representation or warranty of the Company contained in
this Agreement and the exhibits attached hereto, any certificate furnished or to
be furnished to Purchasers at the Closing, or other information furnished to the
Purchasers (when read together) contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. To the extent the financial projections were prepared by
management of the Company, such financial projections were prepared in good
faith. The assumptions applied in preparing such projections appeared reasonable
to management as of the date thereof and as of the date hereof. The Purchasers
understand that actual results may differ substantially from those projections.
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2.13 NO CONFLICT OF INTEREST. The Company is not indebted (or
committed to make loans or extend or guarantee credit), directly or indirectly,
to any of its employees, officers or directors or to their respective spouses or
children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees nor is the Company contemplating such indebtedness as of
the date of this Agreement. None of the Company's employees, officers or
directors, or any members of their immediate families, are, directly or
indirectly, indebted to the Company (other than in connection with purchases of
the Company's stock) or, to the Company's knowledge, have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company nor is the Company contemplating
such indebtedness as of the date of this Agreement, except that employees,
officers, directors and/or shareholders of the Company may own stock in (but not
exceeding two percent of the outstanding capital stock of) any publicly traded
company that may compete with the Company. To the Company's knowledge, none of
the Company's officers, directors or shareholders or any members of their
immediate families are, directly or indirectly, interested in any material
contract with the Company, nor does any such person own, directly or indirectly,
in whole or in part, any material tangible or intangible property that the
Company uses or contemplates using in the conduct of its business. The Company
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation.
2.14 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the Investors' Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. Except as contemplated in the Voting Agreement, to the
Company's knowledge, no shareholder of the Company has entered into any
agreements with respect to the voting of capital shares of the Company.
2.15 TITLE TO PROPERTY AND ASSETS. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.16 BALANCE SHEET. The Company has delivered to each Purchaser
that has requested it a copy of its unaudited balance sheet as of May 31, 1999
(the "Balance Sheet"), attached hereto as Exhibit G. The Balance Sheet has been
prepared in accordance with generally accepted accounting principles and fairly
presents the financial condition of the Company as of the date indicated
therein, subject to normal year-end audit adjustments. Except as set forth in
the Balance Sheet, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to May 31, 1999 that are not material, individually or in
the aggregate, and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Balance Sheet, which, in both
cases, individually or in the aggregate are not material to the financial
condition or operating results of the Company. Except
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as disclosed to the Purchasers, the Company is not a guarantor or indemnitor of
any indebtedness of any other person, firm or corporation. The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.17 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.18 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as is presently conducted and as
it is proposed to be conducted), nor is the Company aware of any labor
organization activity involving its employees. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have the
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company is terminable at the will
of the Company. To its knowledge, the Company has complied in all material
respects with all applicable state and federal equal employment opportunity laws
and with other laws related to employment. The Company is not a party to or
bound by any currently effective employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation plan or agreement.
2.19 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AND
EMPLOYEE STOCK PURCHASE AGREEMENTS. Each current and former employee, consultant
and officer of the Company has executed agreements with the Company regarding
confidentiality and proprietary information (the "Confidential Information and
Invention Assignment Agreement") and any stock purchases substantially in the
form or forms delivered to the counsel for the Purchasers. No current employee,
officer or consultant of the Company has excluded works or inventions made prior
to his or her employment with the Company from his or her assignment of
inventions pursuant to such employee, officer or consultant's Confidential
Information and Invention Assignment Agreement. The Company is not aware that
any of its employees or consultants is in violation thereof, and the Company
will use its best efforts to prevent any such violation. The Company as taken
reasonable security measures to maintain the confidentiality of the Company's
proprietary information.
2.20 PERMITS. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, prospects,
or financial condition of the Company. The Company believes it can obtain,
without undue burden or expense, any similar authority for the
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conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits, licenses
or other similar authority.
2.21 CORPORATE DOCUMENTS. The Restated Articles and Bylaws of the
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and shareholders and all actions by written consent
without a meeting by the directors and shareholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and shareholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.22 QUALIFIED SMALL BUSINESS STOCK. As of the Closing: (i) the
Company will not have made any purchases of its own stock during the one-year
period proceeding the Closing having an aggregate value exceeding 5% of the
aggregate value of all its stock as of the beginning of such period and (ii) the
Company's aggregate gross assets, as defined by Code Section 1202(d)(2), at no
time between October 7, 1998, and through the Closing have exceeded or will
exceed $50 million, taking into account the assets of any corporations required
to be aggregated with the Company in accordance with Code Section 1202(d)(3).
2.23 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted exclusive rights to develop, manufacture, produce, assemble, license,
market, distribute or sell its products or services to any other person or
entity and is not bound by any agreement that affects the Company's exclusive
right to develop, manufacture, produce, assemble, license, distribute, market or
sell its products, services or any other products that use its proprietary
information.
2.24 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed
all tax returns and reports (including information returns and reports) as
required by law. These returns and reports are true and correct in all material
respects. The Company has paid all taxes and other assessments due. The Company
has not elected pursuant to the Code to be treated as a Subchapter S corporation
or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of
the Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company has never had
any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of the Company's federal income tax returns and
none of its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. Since the date of the Balance Sheet,
the Company has not incurred any taxes, assessments or governmental charges
other than in the ordinary course of business and the Company has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with respect to its business, properties and operations for such period.
The Company has withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal
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Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories.
2.25 SECTION 83(b) ELECTIONS. To the best of the Company's
knowledge, all individuals who have purchased unvested shares of the Company's
Common Stock have timely filed elections under Section 83(b) of the Code and any
analogous provisions of applicable state tax laws.
2.26 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
2.27 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed and to satisfy its contractual obligations.
The Company has in full force and effect products liability and errors and
omissions insurance in amounts customary for companies similarly situated.
2.28 YEAR 2000. To the Company's knowledge, each hardware and
software product and other computer and information technology used by the
Company in its business (collectively, the "Software") will accurately receive,
provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, including, without limitation, leap year calculations,
without a decrease in the functionality of the Software so that the Software
will not malfunction, cease to function or provide invalid or incorrect results
as a result of date or time data, to the extent that other information
technology, used in combination with the information technology being acquired,
properly exchanges date and/or time data with it. To the Company's knowledge,
the Software is designed to be used prior to, during and after the calendar year
2000 A.D. and will operate during each such time period without error relating
to date or time data, specifically including any error relating to, or the
product of, date data which represents or references different centuries or more
than one century. Without limiting the generality of the foregoing, to the
Company's knowledge, the Software (a) will not abnormally end or provide invalid
or incorrect results as a result of date or time data, specifically including
date or time data which represents or references different centuries or more
than one century, (b) has been designed to ensure year 2000 compatibility,
including, but not limited to, date and time data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century, and (c)
includes "Year 2000 Capabilities," meaning that the Software (i) will manage and
manipulate data involving dates or time, including single century formulas and
multi-century formulas, and will not cause an abnormally ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (ii) provides that all date-related user interface functionalities and
data fields include the indication of century, and (iii) provides that all
date-related data interface functionalities include the indication of century.
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2.29 COMPLIANCE WITH LAWS. To its knowledge, the Company is not
in violation of any applicable statute, rule, regulation, order or restriction
of any domestic or foreign government or any instrumentality or agency thereof
in respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition operations or prospects of the Company. To the
best of the Company's knowledge, the Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to the best of the Company's knowledge, no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation.
2.30 OBLIGATIONS OF MANAGEMENT. To the best of the Company's
knowledge, each of the Company's Chief Executive Officer, President and Chief
Financial Officer is currently devoting one hundred percent (100%) of his or her
business time to the conduct of the business of the Company. The Company is not
aware that any such officer or key employee of the Company is planning to work
less than full time at the Company in the future.
2.31 USE OF PROCEEDS. The Company will use proceeds from the sale
of the Stock for working capital purposes. Such proceeds shall not be used to
repay indebtedness to any stockholders of the Company.
2.32 CHANGES. Since May 31, 1999, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the Balance
Sheet, except changes in the ordinary course of business that have not been or
are expected to be, in the aggregate, materially adverse;
(b) any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(c) any material change in any compensation arrangement or
agreement (including salary, bonus, insurance or pension benefits) with any
employee, officer, director or shareholder;
(d) any change or amendment to any of the governing
documents of the Company (including the Restated Articles and Bylaws of the
Company), except as contemplated hereunder; or
(e) any arrangement or commitment by the Company to do any
of the things described in this Section 2.32.
2.33 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or supplier
that was significant to the Company during the period from February 17, 1999 to
the date hereof has terminated, materially reduced or threatened to terminate or
materially reduce its purchases from, or provision of products or services to,
the Company, as the case may be.
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2.34 SERIES A PREFERRED STOCK. The holders of Series A Preferred
Stock, as of the Closing, will not have any rights or privileges other than as
reflected in the Series A Preferred Stock Purchase Agreement, the Restated
Articles, and the Agreements.
2.35 ALL TERMS. The Agreements, together with the Restated
Articles and Series A Preferred Stock Purchase Agreement dated as of April 22,
1999, contain all terms relating to the issuances of Series A Preferred Stock
and Series B Preferred Stock and the relationships among the holders of such
stock, except as set forth in the Schedule of Exceptions.
2.36 ASSETS. The Company is its own "ultimate parent entity" as
such term is defined in 16 C.F.R. Section 801.1(a)(3). The Company, on a
consolidated basis, does not engage in manufacturing within the meaning of 16
C.F.R. Section 801.1(j). The Company, on a consolidated basis, does not have
assets with an aggregate book value of $10 million or more based on its most
recent regularly prepared balance sheet. This representation is made solely for
the purpose of determining the applicability to the transactions contemplated by
this Agreement of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser,
severally and not jointly, hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. Such Purchaser has full power and authority to
enter into the Agreements. The Agreements, when executed and delivered by the
Purchaser and the other parties hereto and thereto that are required to enter
into the Agreements, will constitute valid and legally binding obligations of
the Purchaser, enforceable in accordance with their terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, and
(b) to the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representation to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. The Purchaser has not been formed
for the specific purpose of acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Stock with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as any other
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written information delivered by the Company to the Purchaser, were intended to
describe the aspects of the Company's business which it believes to be material.
The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of the
investors to rely thereon.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 LEGENDS. The Purchaser understands that the Securities, and
any securities issued in respect of or exchange for the Securities, may bear one
or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the Blue Sky laws of any state
to the extent such laws are applicable to the shares represented by the
certificate so legended.
3.7 ACCREDITED INVESTOR. The Purchaser is an accredited investor
as defined in Rule 501(a) of Regulation D promulgated under the Securities Act,
as presently in effect.
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4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled, and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Balance Sheet.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Purchasers' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it has
reasonably requested. This may include, without limitation, good standing
certificates and certification by the Company's Secretary regarding the
Company's Restated Articles and Bylaws and Board of Director and shareholder
resolutions relating to this transaction.
4.6 OPINION OF COMPANY COUNSEL. The Purchasers shall have
received from Venture Law Group, counsel for the Company, an opinion, dated as
of the Closing, in substantially the form of Exhibit H.
4.7 BYLAWS. The Bylaws of the Company shall provide that the
Board of Directors of the Company shall consist of four (4) persons, which
number shall not be changed by an amendment to the Restated Articles or the
Bylaws without consent of holders of seventy percent (70%) of the outstanding
shares of Preferred Stock.
4.8 BOARD OF DIRECTORS. As of the Closing, the Board shall be
comprised of four (4) directors: one representative designated by Bowman Capital
Management, one representative designated by Hummer Winblad Venture Partners,
one director designated by Amazon.com, Inc. ("Amazon.com"), and the Company's
Chief Executive Officer.
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4.9 INVESTORS' RIGHTS AGREEMENT. The Company, each Purchaser, the
holders of Series A Preferred Stock and Greg McLemore shall have executed and
delivered the Investors' Rights Agreement in substantially the form attached as
Exhibit D.
4.10 RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The Company,
Greg McLemore, Julie Wainwright, each Purchaser, the holders of Series A
Preferred Stock and all holders of more than 100,000 shares of the Company's
Common Stock shall have executed and delivered the Co-Sale Agreement in
substantially the form attached as Exhibit E.
4.11 RESTATED ARTICLES. The Company shall have filed the Restated
Articles with the Secretary of State of California on or prior to the Closing
Date, which shall continue to be in full force and effect as of the Closing
Date, and shall deliver a copy of such filed Restated Articles to each Purchaser
at Closing.
4.12 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AND
EMPLOYEE STOCK PURCHASE AGREEMENTS. The Company and each of its employees and
consultants shall have entered into the Company's standard form Confidential
Information and Invention Assignment Agreement, in substantially the form
provided to the Purchasers' legal counsel. Each holder of Common Stock of the
Company shall have entered into an Employee Stock Purchase Agreement, in
substantially the form provided to the Purchasers' legal counsel.
4.13 VOTING AGREEMENT. The Company, each Purchaser, the holders
of Series A Preferred Stock, Greg McLemore, and Julie Wainwright shall have
executed and delivered the Voting Agreement in substantially the form attached
hereto as Exhibit F.
4.14 SECURITIES COMPLIANCE. The Company shall have taken all
actions necessary to comply with any federal or state securities laws applicable
to the transactions contemplated hereunder that are required to be taken prior
to the Closing.
4.15 STOCK CERTIFICATE. The Company shall have delivered to each
Purchaser a duly executed stock certificate evidencing the Stock purchased by
such Purchaser hereunder.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.
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5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Purchasers or the Company.
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees of any securities).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. The parties agree
that the Purchaser may assign their rights and obligations under this Agreement
to any of their affiliates (as defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933, as amended) or to any successors to the
Purchasers or such affiliates.
6.3 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts and may be executed by facsimile, any of which shall be deemed an
original and all of which together shall constitute one instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by fax (with confirmation of
successful electronic transmission), or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party's address as set
forth on the signature page or Exhibit A hereto, or as subsequently modified by
written notice, and
(a) if to the Company, with a copy to:
-16-
<PAGE> 17
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: John V. Bautista
Tel: 650-854-4488
Fax: 650-854-1121
(b) if to the Purchasers (other than Amazon.com), with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
Attn: Eric Sippel
Tel: 415-421-6500
Fax: 415-421-2922
or (c) if to Amazon.com, with a copy to:
Perkins Coie LLP
1201 Third Avenue, Suite 4800
Seattle, WA 98101-3099
Attn: Scott L. Gelband
Tel: 206-583-8888
Fax: 206-583-8500
6.7 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
6.8 FEES AND EXPENSES. Upon the Closing, the Company shall pay
the reasonable fees and expenses of Shartsis, Friese & Ginsburg LLP, legal
counsel to Bowman Capital Management and Hummer Winblad Venture Partners III,
L.P., incurred with respect to this Agreement, the documents referred to herein
and the transactions contemplated hereby and thereby, provided such fees and
expenses do not exceed $15,000. The remaining Purchasers shall pay their own
legal fees and expenses incurred with respect to the foregoing.
6.9 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
-17-
<PAGE> 18
6.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of at least 70% of the Stock (or the Common Stock issuable upon
conversion of the Stock). Any amendment or waiver effected in accordance with
this Section 6.10 shall be binding upon the Purchasers and each transferee of
the Stock (or the Common Stock issuable upon conversion thereof), each future
holder of all such securities, and the Company.
6.11 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
6.12 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
6.13 ENTIRE AGREEMENT. This Agreement, and the documents referred
to herein constitute the entire agreement between the parties hereto pertaining
to the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
6.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
6.15 CONFIDENTIALITY. Each party hereto agrees that, except with
the prior written permission of the other party, it shall at all times keep
confidential and not divulge,
-18-
<PAGE> 19
furnish or make accessible to anyone any confidential information, knowledge or
data concerning or relating to the business or financial affairs of the other
parties to which such party has been or shall become privy by reason of this
Agreement, discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder or the ownership of Stock purchased
hereunder ("Confidential Information"); provided, however, that (a) Confidential
Information shall not include (i) information that is or becomes available to
the general public other than as a result of disclosure by any Purchaser, (ii)
information known to any Purchaser prior to discussions or negotiations related
to this Agreement as demonstrated by tangible evidence of such prior knowledge
by such Purchaser, or (iii) general knowledge of the Company's industry not
specifically related to the Company's business; and (b) Hummer Winblad Venture
Partners III, L.P., Hummer Winblad Technology Fund III, L.P. and Bowman Capital
Management may distribute Confidential Information concerning the Company to
their respective limited partners. The provisions of this Section 6.15 shall be
in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the parties hereto with respect to the
transactions contemplated hereby.
6.16 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Securities.
6.17 WAIVER OF CONFLICTS. Each party to this Agreement
acknowledges that Venture Law Group, counsel for the Company, has in the past
performed and may continue to perform legal services for certain of the
Purchasers in matters unrelated to the transactions described in this Agreement,
including the representation of such Purchasers in venture capital financings
and other matters. Accordingly, each party to this Agreement hereby (a)
acknowledges that they have had an opportunity to ask for information relevant
to this disclosure; and (b) gives its informed consent to Venture Law Group's
representation of certain of the Purchasers in such unrelated matters and to
Venture Law Group's representation of the Company in connection with this
Agreement and the transactions contemplated hereby.
6.18 AGGREGATION OF STOCK. All shares of stock held or acquired
by affiliated entities or persons hereunder shall be aggregated together for the
purpose of determining the availability of rights under this Agreement.
[SIGNATURE PAGE FOLLOWS]
-19-
<PAGE> 20
The parties have executed this Series B Preferred Stock Purchase
Agreement as of the date first written above.
COMPANY:
PETS.COM, INC.
By: /s/ Julie Wainwright
----------------------------------
Name: J L Wainwright
-------------------------------
(print)
Title: CEO
-------------------------------
Address: 435 Brannan Street
San Francisco, CA 94107
Tel: (415) 222-9999
Fax: (415) 222-9998
PURCHASERS:
SPINNAKER TECHNOLOGY FUND, L.P.
By: Bowman Capital Management , LLC
Its General Partner
By: /s/ Eric Moore
----------------------------------
Name: Eric Moore
-------------------------------
(print)
Title: Controller
-------------------------------
Address: 1875 South Grant
Suite 600
San Mateo, CA 94402-7013
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 21
SPINNAKER TECHNOLOGY
OFFSHORE FUND LIMITED
By: Bowman Capital Management , LLC
its Investment Adviser and Attorney-
in-Fact
By: /s/ Eric Moore
----------------------------------
Name: Eric Moore
-------------------------------
(print)
Title: Controller
-------------------------------
Address: 1875 South Grant
Suite 600
San Mateo, CA 94402-7013
SPINNAKER FOUNDERS FUND, L.P.
By: Bowman Capital Management , LLC
its General Partner
By: /s/ Eric Moore
----------------------------------
Name: Eric Moore
-------------------------------
(print)
Title: Controller
-------------------------------
Address: 1875 South Grant
Suite 600
San Mateo, CA 94402-7013
SPINNAKER OFFSHORE FOUNDERS FUND CAYMAN
LIMITED
By: Bowman Capital Management , LLC
its Investment Adviser and Attorney-
in-Fact
By: /s/ Eric Moore
----------------------------------
Name: Eric Moore
-------------------------------
(print)
Title: Controller
-------------------------------
Address: 1875 South Grant
Suite 600
San Mateo, CA 94402-7013
-2-
<PAGE> 22
SPINNAKER CLIPPER FUND, L.P.
By: Bowman Capital Management , LLC
its General Partner
By: /s/ Eric Moore
----------------------------------
Name: Eric Moore
-------------------------------
(print)
Title: Controller
-------------------------------
Address: 1875 South Grant
Suite 600
San Mateo, CA 94402-7013
AMAZON.COM, INC.
By: /s/ Randy Tinsley
----------------------------------
Name: Randy Tinsley
-------------------------------
(print)
Title: V.P. Corporate Development
-------------------------------
Address:
HUMMER WINBLAD VENTURE PARTNERS III, L.P.
By: /s/ John Hummer
----------------------------------
Name:
-------------------------------
(print)
Title:
-------------------------------
Address:
-3-
<PAGE> 23
HUMMER WINBLAD TECH. FUND III, L.P.
By: /s/ John Hummer
-------------------------------
Name: John Hummer
-------------------------------
(print)
Title:
-------------------------------
Address:
THE AVRAM MILLER TRUST
By: /s/ Avram Miller, Trustee
-------------------------------
Name: Avram Miller, Trustee
-------------------------------
(print)
Title: Trustee
-------------------------------
Address: The Avram Miller Company
505 Montgomery Street, 20th Fl.
San Francisco, CA 94111
-4-
<PAGE> 24
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Second Amended and Restated Articles of Incorporation
Exhibit C - Schedule of Exceptions to Representations and Warranties
Exhibit D - Form of Amended and Restated Investors' Rights Agreement
Exhibit E - Form of Amended and Restated Right of First Refusal and Co-Sale Agreement
Exhibit F - Form of Amended and Restated Voting Agreement
Exhibit G - Balance Sheet dated May 31, 1999
Exhibit H - Form of Legal Opinion of Venture Law Group
</TABLE>
<PAGE> 25
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series B Purchase Price
- ----------------------------------- ---------------- ----------------
<S> <C> <C>
Spinnaker Technology Fund, L.P. 324,339 $ 2,448,759.45
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Spinnaker Technology Offshore 242,635 $ 1,831,894.25
Fund Limited
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Spinnaker Founders Fund, L.P. 218,041 $ 1,646,209.55
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Spinnaker Offshore Founders Fund 123,859 $ 935,135.45
Cayman Limited
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series B Purchase Price
- ----------------------------------- ---------------- ----------------
<S> <C> <C>
Spinnaker Clipper Fund, L.P. 24,901 $ 188,002.55
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Amazon.com, Inc. 4,728,477 $ 35,700,001.35
1200 12th Avenue South, Suite 1200
Seattle, WA 91844
Tel: 206-266-1000
Fax: 206-834-7010
Attn: General Counsel
Hummer Winblad Venture 899,669 $ 6,792,500.95
Partners III, L.P.
2 South Park, 2nd Floor
San Francisco, CA 94107
Tel: 415-979-9600
Fax: 415-979-9601
Attn: John Hummer
Hummer Winblad Technology 47,351 $ 357,500.05
Fund III, L.P.
2 South Park, 2nd Floor
San Francisco, CA 94107
Tel: 415-979-9600
Fax: 415-979-9601
Attn: John Hummer
The Avram Miller Trust 13,245 $ 99,999.75
c/o The Avram Miller Company
505 Montgomery Street, 20th Floor
San Francisco, CA 94111
Tel: 415-835-7268
Fax: 603-710-6213
Attn: Avram Miller
------------ -----------------
Total: 6,622,517 $ 50,000,003.35
============ =================
</TABLE>
-2-
<PAGE> 1
EXHIBIT 10.21
QUALITY SOFTWARE SYSTEMS, INC.
LICENSE AND INTEGRATION AGREEMENT
This AGREEMENT is made and entered into as of the 25th day of June 1999 by and
between Quality Software Systems Inc., a New Jersey corporation with offices at
200 Centennial Avenue, Piscataway, New Jersey 08854 ("QSSI") and the Client
identified below ("Client").
- ------------------------------------------- ------------------------------------
Client: Pets.com Inc. City: San Francisco
- ------------------------------------------- ------------------------------------
Address: 435 Brannan St., Suite 100 State, Zip: CA 94107
- ------------------------------------------- ------------------------------------
TERMS AND CONDITIONS
1. DEFINITIONS
1.1 ACCEPTANCE "Acceptance" of a deliverable means completion of the process set
forth in Paragraph 7.1 for Developed Software and Paragraph 7.2 for other
deliverables.
1.2 ACCEPTANCE TEST "Acceptance Test" means the procedure set forth in Paragraph
7.1 hereto.
1.3 BASE SYSTEM Unmodified version of the current release of PowerHouse/WMS as
identified by the documentation provided with each release.
1.4 CLIENT "Client" means the entity identified on the cover page to this
Agreement, including any permitted successor or assignee of Client.
1.5 CONFIGURATION The use of tables and other user executable program options,
by the Client or QSSI, in order to customize the Developed Software.
1.6 QSSI SERVICES "QSSI Services" means all of the professional services
rendered to Client by QSSI pursuant to this Agreement.
1.7 DEVELOPED SOFTWARE "Developed Software" shall mean all software written by
(i) QSSI hereunder, or (ii) by Client under the direction and direct supervision
of QSSI and as to which QSSI has certified in writing that it meets QSSI's
programming standards. Developed Software shall also include QSSI proprietary
software which has previously been developed by QSSI and which is delivered to
Client.
1.8 IMPLEMENTATION SCHEDULE "Implementation Schedule" means the schedule set
forth on Schedule A, or any subsequently prepared schedules superseding Schedule
A.
1.9 MAINTENANCE "Maintenance" consists of the ongoing Developed Software support
services set forth in Schedule C. The Maintenance set forth in Schedule C will
be provided pursuant to a separate executed Maintenance and/or Software Support
agreement between the Parties.
<PAGE> 2
1.10 MODIFICATIONS All software revisions made to the Base System written by (i)
QSSI hereunder, or (ii) by Client under the direction and direct supervision of
QSSI and as to which QSSI has certified in writing that it meets QSSI's
programming standards.
1.11 PARTY The term "Party" shall mean Pets.com or QSSI, and the term "Parties"
shall mean Pets.com and QSSI.
1.12 PHASE "Phase" means each summarized section of Schedule A. Any additional
modifications requested after the initial design will each be treated as a
separate Phase.
1.13 REQUIREMENTS DEFINITION STUDY "Requirements Definition Study" or "RDS"
means the mutually agreed system design changes to the Base System, as such the
RDS may be revised pursuant to Paragraph 6.1. Upon Acceptance of the RDS by
Client, the RDS will supersede all other requirements and functionality
documentation for all purposes hereunder.
1.14 SHELF VERSION "Shelf Version" means the version of each Phase of the
Developed Software which is Accepted by Client pursuant to Paragraph 7.1.
1.15 SOFTWARE SYSTEM "Software System" means the set of computer programs and
documentation developed by QSSI, the Client, and/or third parties in connection
with the entire warehouse management implementation project. This system can
include the Developed Software, Third Party Software, interfaces, and
integration.
1.16 THIRD PARTY SOFTWARE "Third Party Software" is all software which is
incorporated in, makes up or is to be accessed by the Software System which is
not Developed Software and is identified on Schedule B.
2. SOFTWARE SYSTEM
2.1 Subject to the terms and conditions of this Agreement, QSSI agrees to
implement the Software System in accordance with the Implementation Schedule and
RDS, with the reasonable assistance of Client personnel and resources.
3. CONSULTING SERVICES
3.1 QSSI shall supply Client with any supporting documentation which QSSI has
developed for the software system.
4. LICENSE AND PROPRIETARY RIGHTS
4.1 GRANT OF LICENSE Subject to the terms and conditions of the Agreement, QSSI
hereby grants to Client a perpetual, irrevocable, non-exclusive and
non-transferable (except as set forth in Paragraph 12.5) license (the "License")
to use and modify the Developed Software and other QSSI developed deliverables
which License Client hereby accepts. Any additional restrictions or limitations
are set forth in Schedule D.
-2-
<PAGE> 3
4.1B EXCLUSIVITY For a period of three (3) years from the effective date of this
Agreement, (i) QSSI shall not grant to any Competitor of Client any right to use
any modification or integration software developed by QSSI for Client hereunder,
or any portion thereof, without prior written consent of Client, (ii) QSSI shall
not access or refer to any modification or integration software developed by
QSSI for Client hereunder, or any portion thereof, when working with any
competitor of Client and (iii) QSSI shall not provide to any Competitor of
Client a more favorable price or delivery for similar modifications of the Base
System than QSSI provides to Client hereunder. As used, herein, "Competitor of
Client" means any web site or other Online service or entity that markets,
sells, or allows end users to purchase pet care products, including without
limitation food, health care products, toys, cages, and leashes for dogs, cats,
fish, birds, ferrets, reptiles and other animals.
4.2 PROPRIETARY RIGHTS All financial data and all information related to
Client's organizational structure ("Client Data") are and shall remain the
exclusive property of client, and shall be kept confidential by QSSI pursuant to
the provisions of Paragraphs 4.3 and 4.4. QSSI retains title to the Developed
Software and related documentation and other deliverables developed hereunder,
including all copies thereof and all rights to patents, copyrights, trademarks,
trade secrets and other intellectual property rights inherent therein and
appurtenant thereto. Except as set forth herein, Client shall not, by virtue of
this Agreement or otherwise, acquire any proprietary rights whatsoever in the
Developed Software or any other deliverables developed hereunder, which shall be
the sole and exclusive property of QSSI. No identifying marks, copyright or
proprietary right notices may be deleted from any copy of the Developed Software
provided to or made by Client.
4.3 CONFIDENTIALITY Client shall only permit access to the Developed Software by
its employees who have a need to know in connection with the license rights
granted under this Agreement. Client shall not transfer, publish, disclose,
display or otherwise make available any portion of the Developed Software to
others. The Parties acknowledge that in the course of performing their
responsibilities under this Agreement, they each may be exposed to or acquire
information that is clearly identified as proprietary to or confidential to the
other Party. The Parties agree to hold such information in strict confidence and
not to copy, reproduce, sell, assign, license, market, transfer, give or
otherwise disclose such information to third parties or to use such information
for any purposes whatsoever, without the express written permission of the other
Party, other than for the performance of obligations, or exercise of rights
hereunder, and to advise each of their employees, agents and representatives of
their obligations to keep such information confidential. All such confidential
and proprietary information, Client data, finances, business plans and computer
software are hereinafter collectively referred to as "Confidential Information."
The Parties shall use their reasonable efforts to assist each other in
identifying and preventing any unauthorized use or disclosure of any
Confidential Information. Without limitations of the foregoing, the Parties
shall advise each other immediately in the event that either learns or has
reason to believe that any person who has had access to Confidential Information
has violated or intends to violate the terms of this Agreement, and will
reasonably cooperate in seeking injunctive relief against any such person. Each
party shall be entitled to disclose the existence of this Agreement but agrees
that the terms and conditions of this Agreement shall be treated as confidential
information and shall not be disclosed to any third
-3-
<PAGE> 4
party; provided, however, that each party may disclose the terms and conditions
of this Agreement; (i) as required by any court or other government body; (ii)
as otherwise required by law; (iii) to legal counsel of the parties; (iv) to
accountants, banks and financing sources and their advisors that are subject to
confidentiality provisions at least as protective of the disclosing party's
confidential information as those set forth herein; or (v) in connection with
the enforcement of this Agreement or rights under the Agreement.
4.4 NON-CONFIDENTIAL INFORMATION Notwithstanding the obligations set forth in
Paragraph 4.3, the confidentiality obligations of the Parties shall not extend
to information that:
a. is, as of the time of its disclosure, or thereafter becomes part
of the public domain through a source other than the receiving
Party;
b. was known to the receiving Party as of the time of its
disclosure;
c. is independently developed by the receiving Party;
d. is subsequently learned from a third party not under a
confidentiality obligation to the providing party; or,
e. is required to be disclosed pursuant to court order or
government authority, whereupon the receiving Party shall
provide notice to the other Party prior to such disclosure.
5.5 FEES AND PAYMENT
5.1 FEES The fees for QSSI Services are set forth in Schedule E. In the event
the project is successfully launched according to the requirements set forth in
the RDS on or before August 5, 1999, Client [*] to the greater of [*] of the [*]
provided, however, [*] shall not exceed [*]. In the event the project is not
successfully launched according to the requirements set forth in the RDS until
after August 5, 1999, QSSI shall [*] and the [*] QSSI shall be [*] by an [*] of
the [*] that would have [*] the project were [*], for each day the project
launch is late up to a maximum of 7 days provided, however, that the penalty
does not exceed [*]. QSSI shall not incur [*] or any reduced payment if delays
are caused by Client, any third party vendor contracted by Client or act of God
that befalls on Client. QSSI shall not receive the bonus but also shall not
incur any reduced payments if the project launch is delayed by an act of God
that befalls on QSSI.
5.2 PAYMENT Client shall pay QSSI in accordance with the Fee and Payment
Schedule set forth in Schedule E. All invoices issued by QSSI hereunder are due
upon receipt of invoice. Payments not received within thirty (30) days or their
due date shall be subject to late charges of one and one-half percent (1-1/2%)
per month, and having remained outstanding for sixty (60) days, shall give rise
to a material breach of this Agreement justifying the suspension of the
performance of services and/or immediate termination of this Agreement by QSSI.
Client also agrees to pay all reasonable expenses incurred by QSSI in enforcing
he provisions of this Agreement. No failure by QSSI to request any such payment
or to demand any such performance shall be deemed a waiver by QSSI of Client's
obligations hereunder or a waiver of QSSI's right to terminate this Agreement.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-4-
<PAGE> 5
5.3 PROPOSALS FOR SERVICE Proposals for services to be rendered under this
Agreement may be in writing. No estimates are guaranteed in any way or to any
extent by QSSI and do not change this Agreement to a fixed price contract. This
section is not intended to include proposals for hardware or license fees.
6. REVISIONS
6.1 DURING PREPARATION OF REQUIREMENTS DEFINITION STUDY ("RDS") During the
preparation of the RDS, QSSI and Client shall review in greater detail Client's
requirements for the Software System. Where client requests system functions or
performance which vary from that set forth in the Base System, QSSI shall
provide a written estimate of the impact on resources, time duration and costs
which would be caused by implementation of any Modifications. QSSI and Client
will review all such estimates during the preparation and presentation of the
RDS. It is understood that such Modifications may increase or decrease required
resources, time duration and costs. If Client fails to approve the RDS, QSSI or
Client may terminate this Agreement upon thirty (30) days prior written notice
and Client shall pay QSSI services to the date of termination at QSSI's standard
time and materials rates, and the parties shall have no further performance
obligations hereunder.
6.2 AFTER APPROVAL OF RDS After approval of the RDS and before Acceptance, any
system functions or performance which vary in scope from those set forth in the
RDS and which are requested by Client shall be reviewed by QSSI. Within twenty
(5) days of receipt of such request, QSSI, with the cooperation of Client where
reasonably required, shall provide a written estimate of the impact on
resources, time duration and costs, which would be caused by the implementation
of the revision. If the Client accepts the revision, then the resources, time
duration and costs shall be modified as set forth in QSSI's estimate. If the
client fails to Accept the revision, the scope of work as set forth in the RDS
shall remain unchanged and QSSI shall have no further responsibility with
respect to the proposed change.
7. ACCEPTANCE AND ACCEPTANCE TESTING
7.1 ACCEPTANCE OF DEVELOPED SOFTWARE Acceptance of each Phase of the Developed
Software identified in Schedule A may occur upon the completion of the
Acceptance Test performed by the Client. The Acceptance Test shall be to
determine whether the Developed Software operates in accordance with the
specifications as described in the RDS, and shall be conducted as follows: (a)
upon receipt of notice from QSSI that the applicable Phase of the Developed
Software has been developed and installed and is available for Acceptance
Testing, Client shall conduct the Acceptance Test within four (4) calendar
weeks; (b) upon the expiration of such test period, Client shall either certify
that the Phase is accepted or deliver to QSSI a written description of specific
claimed defects in the Developed Software which defects shall be limited to
material failures to conform to the RDS; (c) upon receipt of such written
description. QSSI shall use all reasonable efforts to promptly remedy those
defects that are bona fide, whereupon the Acceptance Test shall be run as is
necessary for determining whether all such identified defects have been
remedied. The Parties shall repeat this cycle until all material defects are
corrected. Certification by Client that the Phase of the Developed Software is
accepted, or in the absence of
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such certification, the failure of Client to provide QSSI with a written
description of defects during the review period shall constitute completion of
the Acceptance Test and Acceptance of the Phase of the Developed Software.
Acceptance, whether or not notice has been given shall also be deemed to have
occurred if Client places in productive use, any portion of the Phase of
Developed Software for a period of 14 days. In the event first productive use of
the Developed Software occurs when it is not yet integrated with the Client's
web site system, an additional 14 days of productive use will be extended for
purposes of testing that portion of the system pertaining to the integration
interfaces with the Client's web site system. Acceptance shall be deemed to have
occurred within 60 days after the Developed Software is first placed in
productive use regardless if, through no fault of QSSI, integration with the web
site software has not been accomplished. The formal date of acceptance for
purposes of the warranty as set forth in section 8, shall be retroactive to when
the Developed Software was either certified as accepted by the Client or first
placed in productive use. The version of the Phase so Accepted shall be deemed
the Shelf version of the accepted Phase. Client and QSSI shall each maintain
copies of the Shelf Version in addition to any modified versions that may occur
over time and the Shelf Version shall not be accessed, altered, modified or
otherwise used. In the event that a Phase is not Accepted Pursuant to his
Paragraph, Client's sole remedy shall be to return the Phase to QSSI, along with
the applicable documentation and all copies thereof, and receive a refund of
fees paid to QSSI, for that Phase. This procedure is the exclusive means by
which Client shall be entitled to reject the Developed Software or any Phase
thereof, and the exclusive remedy for any such failure.
7.2 ACCEPTANCE OF OTHER DELIVERABLES For other work product deliverables
requiring Acceptance by Client, Client shall, within twenty (20) days of receipt
of QSSI's statement that the deliverable is complete, review the deliverable and
Accept it or notify QSSI in writing of non-Acceptance, documenting in reasonable
detail any and all material defects in the deliverable. QSSI shall, upon receipt
of such notice, use all reasonable efforts to promptly correct any such material
failures and shall notify Client of its completion of the correction. Client
shall, after receipt of said notice, review the corrected deliverable and report
to QSSI. Client shall do so promptly using diligent efforts, but in no event
shall such process exceed ten (10) days. This cycle shall be repeated only as is
reasonably necessary. A deliverable shall be deemed Accepted by Client if
either: (a) Client notifies QSSI in writing of its Acceptance, in which event
the Acceptance date shall then be the date of such notice; (b) Client fails to
notify QSSI in writing within the applicable time period of any material defect
in the deliverable, in which event the Acceptance date shall be the last day of
said period; (c) client places in productive use under the terms defined in
Paragraph 7.1, any portion of the deliverable.
8. WARRANTIES AND DISCLAIMER
8.1 QSSI WARRANTIES QSSI represents and warrants, subject to Paragraph 8.2, that
the Base System shall conform in all material respects to the documentation,
provided, and only to the extent, that Client notifies QSSI in writing within
one year after the date of productive use of any portion of the Base System
("Base System Warranty Period") of any such material non-conformity. QSSI
further represents and warrants, subject to Paragraph 8.2, that the
modifications of each Phase of the Developed Software shall conform in all
material respects to
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the documentation, provided, and only to the extent, that Client notifies QSSI
in writing within one hundred and eighty (180) days after the date of Acceptance
of the Phase of the Developed Software ("Modification Warranty Period") of any
such material non-conformity. In the event that the Shelf Version of the Phase
of the Developed Software is found to be defective in such respects, and that
notice with respect to such defect has been given as provided above, QSSI's sole
obligation under this warranty is to respond promptly and to use all reasonable
efforts to promptly remedy such defect within a reasonable time. The Parties
acknowledge that changes to the production version of the Developed Software are
likely to be initiated by Client. Accordingly QSSI has no obligation under
warranty or otherwise to support the changes made by Client to the Developed
Software. QSSI's obligation under this warranty is solely with respect to the
Shelf Version.
8.2 QSSI WARRANTY PROCEDURE If changes have been made to the Shelf Version
resulting in variation between the shelf version and the production version,
upon receipt of Client's notice under Paragraph 8.1, client shall duplicate the
problem on the Shelf Version of the applicable Phase of the Developed Software
stored at Client's site for such purpose. If the problem cannot be duplicated,
QSSI's warranty shall not apply and QSSI shall have no obligation to remedy the
cited defect. If the problem duplicated on the Shelf Version, QSSI shall use all
reasonable efforts to promptly repair or correct the Shelf version in accordance
with the terms of this agreement. This warranty does not apply to corrections or
remedies for difficulties or defects arising from system changes, improper
configuration or use of the Developed Software, the hardware or software
environment, Third Party Software, or other causes external to the Developed
Software. If Client requests QSSI assistance with any non-warranty problem, QSSI
will provide assistance, subject to QSSI personnel availability, at its then
standard time and material charges.
8.3 THIRD PARTY SOFTWARE The Parties understand that the Software System may
include certain Third Party Software products which may or may not be listed in
Schedule B hereto. It is acknowledged by Client that Client shall be solely
responsible for obtaining licenses to such Third Party Software, if such
software is not already in Client's possession, including the right to
incorporate such software into the Software System. QSSI MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE QUALITY, CAPABILITIES,
OPERATIONS, PERFORMANCE OR SUITABILITY OF THIRD PARTY SOFTWARE, INCLUDING THE
ABILITY TO INTEGRATE WITH MODIFICATIONS TO THE SOFTWARE SYSTEM OR OF NEW
RELEASES TO INTEGRATE WITH THE DEVELOPED SOFTWARE. The quality, capabilities,
operations, performance and suitability of such Third Party Software lies solely
with Client and the vendor or supplier of such Third Party Software.
8.4 Disclaimer of Warranty THE WARRANTY SET FORTH IN PARAGRAPHS 8.1 AND 8.2 IS A
LIMITED WARRANTY AND IS IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. QSSI DOES NOT WARRANT THAT THE SOFTWARE SYSTEM WILL MEET
CLIENT'S FUTURE OR UNDISCLOSED REQUIREMENTS.
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9. LIMITATION OF LIABILITY
9.1 NEITHER PARTY SHALL HAVE ANY LIABILITY WITH RESPECT TO ITS OBLIGATIONS UNDER
THIS AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, SPECIAL, INDIRECT,
INCIDENTAL OR PUNITIVE DAMAGES EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN ANY EVENT, THE LIABILITY OF QSSI TO CLIENT FOR
ANY REASON AND UPON ANY CAUSE OF ACTION OR CLAIM SHALL BE LIMITED TO THE AMOUNT
PAID TO QSSI BY CLIENT HEREUNDER WITH RESPECT TO THE PHASE WHICH IS THE SUBJECT
OF THE ACTION OR CLAIM. THIS LIMITATION APPLIES TO ALL CAUSES OF ACTION OR
CLAIMS IN THE AGGREGATE, INCLUDING WITHOUT LIMITATION TO BREACH OF CONTRACT,
BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATIONS, CLAIMS FOR
FAILURE TO EXERCISE DUE CARE IN THE PERFORMANCE OF QSSI SERVICES HEREUNDER AND
OTHER TORTS. BOTH PARTIES UNDERSTAND AND AGREE THAT THE REMEDIES, EXCLUSIONS AND
LIMITATIONS HEREIN ALLOCATE THE RISKS OF PRODUCT AND SERVICE NONCONFORMITY
BETWEEN THE PARTIES AS AUTHORIZED BY THE UNIFORM COMMERCIAL CODE AND/OR OTHER
APPLICABLE LAWS. THE FEES HEREIN REFLECT, AND ARE SET IN RELIANCE UPON, THIS
ALLOCATION OF RISK AND THE EXCLUSION OF CONSEQUENTIAL DAMAGES AND LIMITATIONS OF
LIABILITY SET FORTH IN THIS AGREEMENT.
9.2 PATENT AND COPYRIGHT INDEMNIFICATION If an action is brought against Client
claiming that the Developed Software infringes a patent, copyright or
misappropriated trade secret, QSSI will defend Client and pay any damages
awarded against Client, but only if (a) Client notifies QSSI promptly upon
learning of the claim, (b) QSSI has sole control over the defense of the claim
and any negotiation for its settlement or compromise, (c) Client takes no
action, that in QSSI's judgment, is contrary to QSSI's interest and (d) provides
QSSI with full cooperation at QSSI's expense to investigate and defend against
the claim. If a claim may be or has been asserted, Client will permit QSSI, at
QSSI's option and expense, to procure the right to continue using the Developed
Software, or replace or modify the Developed Software to eliminate the
infringement while providing functionally equivalent performance.
Notwithstanding the above, QSSI will have no duty to indemnify Client if the
patent or copyright infringement results from (a) a correction or modification
of the Developed Software not provided by QSSI, (b) the failure to promptly
install any update which QSSI may have provided to Client, or (c) the
combination of the Developed Software with other software or hardware not
provided by QSSI.
10. OTHER RIGHTS AND OBLIGATIONS
10.1 STATUS REPORTS Client and QSSI shall periodically communicate to the
other's Project Leader the current status of the Party's activities, progress of
the work being performed, and resources expended since the last report (and
cumulative totals to date), identification and impact of actual and anticipated
problem areas, and action being taken or alternative actions to be contemplated
and taken to address such problems. Also, if requested by the other Party,
Client
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and QSSI shall attend a status meeting, no more frequently than once per month,
to review the status of Client and QSSI activities.
10.2 COOPERATION The Parties acknowledge and agree that successful installation
of the Software System in Client's processing environment shall require their
full and mutual good faith cooperation.
10.3 EMPLOYEE SOLICITATION Both Parties agree not to engage in any attempt to
hire, or to engage as independent contractors, the other's employees or
independent contractors for the two years after termination of this contract,
except as may be otherwise agreed to in writing by both Parties.
10.4 CHARGES Client shall pay QSSI or reimburse QSSI for any out-of-pocket
expenses incurred by QSSI in the fulfillment of its obligations under this
Agreement, which include but are not limited to phone calls, one-way billable
travel time, round trip airfare, lodging, meals, local transportation and
communications, round trip travel expense to QSSI's principal place of business
every two (2) weeks and incidentals incurred in connection with work performed
at Client's place of business. QSSI estimates such expenses for this project
will be less than [*]. If the expenses are expected to exceed that amount, QSSI
will provide advance notice to Client.
10.5 TAXES Client shall pay for, or reimburse QSSI for all sales, use, transfer
or other taxes and all duties, whether international, national, state, or local
however designated, which are levied or imposed by reason of the transaction
contemplated hereby; excluding, however, income taxes on QSSI's net income of
profits.
10.6 INDEPENDENT CONTRACTOR QSSI and its personnel, in performance of this
Agreement, are acting as independent contractors and not employees or agents of
Client. QSSI shall be solely responsible for the payment of compensation of QSSI
personnel assigned to perform services hereunder and such personnel are not
entitled to the provisions of any Client employee benefits. QSSI and not Client,
shall be responsible for payment of worker's compensation, disability benefits
and unemployment insurance or for withholding and paying employment taxes for
all QSSI personnel.
11. TERM This Agreement is effective from the date first set forth above and
shall continue in effect until terminated by either party. Completion of any
specific services or Customer's failure to order additional services hereunder
shall not terminate this Agreement. This agreement can be terminated by either
party upon one month's prior written notice to the other party. Any work order
between the parties still in effect upon termination shall survive until
completed according to its terms.
12. MISCELLANEOUS
12.1 DISPUTE RESOLUTION In the event of any dispute with regard to the
interpretation of this Agreement or the respective rights and obligations of the
Parties, other than those for which injunctive relief is appropriate, and as a
condition precedent to any legal action being
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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commenced by either Party, Gerry Goldschein of QSSI and Lloyd Wallsten of
Client, shall in good faith attempt to resolve the Parties' differences, the
dispute shall be elevated to Ed Troianelo of QSSI and Diane Hourany of Client
who shall meet in person and, in good faith, attempt to resolve the dispute. If
the dispute is then not resolved within five (5) business days either party may
pursue any remedies then available to it.
12.2 ENTIRE AGREEMENT This Agreement sets forth the entire and exclusive
understanding and agreement of the Parties with respect to its subject matter
and supersedes and merges any prior understanding or agreements, oral or
written. This Agreement may not be modified except by a writing subscribed by
both Client and QSSI.
12.3 FORCE MAJEURE Neither client or QSSI shall be liable to the other for any
delay or failure to perform any of the services or obligations set forth in this
Agreement due to any act of God, fire, flood, casualty, earthquake or other
causes beyond its reasonable control provided that such party shall have used
its best efforts to mitigate its effects.
12.4 NEW JERSEY LAW This Agreement and performance hereunder shall be governed
by the laws of the State of New Jersey without regards to its conflict of laws
provisions. QSSI and Client hereby agree on behalf of themselves and any person
claiming by or through them that the sole jurisdiction and venue for any
litigation rising from or relating to this Agreement shall be an appropriate
federal or state court located in New Jersey. No action, regardless of form,
arising out of this Agreement shall be brought by Client more than one year
after such cause of action shall have accrued.
12.5 ASSIGNMENT Unless in connection with the sale of all or substantially all
of its assets or a merger, neither party may assign this Agreement or any right,
interest or benefit under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be fully binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.
12.6 NOTICE Any communication provided or permitted under this Agreement, unless
otherwise specifically provided otherwise herein, shall be in writing and shall
be deemed given (i) if by hand deliver, upon receipt thereof; (ii) if mailed,
four (4) business days after deposit in the U.S. mails, postage paid, certified
mail, return receipt requested and received. All notices shall be addressed to
Client and QSSI at their respective addresses set forth on the cover of this
Agreement.
12.7 SURVIVAL The following Paragraphs or Sections of this Agreement shall
survive its cancellation, termination or expiration: 4.2, 4.3, 4.4, 8.3, 8.4, 9,
10.3, 10.5, 10.6, and 11.
12.8 CLIENT IDENTIFICATION Upon the written consent of Client, which shall not
be unreasonably withheld, QSSI may use the name of and identify Client as a
Client, in press releases and similar materials distributed to prospective
Clients. Client may from time to time as requested by QSSI but within Client's
sole discretion, allow QSSI to perform site visits to Client's site provided
however that Client is given adequate notice and would not provide proprietary
information to a competitor.
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12.9 NO WAIVER The waiver or failure of either Client or QSSI to exercise any
right in any instance shall be deemed a waiver neither of any other right
hereunder not of its right to withhold other waivers of the same rights.
12.10 ENFORCEABILITY If any provision of this Agreement is determined to be
invalid under any applicable statute or rule of law, it is to that extent to be
deemed omitted, and the balance of the Agreement shall remain enforceable.
CLIENT AND QSSI HAVE READ AND AGREES TO ALL OF THE ATTACHED AND INCORPORATED
TERMS AND CONDITIONS. THIS AGREEMENT SHALL BE EFFECTIVE WHEN EXECUTED BY QSSI.
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IN WITNESS WHEREOF, the parties have caused this agreement to be executed by
their duly authorized representatives as of the date first written above.
Client: Pets.com QUALITY SOFTWARE SYSTEMS, INC.
By: /s/ Diane Hourany By: /s/ H E Dybuahl
------------------------------ ---------------------------------
(Signature) (Signature)
Name: Diane Hourany Name: H. E. Dybuahl
---------------------------- -------------------------------
Title: VP OPS Title: Director, Sales & Marketing
--------------------------- ------------------------------
Date: July 16, 1999 Date: July 16, 1999
---------------------------- -------------------------------
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EXHIBIT 10.22
PETPLACE.COM, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 12th day of November
1999, by and among PetPlace.com, Inc., a Delaware corporation (the "Company"),
and the investors severally and not jointly listed on Schedule A hereto, each of
which is herein referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series A Preferred Stock.
(a) The Company shall adopt and file with the Secretary of State
of Delaware on or before the Initial Closing (as defined below) the Restated
Certificate of Incorporation in the form attached hereto as Exhibit A (the
"Restated Certificate").
(b) On or prior to the Initial Closing (as defined below), the
Company shall have authorized (i) the sale and issuance to the Investors of the
Series A Preferred Stock and (ii) the issuance of the shares of Common Stock to
be issued upon conversion of the Series A Preferred Stock (the "Conversion
Shares"). The Series A Preferred Stock and the Conversion Shares shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Certificate.
(c) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Initial Closing
or pursuant to Section 1.3 and the Company agrees to sell and issue to each
Investor at the Initial Closing or pursuant to Section 1.3, that number of
shares of the Company's Series A Preferred Stock set forth opposite such
Investor's name on Schedule A hereto for the purchase price set forth thereon.
1.2 Initial Closing. The purchase and sale of the Series A Preferred
Stock shall take place at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, at
10:00 A.M., on November 12, 1999, or at such other time and place as the Company
and Investors acquiring in the aggregate more than half the shares of Series A
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Initial Closing"). At the Initial
Closing the Company shall deliver to each Investor a certificate representing
the Series A Preferred Stock that such Investor is purchasing against payment of
the purchase price therefor by check, wire transfer, cancellation of
indebtedness, or any combination thereof.
1.3 Subsequent Sale of Series A Preferred Stock to Pets.com, Inc.
Concurrent with the launch of the Company's web site, which shall occur no later
than February 1, 2000, Pets.com, Inc. shall purchase, at a purchase price of
$0.93 per share an additional 1,612,903
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shares of Series A Preferred Stock, provided that the web site is reasonably
satisfactory to Pets.com, Inc. (the "Pets.com Subsequent Closing").
1.4 Subsequent Sale of Series A Preferred Stock. The Company may sell up
to the balance of the authorized number of shares of Series A Preferred Stock
not sold at the Initial Closing or reserved for the Pets.com Subsequent Closing
to such purchasers as it shall select, at a price not less than $0.93 per share,
provided the agreement for sale is executed not later than January 1, 2000. Any
such purchaser shall become a party to this Agreement and that certain
Investors' Rights Agreement dated November 12, 1999, by and among the Company
and the Investors, the form of which is attached hereto as Exhibit B (the
"Investors' Rights Agreement"), that certain Voting Agreement dated November 12,
1999, by and among the Company and the Investors, the form of which is attached
hereto as Exhibit C (the "Voting Agreement") and that certain Right of First
Refusal and Co-Sale Agreement dated November 12, 1999 by and among the Company
and the Investors, the form of which is attached hereto as Exhibit D (the "Right
of First Refusal and Co-Sale Agreement") and shall have the rights and
obligations hereunder and thereunder, unless such purchaser enters into an
agreement that provides otherwise. The Voting Agreement and the Right of First
Refusal and Co-Sale Agreement are herein called collectively the "Ancillary
Agreements."
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as set forth on a Schedule
of Exceptions (the "Schedule of Exceptions") furnished each Investor and special
counsel for the Investors, specifically identifying the relevant subparagraph
hereof, which exceptions shall be deemed to be representations and warranties as
if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
Company consists of:
(a) Preferred Stock. 10,000,000 shares of Preferred Stock, par
value $0.0001 (the "Preferred Stock"), of which 5,500,000 shares have been
designated Series A Preferred Stock (the "Series A Preferred Stock") and up to
all of which will be sold pursuant to this Agreement. The rights, privileges and
preferences of the Series A Preferred Stock will be as stated in the Company's
Restated Certificate.
(b) Common Stock. 40,000,000 shares of common stock, par value
$0.0001 ("Common Stock"), of which 19,460,000 shares are issued and outstanding.
The outstanding shares of Common Stock are all duly and validly authorized and
issued, fully paid and nonassessable, and were issued in accordance with the
registration and qualification provisions of the Securities Act of 1933, as
amended (the "Securities Act") and any relevant state securities laws, or
pursuant to any exemptions therefrom.
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(c) Except for (A) the conversion privileges of the Series A
Preferred Stock to be issued under this Agreement, (B) the rights provided in
Section 2.3 of the Investors' Rights Agreement, (C) commitments or proposals to
issue up to 300,000 shares of Common Stock to certain service providers, and (D)
currently outstanding options or commitments to purchase 1,780,000 shares of
Common Stock granted to employees and other service providers pursuant to the
Company's 1999 Stock Option Plan (the "Option Plan") or other arrangement
approved by the Board of Directors, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock.
The Company is not a party or subject to any agreement or understanding, and, to
the Company's knowledge, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
(d) Except as set forth on the Schedule of Exceptions hereto, no
stock plan, stock purchase, stock option or other agreement or understanding
between the Company and any holder of any equity securities or right to purchase
equity securities provides for acceleration or other changes in the vesting
provisions or other terms of such agreement or understanding as the result of
any merger, consolidated sale of stock or assets, change of control or other
similar transaction by the Company.
2.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Investors' Rights Agreement and the
Ancillary Agreements, the performance of all obligations of the Company
hereunder and thereunder, and the authorization, issuance (or reservation for
issuance), sale and delivery of the Series A Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion of the Series A
Preferred Stock has been taken or will be taken prior to the Initial Closing,
and this Agreement, the Investors' Rights Agreement and the Ancillary Agreements
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock. The Series A Preferred
Stock that is being purchased by the Investors hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series A Preferred Stock purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Certificate,
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will be duly and validly issued, fully paid, and nonassessable and will be free
of restrictions on transfer other than restrictions on transfer under this
Agreement and the Investors' Rights Agreement and under applicable state and
federal securities laws.
2.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except (i) the filing of the Restated Certificate with the
Secretary of State of Delaware; and (ii) the filing pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, which filing will be effected within 15 days of the sale of the
Series A Preferred Stock hereunder, or such other post-closing filings as may be
required.
2.7 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series A Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable state
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.8 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement, the Investors' Rights Agreement
or any Ancillary Agreements, or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 Proprietary Information Agreements. Each employee, officer and
consultant of the Company has executed a Proprietary Information and Inventions
Agreement in substantially the form provided to special counsel to the
Investors. The Company is not aware that any of its employees, officers or
consultants are in violation thereof and the Company will use its diligent
efforts to prevent any such violation. No employee, officer or consultant of the
Company has excluded works or inventions made prior to his or her employment
with the Company from his or her assignment of inventions pursuant to such
employee, officer or consultant's Proprietary Information and Inventions
Agreement.
2.10 Patents and Trademarks. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
tradenames, copyrights,
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trade secrets, licenses, information and proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted in
the future without any conflict with, or infringement of, the rights of others
and believes it can obtain, on commercially reasonable terms, any additional
rights necessary for the conduct of its business as proposed to be conducted.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity, except, in
either case, for end-user, object code, internal-use software license and
support/maintenance agreements. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement, the Investors' Rights Agreement or the Ancillary
Agreements, nor the carrying on of the Company's business by the employees of
the Company, nor the conduct of the Company's business as proposed, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions,
trade secrets or proprietary information of any of its employees (or people it
currently intends to hire) made prior to or outside the scope of their
employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in violation
or default of any provision of its Restated Certificate or Bylaws, or of any
instrument, judgment, order, writ, decree or contract to which it is a party or
by which it is bound, or, to the best of its knowledge, of any provision of any
federal or state statute, rule or regulation applicable to the Company. The
execution, delivery and performance of this Agreement, the Investors' Rights
Agreement and the Ancillary Agreements, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event that results in the creation of any lien,
charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties. To its knowledge, the Company has
avoided every condition, and has not performed any act, the occurrence of which
would result in the Company's loss of any material right granted under any
license, distribution agreement or other agreement.
2.12 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby and by
the Investors' Rights Agreement and the Ancillary Agreements, there are no
agreements,
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understandings or proposed transactions between the Company and any of its
officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $10,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than the license by the Company of its
software and products to third-party customers in the ordinary course of
business or licenses of commercial off-the-shelf software used by the Company
for internal purposes), or (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or Series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $10,000 or, in the case of
indebtedness and/or liabilities individually less than $10,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws that adversely affects its business, its
properties or its financial condition.
(f) The Company has not engaged in the past six (6) months in
any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.13 Related-Party Transactions. No employee, officer, or director of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the Company's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that
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<PAGE> 7
employees, officers, or directors of the Company and members of their immediate
families may own stock in publicly traded companies that may compete with the
Company. No member of the immediate family of any officer or director of the
Company is directly or indirectly interested in any material contract with the
Company.
2.14 Permits. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
2.15 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.16 Corporate Documents. The Restated Certificate and Bylaws of the
Company are in the form previously provided to special counsel for the
Investors. The copy of the minute books of the Company provided to the
Investors' special counsel contains minutes of all meetings of directors and
stockholders and all actions by written consent without a meeting by the
directors and stockholders since the date of incorporation and reflects all
actions by the directors (and any committee of directors) and stockholders with
respect to all transactions referred to in such minutes accurately in all
material respects.
2.17 Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to its knowledge, holds a valid leasehold interest free of
any liens, claims or encumbrances.
2.18 Material Liabilities. The Company has no material liability or
obligation, absolute or contingent (individually or in the aggregate), except
(i) obligations and liabilities incurred after the date of incorporation in the
ordinary course of business that are not material, individually or in the
aggregate, and (ii) obligations under contracts made in the ordinary course of
business that would not be required to be reflected in financial statements
prepared in accordance with generally accepted accounting principles.
2.19 Employee Benefit Plans. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.20 Tax Returns, Payments and Elections. The Company has filed all tax
returns and reports (including information returns and reports) as required by
law. The Company has paid all taxes and other assessments due, except those
contested by it in good faith that are listed in the Schedule of Exceptions and
except to the extent that a reserve has been reflected on its financial
statements in accordance with generally accepted accounting principles. The
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<PAGE> 8
Company has never had any tax deficiency proposed or assessed against it and has
not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's federal
income tax returns and none of its state income or franchise tax or sales or use
tax returns has ever been audited by governmental authorities. Since the date of
its financial statements, the Company has not incurred any taxes, assessments or
governmental charges other than in the ordinary course of business and the
Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. The Company has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositories.
2.21 Labor Agreements and Actions; Employee Compensation. The Company is
not bound by or subject to (and none of its assets or properties is bound by or
subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union or any collective bargaining agreements with
any of its employees, and no labor union has requested or, to the Company's
knowledge, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the Company's knowledge, threatened, that could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and employee of the Company is terminable at the
will of the Company. To its knowledge, the Company has complied in all material
respects with all applicable state and federal equal employment opportunity and
other laws related to employment. No employee has any agreement or contract,
written or verbal, regarding his or her employment. The Company is not a party
to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement. The Company has
not entered into any agreement that granted any employee (including any officer)
the right to continued employment by the Company or to any material compensation
following termination of employment with the Company. Each officer of the
Company is currently devoting his or her full business time during normal
business hours to the conduct of the Business of the Company. The Company is not
aware of any officer or key employee of the Company planning to work less than
full time at the Company in the future.
2.22 Real Property Holding Company. The Company is not currently, and
has not been during the prior five years, a United States real property holding
corporation within the meaning of Section 897 of the Code and the Company has
filed with the Internal Revenue Service all statements, if any, with its United
States income tax returns which are required under Section 1.897-2(h) of the
Treasury Regulations.
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<PAGE> 9
2.23 Brokers. The Company has no contract, arrangement or understanding
with any broker, finder or similar agent with respect to the transactions
contemplated by this Agreement.
2.24 Disclosure. The Company has fully provided each Investor with all
the information that such Investor has requested for deciding whether to
purchase the Series A Preferred Stock and all the information the Company
believes is reasonably necessary to enable such Investor to make such decision.
Neither this Agreement, the Investors' Rights Agreement, the Ancillary
Agreements nor any exhibits hereto contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
2.25 Financial Compilation. The Company has delivered to each Investor
that has requested it a copy of a financial compilation as of August 31, 1999
(the "Financial Compilation"). The Financial Compilation fairly presents the
financial condition of the Company. Except as set forth in the Financial
Compilation, the Company has no material liabilities, contingent or otherwise,
other than liabilities incurred in the ordinary course of business.
2.26 Section 83(b) Elections. To the Company's knowledge, all elections
and notices permitted by Section 83(b) of the Internal Revenue Code and any
analogous provisions of applicable sales tax laws have been filed by all
employees who have purchased shares of the Company's common stock prior to the
Closing under agreements that provide for the vesting of such shares.
2.27 Insurance. The Company has, or will obtain following the Initial
Closing fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
3. Representations and Warranties of the Investors. Each Investor hereby
represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to enter
into this Agreement, the Investors' Rights Agreement and each Ancillary
Agreement, and each such agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with such
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Series A Preferred Stock to be received by such Investor and the Common
Stock issuable upon conversion thereof (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part
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<PAGE> 10
thereof, and that such Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, such Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Series A Preferred Stock. Such Investor further represents that
it has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series A Preferred
Stock and the business, properties, prospects and financial condition of the
Company. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon.
3.4 Investment Experience. Such Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Series A Preferred Stock. If other
than an individual, Investor also represents it has not been organized for the
purpose of acquiring the Series A Preferred Stock.
3.5 Accredited Investor. Such Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the Securities
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreement are then applicable, and:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to
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<PAGE> 11
the Company that such disposition will not require registration of such shares
under the Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he or she were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
4. Conditions of Investors' Obligations at Initial Closing. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Initial Closing of each of the
following conditions, the waiver of which shall not be effective against any
Investor who does not consent thereto:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the Initial
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Initial Closing.
4.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Initial
Closing.
4.3 Compliance Certificate. The President of the Company shall deliver
to each Investor at the Initial Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
operations, properties, assets or condition of the Company since the date of
incorporation.
4.4 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in
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connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be duly obtained and effective as of the Initial Closing.
4.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Initial Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.6 Board of Directors. The directors of the Company shall be Jon
Rappaport, Marc Richman and Richard Goldstein, who serve as the designees of the
holders of Common Stock, one designee of Pets.com, Inc., and there shall be two
vacancies on the Board of Directors, to be filled by outside industry experts
who shall be elected by holders of a majority of Common Stock and Preferred
Stock, voting together as a single class.
4.7 Investors' Rights Agreement. The Company and each Investor shall
have entered into an Investors' Rights Agreement in the form attached as Exhibit
B.
4.8 Voting Agreement. The Company and each Investor shall have entered
into a Voting Agreement in the form attached as Exhibit C.
4.9 Co-Sale Agreements. Jon Rappaport and each Investor shall each have
entered into a Co-Sale Agreement in the form attached hereto as Exhibit D.
4.10 Opinion of Company Counsel. Each Investor shall have received from
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for the
Company, an opinion, dated as of the Initial Closing, in the form attached
hereto as Exhibit E.
4.11 Restated Certificate of Incorporation. The Company's Restated
Certificate of Incorporation shall have been filed with the Delaware Secretary
of State.
4.12 Proprietary Information and Inventions Agreement. The Company and
each of its employees shall have entered into the Company's standard form
Proprietary Information and Inventions Agreement, in substantially the form
provided to the special counsel for the Investors.
5. Conditions of the Company's Obligations at Initial Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Initial Closing of each of the following
conditions by that Investor:
5.1 Representations and Warranties. The representations and warranties
of the Investors contained in Section 3 shall be true on and as of the Initial
Closing with the same effect as though such representations and warranties had
been made on and as of the Initial Closing.
5.2 Payment of Purchase Price. Each Investor shall have delivered the
purchase price specified in Section 1.2 opposite such Investors name and the
Investors shall collectively have acquired and paid for at the Initial Closing
at least 2,150,537 shares of Series A Preferred Stock hereunder.
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5.3 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Initial Closing.
5.4 Investors' Rights Agreement. The Company and each Investor shall
have entered into an Investors' Rights Agreement.
5.5 Voting Agreement. The Company and each Investor shall have entered
into a Voting Agreement.
5.6 Co-Sale Agreements. Jon Rappaport and each Investor shall each have
entered into a Co-Sale Agreement.
5.7 Restated Certificate of Incorporation. The Company's Restated
Certificate of Incorporation shall have been filed with the Delaware Secretary
of State.
6. Miscellaneous.
6.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Initial Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investors or the Company.
6.2 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the
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address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
6.7 Finder's Fee. Each party severally and not jointly represents that
it neither is nor will be obligated for any finders' fee or commission in
connection with this transaction. Each Investor agrees severally and not jointly
to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such Investor or any of its officers, partners, employees, or representatives is
responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 Expenses. Irrespective of whether the Initial Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Initial Closing is effected, the Company shall, at the Initial Closing,
reimburse the reasonable fees and out-of-pocket expenses of Venture Law Group,
special counsel for the Investors, not to exceed $15,000.00. If any action at
law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Investors' Rights Agreement, any Ancillary Agreement or the
Restated Certificate, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
6.9 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Common Stock issuable or issued upon conversion of the Series A Preferred Stock.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
6.10 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.
6.11 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
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CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6.12 Aggregation of Stock. All shares of the Preferred Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
6.13 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
6.14 Waiver of Conflicts. Each party to this Agreement acknowledges that
Gunderson Dettmer, counsel for the Company, has in the past and may continue to
perform legal services for certain of the Investors in matters unrelated to the
transactions described in this Agreement, including the representation of such
Investors in venture capital financings and other matters. Accordingly, each
party to this Agreement hereby (1) acknowledges that they have had an
opportunity to ask for information relevant to this disclosure; (2) acknowledges
that Gunderson Dettmer represented the Company in the transaction contemplated
by this Agreement and has not represented any individual Investor or any
individual shareholder or employee of the Company in connection with such
transaction; and (3) gives its informed consent to Gunderson Dettmer's
representation of certain of the Investors in such unrelated matters and to
Gunderson Dettmer's representation of the Company in connection with this
Agreement and the transactions contemplated hereby.
6.15 Delay or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any holder of any
of the Series A Preferred Stock, upon any breach or default of the Company under
this Agreement, shall impair any such right, power or remedy of such holder nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence thereto, or of or in any similar breach or default or any other
breach or default theretofore of thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Investor of any
breach or default under this Agreement, or any waiver on the part of any
Investor of any provisions or conditions of this Agreement, must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any Investor, shall be cumulative and not alternative.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY
PetPlace.com, Inc.
By: /s/ Jon Rappaport
---------------------------------
Jon Rappaport
Chief Executive Officer
Address: 71 Broadway, Suite 22a
New York, NY 10006
INVESTOR:
Pets.com, Inc.
By: /s/ Julie Wainwright
---------------------------------
Title: CEO
------------------------------
Address: 435 Brannan Street
San Francisco, CA 94107
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SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF TOTAL PURCHASE
NAME AND ADDRESS SHARES PURCHASED PRICE OF SHARES
---------------- ---------------- ---------------
<S> <C> <C>
Pets.com, Inc. 2,150,537 $1,999,999.40
435 Brannan Street
San Francisco, CA 94107
</TABLE>
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<PAGE> 1
EXHIBIT 10.23
PETS.COM, INC.
SERIES B PREFERRED STOCK AND CONVERTIBLE
NOTE PURCHASE AGREEMENT
This Series B Preferred Stock and Convertible Note Purchase Agreement
(the "Agreement") is made as of the 5th day of November, 1999 by and between
Pets.com, Inc., a California corporation (the "Company"), and the investors
listed on Exhibit A attached hereto (each a "Purchaser" and together the
"Purchasers").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK AND NOTES; CONVERSION OF NOTES.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK AND NOTES.
(a) The Company shall adopt and file with the Secretary of State
of the State of California on or before the Closing (as defined below) the Third
Amended and Restated Articles of Incorporation in the form attached hereto as
Exhibit B (the "Restated Articles").
(b) The Company has, or will have before the Initial Closing (as
defined in Section 1.2(a) below) authorized the sale and issuance of up to
5,886,149 shares of Series B Preferred Stock (or as applicable, up to 4,882,822
Shares of Series B Preferred Stock and up to 1,003,327 shares of Series B-1
Preferred Stock), or such greater number of shares of Series B and/or Series B-1
Preferred Stock that will permit Amazon.com, Inc. ("Amazon.com") to maintain its
ownership of the Company at 46% on a fully diluted basis (assuming full
conversion and exercise of all convertible or exercisable securities of the
Company, including securities reserved for issuance and not granted under the
Company's stock and option plans) (the "Ownership Threshold"), but not to exceed
this threshold, after taking into account certain increases to the number of
shares authorized for issuance pursuant to the company's 1999 Stock Plan and
additional issuances under this Agreement. Shares issued to Amazon.com outside
of the 5,886,149 shares contemplated by the first sentence of this Section1.1(b)
which permit Amazon.com to maintain its ownership at the Ownership Threshold
shall also be referred to hereinafter as the "Amazon True-Up Shares." Subject to
the terms and conditions of this Agreement, each Purchaser agrees, severally and
not jointly, to purchase at the Initial Closing or the Second Closing (as
defined below) and the Company agrees to sell and issue to each Purchaser at the
Initial Closing or the Second Closing that number of shares of Series B
Preferred Stock and/or Series B-1 Preferred Stock set forth opposite each such
Purchaser's name on Exhibit A attached hereto under "Initial Closing" and/or
"Second Closing," respectively, at a purchase price of $7.55 per share, and
certain Purchasers agree, severally and not jointly, to purchase at the Initial
Closing and the Company agrees to sell and issue to each such Purchaser at the
Initial Closing a Convertible Promissory Note in either the form attached hereto
as Exhibit C-1 or C-2 (each, a "Note") in the principal amount set forth
opposite each such Purchaser's name on Exhibit A attached hereto under "Initial
Closing." The shares of Series B and/or Series B-1 Preferred Stock issued to the
Purchaser pursuant to this Agreement shall be hereinafter referred to as the
"Stock; and the Stock, the Notes, the Stock issuable upon
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conversion of the Notes, and the Common Stock issuable upon conversion of the
Stock shall collectively be referred to hereinafter as the "Securities."
1.2 CLOSING; DELIVERY; CONVERSION OF NOTES.
(a) The initial purchase and sale of the Stock and Notes shall
take place at the offices of Venture Law Group, 2775 Sand Hill Road, Menlo Park,
California, at 10:00 a.m., on November __, 1999, or at such other time and place
as the Company and the Purchasers mutually agree upon, orally or in writing
(which time and place are designated as the "Initial Closing"). At the Initial
Closing, the Company shall deliver to each Purchaser a certificate representing
the Stock being purchased thereby and/or a Note being purchased by such
Purchaser against payment of the purchase price therefor by check payable to the
Company or by wire transfer to the Company's bank account.
(b) Without limiting the obligations of certain of the
Purchasers to convert the Notes at the Second Closing as provided in Section
1.2(c) below, if the full number of the authorized shares of Series B Preferred
Stock of the Company is not sold at the Initial Closing, the Company shall have
the right, at any time prior to December 31, 1999, to sell the remaining
authorized but unissued shares of Series B Preferred Stock at such other time
and place as the Company and the Purchasers mutually agree upon, orally or in
writing (which time and place are designated as the "Second Closing") to one or
more additional purchasers as determined by the Company, or to any Purchaser
hereunder who wishes to acquire additional shares of Series B Preferred Stock at
the price and on the terms set forth herein, subject only to the Ownership
Threshold applicable to Amazon.com, and provided further that so long as
Amazon.com has not exceeded the Ownership Threshold and elects to purchase
additional Stock in the Second Closing, it may elect to purchase shares of
Series B-1 Preferred Stock instead of Series B Preferred Stock. Any additional
Purchaser so acquiring shares of Series B Preferred Stock (or as may be
applicable in the case of Amazon.com, Series B-1 Preferred Stock) shall be
considered a "Purchaser" for purposes of this Agreement, any Series B Preferred
Stock (or as may be applicable in the case of Amazon.com, Series B-1 Preferred
Stock) so acquired by such additional purchaser shall be considered "Stock" for
purposes of this Agreement and all other agreements contemplated hereby, and for
purposes of this Agreement, unless otherwise indicated, the term "Closing"
refers to the closing of the purchase and sale of Securities with respect to a
particular Purchaser. At the Second Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased thereby against
payment of the purchase price therefor by check payable to the Company or by
wire transfer to the Company's bank account, or by conversion or partial
conversion of the Note issued to such Purchaser in the Initial Closing, all as
more fully set forth in Section 1.2(c) below.
(c) Notwithstanding the provisions of Section 1.2(b) above and
also subject to the following sentence, conversion of the Notes into Stock or
repayment of the unconverted principal and accrued interest thereon shall be
effected by the Company without any further action by the Purchasers at the
Second Closing in accordance with the terms set forth in this Section 1.2(c)
under one of the following three scenarios as may be applicable. Regardless of
which scenario is applicable to the Second Closing, Amazon.com shall have the
right to
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<PAGE> 3
convert the Note issued and sold to it in the Initial Closing (the "Amazon
Note") in whole or in part into Stock or demand repayment of the principal
amount of the Amazon Note and accrued interest thereon in whole or in part, in
accordance with the terms of the Amazon Note, in the form attached hereto as
Exhibit C-1. In connection with any full or partial conversion of the Amazon
Note by Amazon.com, the Company shall promptly issue and deliver a share
certificate to Amazon.com for the number of shares of Series B or Series B-1
Preferred Stock applicable to such conversion, repay any unconverted part of the
Amazon Note and applicable accrued interest, and the Amazon Note shall
thereafter be deemed to have been canceled. In addition, regardless of which
scenario is applicable to the Second Closing, Amazon.com shall have the right to
purchase the applicable number of Amazon True-Up Shares to maintain its
percentage ownership of the Company at 46%.
Scenario 1: If in the Second Closing the Company sells 1,324,504 shares of
Series B Preferred Stock for an aggregate purchase price of $10,000,005.20 (the
"Target Amount") to a new investor who did not previously own any capital stock
of the Company (an "Outside Investor"), then Amazon.com may, in its sole
discretion, elect to purchase up to 609,272 shares of Series B and/or Series B-1
Preferred Stock (subject to the Ownership Threshold), and the principal amount
of and accrued interest on each of the Notes issued and sold to the other
Purchasers in the Initial Closing shall be repaid in full in cash by the
Company.
Scenario 2: If the Company does not sell any shares of Series B Preferred Stock
to an Outside Investor in the Second Closing, then Amazon.com shall not purchase
additional stock in the Second Closing and the principal amount of each Note
issued to the other Purchasers in the Initial Closing shall be converted in full
into a total of 584,052 shares of Series B Preferred Stock, and accrued interest
on each such Note shall be payable in full in cash by the Company to each such
Purchaser.
Scenario 3: If the Company sells less than the Target Amount of Series B
Preferred Stock to an Outside Investor in the Second Closing, then Amazon.com
may, in its sole discretion, elect to purchase additional shares of Series B
and/or Series B-1 Preferred Stock in the Second Closing, but only to the extent
that following such additional purchase its percentage ownership of the capital
stock of the Company on a fully diluted basis (assuming full conversion and
exercise of all convertible or exercisable securities of the Company, including
securities reserved for issuance and not granted under the Company's stock and
option plans) will not exceed the Ownership Threshold. If Amazon.com elects to
purchase fewer shares of Stock than the maximum number to which it would
otherwise be entitled to maintain its ownership at 46% on a fully diluted basis
at the time of the Second Closing, then the Company may in its sole discretion
elect to convert in whole or in part the Notes issued to the other Purchasers in
the Initial Closing on a pro rata basis based on the respective principal
amounts of such Notes and/or to sell additional shares of Stock to any
Purchaser, provided that the total number of shares of Series B and/or Series
B-1 Preferred Stock issued hereunder (including upon conversion of the Notes)
does not exceed 5,886,149 shares total for all closings (plus, as may be
applicable, the Amazon True-Up Shares). Any unconverted principal under the
Notes issued to each of the other Purchasers, and accrued interest on the
foregoing Notes shall be payable in full in cash by the Company to each
Purchaser as applicable at the Second Closing.
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<PAGE> 4
1.3 HART-SCOTT-RODINO ACT COMPLIANCE.
(a) The Company agrees to use its best efforts to make an
appropriate filing of a Notification and Report Form pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the transactions contemplated hereby as promptly as
practicable and in any event within ten (10) business days of the date hereof
and to supply as promptly as practicable any additional information and
documentation that may be requested pursuant to the HSR Act and to take all
other actions necessary to cause the expiration or termination of applicable
waiting periods under the HSR Act as soon as practicable. The Company will
cooperate and coordinate with the Purchasers in exchanging information and
providing reasonable assistance as the other party may request in connection
with the foregoing, to the extent such request is appropriate and reasonably
necessary.
(b) Each of the Purchasers (to the extent that a Purchaser is
required to make a filing under the HSR Act) listed on Exhibit A hereto agrees
to use its best efforts to make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act with respect to the transactions
contemplated hereby as promptly as practicable and in any event within ten (10)
business days of the date hereof and to supply as promptly as practicable any
additional information and documentation that may be requested pursuant to the
HSR Act and to take all other actions necessary to cause the expiration or
termination of applicable waiting periods under the HSR Act as soon as
practicable. The Purchasers will cooperate and coordinate with the Company in
exchanging information and providing reasonable assistance as the other party
may request in connection with the foregoing to the extent such request is
appropriate and reasonably necessary. Each Purchaser hereby agrees to pay the
filing fees and the related costs incurred by such Purchasers to effect any HSR
filing that is applicable to such Purchaser.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit D, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted in the
future. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
2.2 CAPITALIZATION. The authorized capital of the Company consists,
or will consist, immediately prior to the Initial Closing, of:
(a) 21,427,328 shares of Preferred Stock, 7,227,328 of which
shares have been designated Series A Preferred Stock, all of which are issued
and outstanding immediately prior to the Initial Closing, 12,900,000 of which
shares have been designated Series B Preferred Stock, 6,622,517 of which are
issued and outstanding immediately prior to the Initial Closing, and 1,300,000
of which shares have been designated Series B-1 Preferred Stock,
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<PAGE> 5
none of which are issued and outstanding immediately prior to the Initial
Closing. The rights, privileges and preferences of the Preferred Stock are as
stated in the Restated Articles. All of the outstanding shares of Preferred
Stock have been duly authorized, fully paid and are nonassessable and issued in
compliance with all applicable federal and state securities laws.
(b) 36,000,000 shares of Common Stock, 5,358,246 shares of which
are issued and outstanding immediately prior to the Initial Closing. All of the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws.
(c) The Company has reserved 4,623,909 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its 1999 Stock Plan duly adopted by the Board of Directors and
approved by the Company shareholders (the "Stock Plan"). Of such reserved shares
of Common Stock, 3,546,409 shares have been issued pursuant to restricted stock
purchase agreements or exercised options, options to purchase 1,077,500 shares
have been granted or are currently outstanding, and no shares of Common Stock
remain available for issuance to officers, directors, employees and consultants
pursuant to the Stock Plan. Except as set forth on the Schedule of Exceptions,
options and Common Stock granted to employees by the Company pursuant to the
Stock Plan are subject to the following vesting schedule: 25% of the shares
comprising each grant to employees shall vest on the one-year anniversary of the
vesting commencement date for such grant, and thereafter 1/48th of the shares
comprising the grant shall vest on each monthly anniversary of the vesting
commencement date for such grant over the following 36 months. Unvested shares
of Common Stock issued to employees pursuant to the Stock Plan are subject to
the Company's right of repurchase at the original grantee's purchase price.
(d) Except for (a) the conversion privileges of the outstanding
Series A Preferred Stock and the Series B Preferred Stock previously issued and
the Series B and/or Series B-1 Preferred Stock to be issued pursuant to this
Agreement, (b) the Right of First Offer set forth in Section 2.3 of the Amended
and Restated Investors Rights Agreement to be entered into by the Company, Greg
McLemore, the Purchasers, the holders of Series A Preferred Stock and the prior
holders of Series B Preferred Stock at the Closing, and (c) outstanding options
issued pursuant to the Stock Plan, there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock. Other than the
Amended and Restated Voting Agreement of even date herewith by and among the
Company, Greg McLemore, Julie Wainwright, the holders of Series A Preferred
Stock, the prior holders of Series B Preferred Stock and the Purchasers
hereunder, the Company is not a party or subject to any agreement or
understanding, and to the best of its knowledge, there is no agreement or
understanding between any persons and/or entities, that affects or relates to
the voting or giving of written consents with respect to any security or by a
director of the Company.
2.3 SUBSIDIARIES. The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
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<PAGE> 6
2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Amended and Restated Investors'
Rights Agreement, in the form attached hereto as Exhibit E (the "Investors'
Rights Agreement"), the Amended and Restated Right of First Refusal and Co-Sale
Agreement in the form attached hereto as Exhibit F (the "Co-Sale Agreement") and
the Amended and Restated Voting Agreement in the form attached hereto as Exhibit
G (the "Voting Agreement" and collectively with this Agreement, the Investors'
Rights Agreement and the Co-Sale Agreement, the "Agreements"), the performance
of all obligations of the Company hereunder and thereunder and the
authorization, issuance (or reservation for issuance), sale and delivery of the
Securities has been taken or will be taken prior to the Closing, and the
Agreements, when executed and delivered by the Company, shall constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws. The sale of the Securities is not
and will not be subject to any preemptive rights or rights of first refusal,
except for those rights waived or exercised by certain Purchasers purchasing the
Stock set forth on Exhibit A.
2.5 VALID ISSUANCE OF SECURITIES. The Securities that are being
issued to the Purchasers hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement, the Notes,
the Investors' Rights Agreement and applicable state and federal securities
laws. Based in part upon the representations of the Purchasers in this Agreement
and subject to the provisions of Section 2.6 below, the Securities will be
issued in compliance with all applicable federal and state securities laws. The
Common Stock issuable upon conversion of the Stock has been duly and validly
reserved for issuance, and upon issuance in accordance with the terms of the
Restated Articles, shall be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Investors' Rights Agreement and applicable
federal and state securities laws and will be issued in compliance with all
applicable federal and state securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing of the Restated Articles
and filings pursuant to Section 25102(f) of the California Corporate Securities
Law of 1968, as amended, and the rules thereunder, other applicable state
securities laws and Regulation D of the Securities Act of 1933, as amended (the
"Securities Act").
2.7 OFFERING. Subject in part to the truth and accuracy of each
Purchaser's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the
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<PAGE> 7
Securities as contemplated by this Agreement are, to the Company's knowledge,
exempt from the registration requirements of any applicable state and federal
securities laws, and neither the Company nor any authorized agent acting on its
behalf will knowingly take any action hereafter that would cause the loss of
such exemption.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of the Agreements or the right
of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the assets, condition or
affairs of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with former
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality nor has the Company received any notice thereof. There is no
action, suit, proceeding or investigation by the Company or any of its
subsidiaries currently pending or which the Company or any of its subsidiaries
intends to initiate.
2.9 INTELLECTUAL PROPERTY. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted in the future without any conflict with, or
infringement of, the rights of others and believes it can obtain, on
commercially reasonable terms, any additional rights necessary for the conduct
of its business as proposed to be conducted. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as currently conducted or as presently proposed, would violate any of
the patents, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interest of the Company or that would conflict with the Company's
business as currently conducted or as proposed to be conducted. Neither the
execution or delivery of the Agreements, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any such employee is now
obligated. The Company does not believe it is or will be necessary to use any
inventions, trade secrets or proprietary information of any of its employees (or
persons it currently intends to hire) made prior to their employment by the
Company. The Schedule of Exceptions includes a list of all patents, copyrights,
trademarks and domain names claimed or owned by the Company and all licenses by
the Company of any intellectual property or technology from third parties.
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<PAGE> 8
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any provisions
of its Restated Articles or Bylaws or of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound or, to its
knowledge, of any provision of federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of the
Agreements and the consummation of the transactions contemplated hereby or
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
(b) To its knowledge, the Company has avoided every condition,
and has not performed any act, the occurrence of which would result in the
Company's loss of any right granted under any license, permit, authorization,
distribution agreement or other agreement.
2.11 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, members of their
immediate families, affiliates, or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs, or decrees to which the Company
is a party or by which it is bound that involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $50,000, (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company, (iii) the grant of rights to manufacture, produce, assemble,
license, market, or sell its products to any other person or affect the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products or services, or (iv) indemnification by the Company with
respect to infringement of proprietary rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or Series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $50,000 nor, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(d) For purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to
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<PAGE> 9
believe are affiliated therewith) shall be aggregated for the purpose of meeting
the individual minimum dollar amounts of such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that, to its knowledge, adversely affects its
business as now conducted and as proposed to be conducted in the future, its
properties or its financial condition.
(f) The Company has not engaged in the past three (3) months in
any discussion (i) with any representative of any corporation or corporations
regarding the merger of the Company with or into any such corporation or
corporations, (ii) with any representative of any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or Series of related transactions in which more than
fifty percent (50%) of the voting power of the Company would be disposed of, or
(iii) regarding any other form of liquidation, dissolution or winding up of the
Company.
2.12 DISCLOSURE. The Company has fully provided the Purchasers with
all the information that the Purchasers have requested for deciding whether to
acquire the Securities and all information that the Company believes is
reasonably necessary to enable the Purchasers to make such a decision, including
certain financial projections. No representation or warranty of the Company
contained in this Agreement and the exhibits attached hereto, any certificate
furnished or to be furnished to Purchasers at the Closing, or other information
furnished to the Purchasers (when read together) contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. To the extent the financial
projections were prepared by management of the Company, such financial
projections were prepared in good faith. The assumptions applied in preparing
such projections appeared reasonable to management as of the date thereof and as
of the date hereof. The Purchasers understand that actual results may differ
substantially from those projections.
2.13 NO CONFLICT OF INTEREST. The Company is not indebted (or
committed to make loans or extend or guarantee credit), directly or indirectly,
to any of its employees, officers or directors or to their respective spouses or
children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees nor is the Company contemplating such indebtedness as of
the date of this Agreement. None of the Company's employees, officers or
directors, or any members of their immediate families, are, directly or
indirectly, indebted to the Company (other than in connection with purchases of
the Company's stock) or, to the Company's knowledge, have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company nor is the Company contemplating
such indebtedness as of the date of this Agreement, except that employees,
officers, directors and/or shareholders of the Company may own stock in (but not
exceeding two percent of the outstanding capital stock of) any publicly traded
company that may compete with the Company.
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To the Company's knowledge, none of the Company's officers, directors or
shareholders or any members of their immediate families are, directly or
indirectly, interested in any material contract with the Company, nor does any
such person own, directly or indirectly, in whole or in part, any material
tangible or intangible property that the Company uses or contemplates using in
the conduct of its business. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.14 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the Investors' Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. Except as contemplated in the Voting Agreement, to the
Company's knowledge, no shareholder of the Company has entered into any
agreements with respect to the voting of capital shares of the Company.
2.15 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.16 BALANCE SHEET. The Company has delivered to each Purchaser that
has requested it a copy of its unaudited balance sheet as of September 30, 1999
(the "Balance Sheet"), attached hereto as Exhibit G. The Balance Sheet has been
prepared in accordance with generally accepted accounting principles and fairly
presents the financial condition of the Company as of the date indicated
therein, subject to normal year-end audit adjustments. Except as set forth in
the Balance Sheet, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1999 that are not material, individually or
in the aggregate, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Balance Sheet, which, in both
cases, individually or in the aggregate are not material to the financial
condition or operating results of the Company. Except as disclosed to the
Purchasers, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation. The Company maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.17 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.18 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could
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have a material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as is presently conducted and as
it is proposed to be conducted), nor is the Company aware of any labor
organization activity involving its employees. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have the
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company is terminable at the will
of the Company. To its knowledge, the Company has complied in all material
respects with all applicable state and federal equal employment opportunity laws
and with other laws related to employment. The Company is not a party to or
bound by any currently effective employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation plan or agreement.
2.19 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AND EMPLOYEE
STOCK PURCHASE AGREEMENTS. Each current and former employee, consultant and
officer of the Company has executed agreements with the Company regarding
confidentiality and proprietary information (the "Confidential Information and
Invention Assignment Agreement") and any stock purchases substantially in the
form or forms delivered to the counsel for the Purchasers. No current employee,
officer or consultant of the Company has excluded works or inventions made prior
to his or her employment with the Company from his or her assignment of
inventions pursuant to such employee, officer or consultant's Confidential
Information and Invention Assignment Agreement. The Company is not aware that
any of its employees or consultants is in violation thereof, and the Company
will use its best efforts to prevent any such violation. The Company as taken
reasonable security measures to maintain the confidentiality of the Company's
proprietary information.
2.20 PERMITS. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, prospects,
or financial condition of the Company. The Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.21 CORPORATE DOCUMENTS. The Restated Articles and Bylaws of the
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and shareholders and all actions by written consent
without a meeting by the directors and shareholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and shareholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.22 QUALIFIED SMALL BUSINESS STOCK. As of the Closing: (i) the
Company will not have made any purchases of its own stock during the one-year
period proceeding the Closing having an aggregate value exceeding 5% of the
aggregate value of all its stock as of the beginning of such period and (ii) the
Company's aggregate gross assets, as defined by Code
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Section 1202(d)(2), at no time between October 7, 1998, and through the Closing
have exceeded or will exceed $50 million, taking into account the assets of any
corporations required to be aggregated with the Company in accordance with Code
Section 1202(d)(3).
2.23 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted
exclusive rights to develop, manufacture, produce, assemble, license, market,
distribute or sell its products or services to any other person or entity and is
not bound by any agreement that affects the Company's exclusive right to
develop, manufacture, produce, assemble, license, distribute, market or sell its
products, services or any other products that use its proprietary information.
2.24 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
tax returns and reports (including information returns and reports) as required
by law. These returns and reports are true and correct in all material respects.
The Company has paid all taxes and other assessments due. The Company has not
elected pursuant to the Code to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company has never had
any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of the Company's federal income tax returns and
none of its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. Since the date of the Balance Sheet,
the Company has not incurred any taxes, assessments or governmental charges
other than in the ordinary course of business and the Company has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with respect to its business, properties and operations for such period.
The Company has withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment
Tax Act taxes) required to be withheld or collected therefrom, and has paid the
same to the proper tax receiving officers or authorized depositories.
2.25 SECTION 83(b) ELECTIONS. To the best of the Company's
knowledge, all individuals who have purchased unvested shares of the Company's
Common Stock have timely filed elections under Section 83(b) of the Code and any
analogous provisions of applicable state tax laws.
2.26 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
2.27 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed and to
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satisfy its contractual obligations. The Company has in full force and effect
products liability and errors and omissions insurance in amounts customary for
companies similarly situated.
2.28 YEAR 2000. To the Company's knowledge, each hardware and
software product and other computer and information technology used by the
Company in its business (collectively, the "Software") will accurately receive,
provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, including, without limitation, leap year calculations,
without a decrease in the functionality of the Software so that the Software
will not malfunction, cease to function or provide invalid or incorrect results
as a result of date or time data, to the extent that other information
technology, used in combination with the information technology being acquired,
properly exchanges date and/or time data with it. To the Company's knowledge,
the Software is designed to be used prior to, during and after the calendar year
2000 A.D. and will operate during each such time period without error relating
to date or time data, specifically including any error relating to, or the
product of, date data which represents or references different centuries or more
than one century. Without limiting the generality of the foregoing, to the
Company's knowledge, the Software (a) will not abnormally end or provide invalid
or incorrect results as a result of date or time data, specifically including
date or time data which represents or references different centuries or more
than one century, (b) has been designed to ensure year 2000 compatibility,
including, but not limited to, date and time data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century, and (c)
includes "Year 2000 Capabilities," meaning that the Software (i) will manage and
manipulate data involving dates or time, including single century formulas and
multi-century formulas, and will not cause an abnormally ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (ii) provides that all date-related user interface functionalities and
data fields include the indication of century, and (iii) provides that all
date-related data interface functionalities include the indication of century.
2.29 COMPLIANCE WITH LAWS. To its knowledge, the Company is not in
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition operations or prospects of the Company. To the
best of the Company's knowledge, the Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to the best of the Company's knowledge, no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation.
2.30 OBLIGATIONS OF MANAGEMENT. To the best of the Company's
knowledge, each of the Company's Chief Executive Officer, President and Chief
Financial Officer is currently devoting one hundred percent (100%) of his or her
business time to the conduct of the business of the Company. The Company is not
aware that any such officer or key employee of the Company is planning to work
less than full time at the Company in the future.
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2.31 USE OF PROCEEDS. The Company will use proceeds from the sale of
the Stock for working capital purposes. Such proceeds shall not be used to repay
indebtedness to any stockholders of the Company.
2.32 CHANGES. Since September 30, 1999, there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Balance Sheet,
except changes in the ordinary course of business that have not been or are
expected to be, in the aggregate, materially adverse;
(b) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(c) any material change in any compensation arrangement or
agreement (including salary, bonus, insurance or pension benefits) with any
employee, officer, director or shareholder;
(d) any change or amendment to any of the governing documents of
the Company (including the Restated Articles and Bylaws of the Company), except
as contemplated hereunder; or
(e) any arrangement or commitment by the Company to do any of
the things described in this Section 2.32.
2.33 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or supplier
that was significant to the Company during the period from February 17, 1999 to
the date hereof has terminated, materially reduced or threatened to terminate or
materially reduce its purchases from, or provision of products or services to,
the Company, as the case may be.
2.34 SERIES A PREFERRED STOCK. The holders of Series A Preferred
Stock, as of the Closing, will not have any rights or privileges other than as
reflected in the Series A Preferred Stock Purchase Agreement, the Restated
Articles, and the Agreements.
2.35 ALL TERMS. The Agreements, together with the Restated Articles,
Series A Preferred Stock Purchase Agreement dated as of April 22, 1999, and
Series B Preferred Stock Purchase Agreement dated as of June 18, 1999 contain
all terms relating to the issuances of Series A Preferred Stock and Series B
Preferred Stock and the relationships among the holders of such stock, except as
set forth in the Schedule of Exceptions.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser,
severally and not jointly, hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. Such Purchaser has full power and authority to
enter into the Agreements. The Agreements, when executed and delivered by the
Purchaser and the other parties hereto and thereto that are required to enter
into the Agreements, will constitute valid and legally binding obligations of
the Purchaser, enforceable in accordance with their terms, except
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<PAGE> 15
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and any other laws of general application affecting
enforcement of creditors' rights generally, and as limited by laws relating to
the availability of a specific performance, injunctive relief, or other
equitable remedies, and (b) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as any other written information
delivered by the Company to the Purchaser, were intended to describe the aspects
of the Company's business which it believes to be material. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the investors to rely
thereon.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
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3.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 LEGENDS. The Purchaser understands that the Securities, and any
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 ACCREDITED INVESTOR. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act, as
presently in effect.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct on
and as of the Initial Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Initial Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Purchasers at the Initial Closing a certificate certifying that
the conditions specified in Sections 4.1 and 4.2 have been fulfilled, and
stating that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Balance Sheet.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in
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connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be obtained and effective as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchasers' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it has
reasonably requested. This may include, without limitation, good standing
certificates and certification by the Company's Secretary regarding the
Company's Restated Articles and Bylaws and Board of Director and shareholder
resolutions relating to this transaction.
4.6 OPINION OF COMPANY COUNSEL. The Purchasers shall have received
from Venture Law Group, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit I.
4.7 BYLAWS. As of the Initial Closing, the Bylaws of the Company
shall provide that the Board of Directors of the Company shall consist of five
(5) persons, which number shall not be changed by an amendment to the Restated
Articles or the Bylaws without consent of holders of seventy percent (70%) of
the outstanding shares of Preferred Stock; and as of the Second Closing, the
Company shall have taken all appropriate action to amend its Bylaws to provide
that the Board of Directors of the Company shall consist of six (6) persons,
which number shall not be changed by an amendment to the Restated Articles or
the Bylaws without consent of holders of seventy percent (70%) of the
outstanding shares of Preferred Stock.
4.8 BOARD OF DIRECTORS. As of the Initial Closing, the Board shall
be comprised of five (5) directors: one representative designated by Bowman
Capital Management, one representative designated by Hummer Winblad Venture
Partners, one director designated by Amazon.com, the Company's Chief Executive
Officer, and Jack Balousek. As of the Second Closing and pursuant to the Bylaws
amendment contemplated by Section 4.7 above, the Board shall be comprised of six
(6) directors, including the five (5) directors set forth above and one vacancy
to be filled in the manner set forth in the Voting Agreement attached hereto as
Exhibit G.
4.9 INVESTORS' RIGHTS AGREEMENT. The Company, each Purchaser, the
holders of Series A Preferred Stock, the prior holders of Series B Preferred
Stock and Greg McLemore shall have executed and delivered the Investors' Rights
Agreement in substantially the form attached as Exhibit E.
4.10 RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The Company, Greg
McLemore, Julie Wainwright, each Purchaser, the holders of Series A Preferred
Stock, the prior holders of Series B Preferred Stock and all holders of more
than 100,000 shares of the Company's Common Stock shall have executed and
delivered the Co-Sale Agreement in substantially the form attached as Exhibit F.
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4.11 RESTATED ARTICLES. The Company shall have filed the Restated
Articles with the Secretary of State of California on or prior to the Initial
Closing Date, which shall continue to be in full force and effect as of each
Closing Date, and shall deliver a copy of such filed Restated Articles to each
Purchaser at Closing.
4.12 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AND EMPLOYEE
STOCK PURCHASE AGREEMENTS. The Company and each of its employees and consultants
shall have entered into the Company's standard form Confidential Information and
Invention Assignment Agreement, in substantially the form provided to the
Purchasers' legal counsel. Each holder of Common Stock of the Company shall have
entered into an Employee Stock Purchase Agreement, in substantially the form
provided to the Purchasers' legal counsel.
4.13 VOTING AGREEMENT. The Company, each Purchaser, the holders of
Series A Preferred Stock, the prior holders of Series B Preferred Stock, Greg
McLemore, and Julie Wainwright shall have executed and delivered the Voting
Agreement in substantially the form attached hereto as Exhibit G.
4.14 SECURITIES COMPLIANCE. The Company shall have taken all actions
necessary to comply with any federal or state securities laws applicable to the
transactions contemplated hereunder that are required to be taken prior to the
Closing.
4.15 STOCK CERTIFICATES AND NOTES. The Company shall have delivered
to each Purchaser a duly executed stock certificate evidencing the Stock
purchased by such Purchaser hereunder and, as applicable, a Note evidencing
indebtedness of the Company to such Purchaser in the principal amount set forth
thereon.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions contained
in this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
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6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Purchasers or the Company.
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees of any securities).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. The parties agree
that the Purchaser may assign their rights and obligations under this Agreement
to any of their affiliates (as defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933, as amended) or to any successors to the
Purchasers or such affiliates.
6.3 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts and may be executed by facsimile, any of which shall be deemed an
original and all of which together shall constitute one instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by fax (with confirmation of
successful electronic transmission), or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party's address as set
forth on the signature page or Exhibit A hereto, or as subsequently modified by
written notice, and
(a) if to the Company, with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: John V. Bautista
Tel: 650-854-4488
Fax: 650-854-1121
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(b) if to Hummer Winblad Venture Partners, with a copy to:
Gunderson, Dettmer, Stough, Villeneuve, Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attn: __________
Tel: 650-321-2400
Fax: 650-321-2800
(c) if to Bowman Capital Management, with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
Attn: Steve Gasser
Tel: 415-421-6500
Fax: 415-421-2922
or (d) if to Amazon.com, with a copy to:
Perkins Coie LLP
1201 Third Avenue, Suite 4800
Seattle, WA 98101-3099
Attn: Scott L. Gelband
Tel: 206-583-8888
Fax: 206-583-8500
6.7 FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
6.8 FEES AND EXPENSES. Upon the Initial Closing, the Company shall
pay the reasonable fees and expenses of one legal counsel to the Purchasers
incurred with respect to this Agreement, the documents referred to herein and
the transactions contemplated hereby and thereby, provided such fees and
expenses do not exceed $15,000. The Purchasers shall pay any additional legal
fees and expenses incurred in excess of the foregoing.
6.9 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be
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entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
6.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of at least 70% of the Stock (or the Common Stock issuable upon
conversion of the Stock). Any amendment or waiver effected in accordance with
this Section 6.10 shall be binding upon the Purchasers and each transferee of
the Stock (or the Common Stock issuable upon conversion thereof), each future
holder of all such securities, and the Company. Notwithstanding the foregoing,
this Agreement (including Exhibit A hereto) may be amended with only the written
consent of the Company to include additional purchasers of Series B and/or
Series B-1 Preferred Stock at the Second Closing as "Purchasers."
6.11 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
6.12 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
6.13 ENTIRE AGREEMENT. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
6.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY
-21-
<PAGE> 22
SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF
ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION
BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
6.15 CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder ("Confidential Information"); provided,
however, that (a) Confidential Information shall not include (i) information
that is or becomes available to the general public other than as a result of
disclosure by any Purchaser, (ii) information known to any Purchaser prior to
discussions or negotiations related to this Agreement as demonstrated by
tangible evidence of such prior knowledge by such Purchaser, or (iii) general
knowledge of the Company's industry not specifically related to the Company's
business; and (b) Hummer Winblad Venture Partners III, L.P., Hummer Winblad
Technology Fund III, L.P. and Bowman Capital Management may distribute
Confidential Information concerning the Company to their respective limited
partners. The provisions of this Section 6.15 shall be in addition to, and not
in substitution for, the provisions of any separate nondisclosure agreement
executed by the parties hereto with respect to the transactions contemplated
hereby.
6.16 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Securities.
6.17 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges
that Venture Law Group, counsel for the Company, has in the past performed and
may continue to perform legal services for certain of the Purchasers in matters
unrelated to the transactions described in this Agreement, including the
representation of such Purchasers in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (a) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
and (b) gives its informed consent to Venture Law Group's representation of
certain of the Purchasers in such unrelated matters and to Venture Law Group's
representation of the Company in connection with this Agreement and the
transactions contemplated hereby.
6.18 AGGREGATION OF STOCK. All shares of stock held or acquired by
affiliated entities or persons hereunder shall be aggregated together for the
purpose of determining the availability of rights under this Agreement.
[SIGNATURE PAGE FOLLOWS]
-22-
<PAGE> 23
The parties have executed this Series B Preferred Stock and Convertible
Note Purchase Agreement as of the date first written above.
COMPANY:
PETS.COM, INC.
By: /s/ Julie Wainwright
------------------------------------
Name: Julie Wainwright
----------------------------------
(print)
Title: CEO
---------------------------------
Address: 435 Brannan Street
San Francisco, CA 94107
Tel: (415) 222-9999
Fax: (415) 222-9998
PURCHASERS:
SPINNAKER TECHNOLOGY FUND LP
By: /s/ Thomas Pindelski
------------------------------------
Name: Thomas Pindelski
----------------------------------
(print)
Title: Managing Director of Operations
---------------------------------
Address: 1875 South Grant Street,
Suite 600
San Mateo, CA 94402
Tel: (415) 222-9999
Fax:
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 24
SPINNAKER TECHNOLOGY OFFSHORE FUND LTD.
By: /s/ Thomas Pindelski
--------------------------------------
Name: Thomas Pindelski
--------------------------------------
(print)
Title: Managing Director of Operations
------------------------------------
Address: 1875 South Grant Street
Suite 600
San Mateo, CA 94402
SPINNAKER FOUNDERS FUND LP
By: /s/ Thomas Pindelski
---------------------------------------
Name: Thomas Pindelski
--------------------------------------
(print)
Title: Managing Director of Operations
------------------------------------
Address: 1875 South Grant Street
Suite 600
San Mateo, CA 94402
SPINNAKER OFFSHORE FOUNDERS FUND LTD
By: /s/ Thomas Pindelski
---------------------------------------
Name: Thomas Pindelski
--------------------------------------
(print)
Title: Managing Director of Operations
------------------------------------
Address: 1875 South Grant Street
Suite 600
San Mateo, CA 94402
-1-
<PAGE> 25
AMAZON.COM, INC.
By: /s/ Randy Tinsley
---------------------------------------
Name: Randy Tinsley
--------------------------------------
(print)
Title: VP, Corp. Dev.
-------------------------------------
Address: 1200 -12th Ave. S., Suite 1200
Seattle, WA 98144
HUMMER WINBLAD VENTURE PARTNERS IV, L.P.
By: /s/ Deborah Wright
---------------------------------------
Name: Deborah Wright
-------------------------------------
(print)
Title: Member
------------------------------------
Address: 2 South Park
San Francisco, CA 941115
THE PHOENIX PARTNERS IV LIMITED PARTNERSHIP
By: The Phoenix Management IV. LLC
---------------------------------------
its General Partner
By: /s/ David B. Johnston
---------------------------------------
Name: David B. Johnston
-------------------------------------
(print)
Title: Managing Member
-------------------------------------
Address: 1000 Second Avenue
Suite 3600
Seattle, WA 98104
THE AVRAM MILLER TRUST
-2-
<PAGE> 26
By: /s/ Avram Miller trust
---------------------------------------
Name: Avram Miller
--------------------------------------
(print)
Title: Trustee
-------------------------------------
Address: c/o The Avram Miller Company
505 Montgomery St., 20th Fl.
San Francisco, CA 94111
(415) 835-7267
COMCAST INTERACTIVE CAPITAL, L.P.
By: CIC Venture Management L.P.
---------------------------------------
By: /s/ Abram E. Patlore
---------------------------------------
Name: Abram E. Patlore
-------------------------------------
(print)
Title: Vice President
------------------------------------
Address: 1201 Market Street, Suite 2201
Wilmington, DE 19801
CYBER CONTROL DEVELOPMENT LIMITED
By: /s/ Mico Chung
---------------------------------------
Name: Mico Chung
-------------------------------------
(print)
Title: Director
------------------------------------
Address: 38th Floor, Citibank Tower,
Citibank Plaza
3 Garden Road, Central
Hong Kong
ASIA PACIFIC TECHNOLOGY & FINANCE 1 N.V.
-3-
<PAGE> 27
By: /s/ Giorgo Ronchi
---------------------------------------
Name: Pleadis Investment Management B.V.
By Giorgo Ronchi, Managing Director
(print)
Title:
-------------------------------------
Address: 62 de Ruyterkade, Curacao
Netherlands Antilles
With a copy: ETF Group, Via
Cantonale, The Fantastic Building
CH-6928 Manno, Switzerland
Fax number: 41 91 610 71 66
Attention: Counsel and Secretary
BAYSTAR INTERNATIONAL LTD, a British Virgin
Islands Corporation
By: BayStar International Management, LLC
Its General Partner
By: /s/ Steven M. Lamar
--------------------------------
Name: Steven M. Lamar
Title: Vice President
1500 West Market Street, Suite 200
Mequon, WI 53092
Fax: 415-835-3777
WORLD ONLINE INTERNATIONAL B.V.
By: [SIGNATURES ILLEGIBLE]
--------------------------------------
Name: [SIGNATURES ILLEGIBLE]
-------------------------------------
Title:Director/ COO/CFO
-------------------------------------
Address: Parklaan 28
P O Box ____
3000 AA Rottendam,
Netherlands
-4-
<PAGE> 28
THE BALOUSEK FAMILY LIMITED PARTNERSHIP DTD
1/7/99
/s/ Kathleen Balousek
/s/ John B. Balousek
------------------------------------
Name: Kathleen Balousek
John B. Balousek
Title: General Partners
Address: 11 Magee Ct.
Moraga, CA 94556
FRANK M. (PETE) HIGGINS
By: /s/ Frank M. Higgins
--------------------------------------
Name: Frank M. Higgins
-------------------------------------
Address: 7650 SE 22nd St
Mercer Island, WA 98040
MICHAEL B. SLADE
By: /s/ Michael B. Slade
--------------------------------------
Address: 3732 E. High Ln.
Seattle WA 98112
KEITH GRINSTEIN
By: /s/ Keith Grinstein
--------------------------------------
Name: Keith Grinstein
------------------------------------
-5-
<PAGE> 29
NICK HANAUER PARTNERSHIP
By: /s/ Nick Hanauer
--------------------------------------
Name: Nick Hanauer
------------------------------------
Address: The Highlands
Seattle WA 98177
-6-
<PAGE> 30
EXHIBITS
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Third Amended and Restated Articles of Incorporation
Exhibit C - 1 Form of Convertible Promissory Note Issuable to Amazon.com
Exhibit C - 2 Form of Convertible Promissory Note Issuable to Other
Purchasers
Exhibit D - Schedule of Exceptions to Representations and Warranties
Exhibit E - Form of Amended and Restated Investors' Rights Agreement
Exhibit F - Form of Amended and Restated Right of First Refusal and
Co-Sale Agreement
Exhibit G - Form of Amended and Restated Voting Agreement
Exhibit H - Balance Sheet dated September 30, 1999
Exhibit I - Form of Legal Opinion of Venture Law Group
<PAGE> 31
EXHIBIT A
SCHEDULE OF PURCHASERS
INITIAL CLOSING
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NUMBER OF SHARES OF CONVERTIBLE
NAME/ADDRESS/TEL/FAX OF SERIES B PURCHASE PRICE PROMISSORY NOTE
- --------------------------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
Spinnaker Technology Fund, L.P. 215,998 $ 1,630,784.90 $ 510,349.80
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Spinnaker Technology Offshore 205,691 $ 1,552,967.05 $ 486,001.05
Fund Limited
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Spinnaker Founders Fund, L.P. 117,082 $ 883,969.10 $ 276,639.55
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NUMBER OF SHARES OF CONVERTIBLE
NAME/ADDRESS/TEL/FAX OF SERIES B PURCHASE PRICE PROMISSORY NOTE
- --------------------------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
Spinnaker Offshore Founders Fund 66,509 $ 502,142.95 $ 157,145.70
Cayman Limited
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Amazon.com, Inc. 1,692,038 $12,774,886.90 $ 2,975,115.25
1200 12th Avenue South, Suite 1200
Seattle, WA 98144
P.O. Box 81226
Seattle, WA 98108-1226
Tel: 206-266-1000
Fax: 206-834-7010
Attn: General Counsel
Hummer Winblad Venture 1,008,800 $ 7,616,440.00 $ 2,383,565.20
Partners IV, L.P.
2 South Park, 2nd Floor
San Francisco, CA 94107
Tel: 415-979-9600
Fax: 415-979-9601
Attn: John Hummer
The Phoenix Partners IV Limited 252,200 $ 1,904,110.00 $ 595,891.30
Partnership
1000 Second Avenue, Suite 3600
Seattle, WA 98104
Tel: 206-624-8968
Fax: 206-624-1907
Attn: David B. Johnston
</TABLE>
-2-
<PAGE> 33
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NUMBER OF SHARES OF CONVERTIBLE
NAME/ADDRESS/TEL/FAX OF SERIES B PURCHASE PRICE PROMISSORY NOTE
- --------------------------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
The Avram Miller Trust 2,649 $ 19,999.95 --
c/o Avram Miller Company
505 Montgomery Street, 20th Floor
San Francisco, CA 94111
Tel: 415-835-7268
Fax: 603-710-6213
Attn: Avram Miller
------------------ ------------------- -------------------
Total for Initial Closing: 3,560,967 $26,885,300.85 $ 7,384,707.85
================== =================== ===================
</TABLE>
-3-
<PAGE> 34
SECOND CLOSING
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series B Purchase Price
- ------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
Spinnaker Technology Fund, L.P. 67,596 $510,349.80*
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Spinnaker Technology Offshore 64,371 $486,001.05*
Fund Limited
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Spinnaker Founders Fund, L.P. 36,641 $276,639.55*
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Spinnaker Offshore Founders Fund 20,814 $157,145.70*
Cayman Limited
c/o Bowman Capital Management
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Tel: 650-287-2200
Fax: 650-572-1844
Attn: Matthew Cowan
Amazon.com, Inc. 394,055 $2,975,115.25*
1200 12th Avenue South, Suite 1200
Seattle, WA 98144
Tel: 206-266-1000
Fax: 206-834-7010
Attn: General Counsel
</TABLE>
-1-
<PAGE> 35
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series B Purchase Price
- ------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
Hummer Winblad Technology 1,375,307 $10,383,567.85**
Fund IV, L.P.
2 South Park, 2nd Floor
San Francisco, CA 94107
Tel: 415-979-9600
Fax: 415-979-9601
Attn: John Hummer
The Phoenix Partners IV 78,926 $595,891.30*
Limited Partnership
1000 Second Avenue, Suite 3600
Seattle, WA 98104
Tel: 206-624-8968
Fax: 206-624-1907
Attn: David B. Johnston
Comcast Interactive Capital, L.P. 331,125 $2,499,993.75
1201 Market Street, Suite 2201
Wilmington, DE 19801
Tel: 302-594-8705
Fax: 302-658-1600
Attn: Abram E. Patlove, Vice President
Cyber Control Development Limited 198,675 $1,499,996.25
38th Floor, Citibank Tower,
Citibank Plaza
3 Garden Court
Hong Kong
Tel: 011-852-2514-8656
Fax: 011-852-2514-8651
Attn: Eric Oei
Asia Pacific Technology & 132,450 $999,997.50
Finance 1 N.V.
62 De Ruyterkade
Curacao, Netherlands Antilles
Attn: Managing Director
</TABLE>
-2-
<PAGE> 36
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series B Purchase Price
- ------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
With a copy to:
ETF Group
Via Cantonale, The Fantastic Building
CH-6928 Manno, Switzerland
Tel: 011-41-91-610-7111
Fax: 011-41-91-610-7166
Attn: Anthony J. Barbieri,
General Counsel & Secretary
BayStar Capital, L.P. 33,112 $249,995.60
1500 West Market Street, Suite 200
Mequon, WI 53092
Tel: 415-835-7260
Fax: 415-835-3777
Attn: Steven M. Lamar
BayStar International Ltd. 33,113 $250,003.15
1500 West Market Street, Suite 200
Mequon, WI 53092
Tel: 415-835-7260
Fax: 415-835-3777
Attn: Steven M. Lamar
World Online International B.V. 66,225 $499,998.75
Parklaan 28
P.O. Box ___
3000 AA Rottendam, Netherlands
Tel: 415-835-7260
Fax: 415-835-3777
Attn: Steven M. Lamar
The Balousek Family Limited 19,868 $150,003.40
Partnership DTD 1/7/99
11 Magee Court
Moraga, CA 94556
Tel: 925-376-8934
Fax: 925-631-9015
Attn: John B. Balousek, Jr.
</TABLE>
-3-
<PAGE> 37
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series B Purchase Price
- ------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
Frank M. Higgins 19,868 $150,003.40
7650 SE 22nd Street
Mercer Island, WA 98040
Tel: 206-232-1092
Fax: 206-230-9060
Michael B. Slade 19,868 $150,003.40
3732 E. High Lane
Seattle, WA 98112
Tel: 206-
Fax: 206-
Keith Grinstein 19,868 $150,003.40
1191 2nd Avenue, #1600
Seattle, WA 98101
Tel: 206-749-8350
Fax: 206-749-8365
Nick Hanauer Partnership 19,868 $150,003.40
The Highlands
Seattle, WA 98177
Tel: 206-363-4954
Fax: 206-436-8502
VLG Investments 1999 4,636 $35,001.80
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-8386
Attn: Elias J. Blawie
John V. Bautista 22,186 $167,504.30
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-8386
</TABLE>
-4-
<PAGE> 38
<TABLE>
<CAPTION>
Number of Shares
Name/Address/Tel/Fax of Series B Purchase Price
- ------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
Edmund S. Ruffin, Jr. 2,318 $17,500.90
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-8386
Glen Van Ligten 1,325 $10,003.75
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-8386
Frances Johnston 993 $7,497.15
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-8386
Richard Hsu 993 $7,497.15
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-8386
Kenneth Cramer 662 $4,998.10
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 650-854-4488
Fax: 650-854-8386
======================== =====================
Total for Second Closing: 2,964,863 $22,384,715.65***
======================== =====================
</TABLE>
* Conversion of Convertible Promissory Note issued to the Purchaser as of
the Initial Closing.
** Includes conversion of Convertible Promissory Note in the principal
amount of $2,383,565.20 and payment of $8,000,002.65 at the time of the
Second Closing.
*** Includes conversion of Convertible Promissory Notes in the aggregate
principal amount of $7,384,707.85 and total payments of $15,000,007.80
at the time of the Second Closing.
-5-
<PAGE> 1
EXHIBIT 10.24
PETS.COM, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (the "Agreement")
is made as of the 5th day of November, 1999, by and among Pets.com, Inc., a
California corporation (the "Company"), the investors listed on Exhibit A
hereto, each of which is herein referred to as an "Investor," and Greg McLemore,
who is also herein referred to as the "Founder".
RECITALS
A. The Company and certain of the Investors (the "Prior Investors") have
entered into either a Series A Preferred Stock Purchase Agreement (the "Series A
Purchase Agreement") dated April 22, 1999, pursuant to which the Company sold,
and such Investors purchased, shares of the Company's Series A Preferred Stock
(the "Series A Shares"), or a Series B Preferred Stock Purchase Agreement (the
"Prior Series B Purchase Agreement," and together with the Series A Purchase
Agreement, the "Prior Purchase Agreements") pursuant to which the Company sold,
and such Investors purchased, shares of the Company's Series B Preferred Stock
(the "Previously Issued Series B Shares").
B. The Company, Founder and the Prior Investors have previously entered
into an Amended and Restated Investors' Rights Agreement, dated October 18, 1999
(the "Prior Rights Agreement"), which amended and restated that certain
Investors' Rights Agreement dated April 22, 1999 between the Company, Founder,
and certain of the Prior Investors.
C. The Company and certain of the Investors (the "New Series B
Investors") have entered into a Series B Preferred Stock and Convertible Note
Purchase Agreement of even date herewith (the "Purchase Agreement") pursuant to
which the Company desires to sell to the New Series B Investors and the New
Series B Investors desire to purchase from the Company shares of the Company's
Series B Preferred Stock (the "Series B Shares") and/or Series B-1 Preferred
Stock (the "Series B-1 Shares," and together with the Series A Shares, Series B
Shares and the Previously Issued Series B Shares, the "Preferred Stock") and/or
Convertible Promissory Notes (the "Notes"). A condition to the New Series B
Investors' obligations under the Purchase Agreement is that the Company,
Founder, Prior Investors and the New Series B Investors enter into this
Agreement in order to provide the Investors with (i) certain rights to register
shares of the Company's Common Stock issuable upon conversion of the Series A,
Series B and Series B-1 Preferred Stock held by the Investors, (ii) certain
rights to receive or inspect information pertaining to the Company, (iii)
certain rights to have a right of first offer with respect to certain issuances
by the Company of its securities, and (iv) certain additional covenants of the
Company. The Company, Founder, and the Prior Investors each desire to induce the
New Series B Investors to purchase shares of Series B Preferred Stock pursuant
to the Purchase Agreement by agreeing to the terms and conditions set forth
herein.
D. The Company wishes to execute this Agreement and grant to the New
Series B Investors the rights contained herein in order to fulfill such
condition.
<PAGE> 2
E. The Company and the Prior Investors executing this Agreement together
represent sufficient signatory authority to amend and restate the Prior Rights
Agreement and to waive the Right of First Offer contained in Section 2.3 of the
Prior Rights Agreement with respect to those Prior Investors who are not
purchasing shares of Series B and/or Series B-1 Preferred Stock pursuant to the
Purchase Agreement.
AGREEMENT
In consideration of the mutual promises and covenants hereinafter set
forth, and for certain other valuable considerations, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. REGISTRATION RIGHTS. The Company, the Founder and the Investors
covenant and agree as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the shares of
Common Stock issuable or issued upon conversion of the Series A Preferred Stock,
Series B Preferred Stock and Series B-1 Preferred Stock, (ii) the shares of
Common Stock issuable or issued upon conversion of the Series B Preferred Stock
and Series B-1 Preferred Stock issuable or issued upon conversion of the Notes,
(iii) the shares of Common Stock issued to the Founder (the "Founder's Stock"),
provided, however, that for the purposes of Sections 1.2, 1.4, 1.13, 3 and 5.2
the Founder's Stock shall not be deemed Registrable Securities and the Founder
shall not be deemed a Holder, and (iv) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the shares listed in
(i), (ii) and (iii); provided, however, that the foregoing definition shall
exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not assigned.
Notwithstanding the foregoing, Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions, and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
<PAGE> 3
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.12 of this Agreement; provided, however, that the Founder shall
not be deemed to be a Holder with respect to Founder's Stock only for purposes
of Sections 1.2, 1.4 and 1.13, nor an Eligible Holder (as defined herein below
in Section 2.1) with respect to Founder's Stock only for purposes of Section
3.2.
(e) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any successor form that permits significant
incorporation by reference of a Company's filings under the Securities Exchange
Act of 1934, as amended (the "Exchange Act");
(f) The term "SEC" means the Securities and Exchange Commission;
and
(g) The term "Qualified IPO" means a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement under the Securities Act, the public
offering price of which is not less than $10.00 per share (appropriately
adjusted for any stock split, dividend, combination or other recapitalization)
and which results in aggregate cash proceeds to the Company of $10,000,000 (net
of underwriting discounts and commissions).
1.2 REQUEST FOR REGISTRATION.
(a) Subject to the conditions of this Section 1.2, if the
Company shall receive at any time after the earlier of (i) the fifth anniversary
of the date hereof, or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or an SEC Rule 145 transaction), a written request from the Holders of at
least 33 1/3% of the Preferred Stock then outstanding that the Company file a
registration statement under the Securities Act covering the registration of
Registrable Securities, the anticipated aggregate offering price, net of
underwriting discounts and commissions, of which are in excess of $5,000,000,
then the Company shall, within ten (10) days of the receipt thereof, give
written notice of such request to all Holders and shall, subject to the
limitations of subsection 1.2(b), use its best efforts to effect as soon as
practicable, and in any event within 60 days of the receipt of such request, the
registration under the Securities Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 3.3.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of
<PAGE> 4
any Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 1.5(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders and the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating Holders,
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period; and provided further that the
Company shall not register shares for its own account during such 90 day period,
but such prohibition shall not apply to the registration of Company shares in
connection with a merger or other strategic transaction by the Company.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below.
<PAGE> 5
1.3 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan or a transaction covered by Rule 145
under the Securities Act, a registration in which the only stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered, or any registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 3.3,
the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of not less than thirty percent (30%) of the Preferred
Stock then outstanding a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 1.4; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (iv) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.4; (v) in any particular jurisdiction in
which the Company would be required to qualify
<PAGE> 6
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance; or (vi) during the
period ending one hundred eighty (180) days after the effective date of the
Company's initial registration statement subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for such period of time as the
registration statement remains on effective.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) During the period of time that such registration statement
remains effective, notify each Holder of Registrable Securities covered by such
registration statement at any time when (i) a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such
<PAGE> 7
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing or (ii) there is a stop order issued by the SEC
suspending effectiveness of the registration statement or the initiation of any
proceedings for that purpose or the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registered Securities
for sale in any jurisdiction or the initiation of any such procedure.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.4(b)(ii), whichever is applicable.
<PAGE> 8
1.7 EXPENSES OF REGISTRATION.
(a) DEMAND REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders selected by them with the
approval of the Company, which approval shall not be unreasonably withheld,
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses pro
rata based upon the number of Registrable Securities that were to be requested
in the withdrawn registration), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 1.2; provided, further, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2.
(b) COMPANY REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications of Registrable Securities pursuant to Section 1.3 for each Holder
(which right may be assigned as provided in Section 1.12), including (without
limitation) all registration, filing, and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders selected by them with the approval of the Company, which approval shall
not be unreasonably withheld, shall be borne by the Company.
(c) REGISTRATION ON FORM S-3. All expenses incurred in
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders selected by them with the approval of the Company,
which approval shall not be unreasonably withheld, and counsel for the Company,
and any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne by the Company.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters) and enter into an
underwriting agreement in the customary form with an underwriter or
underwriters, and then, except as provided below, only in such quantity as the
underwriters determine in their sole
<PAGE> 9
discretion will not jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders) but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced below
thirty percent (30%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case, the selling shareholders may be excluded if the
underwriters make the determination described above and no other shareholder's
securities are included, (ii) any securities held by a Founder be included if
any securities held by any selling Holder are excluded, or (iii) notwithstanding
(i) above, any shares being sold by a shareholder exercising a demand
registration right similar to that granted in Section 1.2 be excluded from such
offering. For purposes of the preceding parenthetical concerning apportionment,
for any selling shareholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
shareholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling shareholder," and any
pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," as defined in
this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they 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 thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to
<PAGE> 10
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; and the Company will pay to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable to any Holder, underwriter or controlling person for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the 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 such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate
<PAGE> 11
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10 to the extent prejudicial, but the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this Subsection 1.10(d) when aggregated with amounts paid pursuant to
Subsection 1.10(b) hereof, exceed the net proceeds from the offering received by
such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
<PAGE> 12
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, parent, partner, limited
partner, retired partner, member or former member of a Holder, (ii) is a
Holder's family member or trust for the benefit of an individual Holder or (iii)
is a transferee or assignee of at least 100,000 (appropriately adjusted to
reflect subsequent stock splits, stock dividends, combinations or other
recapitalizations) shares of such securities; provided the 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; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of (i) a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) or (ii) a corporation or
limited liability company which is a parent or subsidiary of such entity shall
be aggregated together and with the partnership or other entity, as the case may
be; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under Section 1.
1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of at least seventy percent (70%) of the
outstanding Registrable Securities, not including the
<PAGE> 13
Founder's Stock, enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 or 1.3 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which are included in such
registration, (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 1.2(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 1.2
or (c) to receive rights pari passu or senior to those granted the Investors
hereunder.
1.14 MARKET-STANDOFF AGREEMENT.
(a) MARKET-STANDOFF PERIOD; AGREEMENT. In connection with the
initial public offering of the Company's securities and upon request of the
Company or the underwriters managing such offering of the Company's securities,
each Holder agrees not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any securities of the Company
acquired by such Holder in a private transaction (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the Company's
initial public offering.
(b) LIMITATIONS. The obligations described in Section 1.14(a)
shall apply only if all officers, directors and one-percent security holders of
the Company and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements, and shall not apply
to a registration relating solely to employee benefit plans, or to a
registration relating solely to a transaction pursuant to Rule 145 under the
Securities Act.
(c) STOP-TRANSFER INSTRUCTIONS. In order to enforce the
foregoing covenants, the Company may impose stop-transfer instructions with
respect to the securities of each Holder (and the securities of every other
person subject to the restrictions in Section 1.14(a)) until the end of such
period.
(d) TRANSFEREES BOUND. Each Holder agrees that it will not
transfer securities of the Company unless each transferee agrees in writing to
be bound by all of the provisions of this Section 1.14, provided that this
Section 1.14(d) shall not apply to transfers pursuant to a registration
statement or transfers after the six-month anniversary of the effective date of
the Company's initial registration statement subject to this Section 1.14.
1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any right provided for in this Section 1 after the earlier of (i)
seven (7) years following the consummation of a Qualified IPO, or (ii) such time
as Rule 144 or another similar exemption under the Securities Act is available
for the sale of all of such Holder's shares during a three (3)-month period
without registration.
<PAGE> 14
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
each Holder of at least 100,000 shares of Registrable Securities (as adjusted
for stock splits, stock dividends, recapitalizations and the like) (each, an
"Eligible Holder"):
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
and certified by an independent public accounting firm of nationally recognized
standing selected by the Company;
(b) within thirty (30) days of the end of each month, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail;
(c) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets, income
statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(d) with respect to the financial statements called for in
subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
2.2 INSPECTION. The Company shall permit each Eligible Holder
(except for an Eligible Holder reasonably deemed by the Company to be a
competitor of the Company), at such Eligible Holder's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by the Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 2.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information. For purposes of this Section 2.2,
Amazon.com, Inc. ("Amazon.com") shall not be considered a competitor of the
Company.
2.3 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.3, the Company hereby grants to each Eligible Holder
a right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For the avoidance of doubt
<PAGE> 15
and for purposes of this Section 2.3, the Founder shall be considered an
Eligible Holder only with respect to the Series A Preferred Stock held by him,
and his pro rata share (as used in Section 2.3(b) below) shall be calculated
based exclusively on the shares of Series A Preferred Stock then held by him. An
Eligible Holder who chooses to exercise the right of first offer may designate
as purchasers under such right itself, its current or former partners, members
or affiliates, or a corporation or limited liability company which is a parent
or subsidiary of such entity, in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Eligible Holder in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Eligible Holders stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 15 calendar days after delivery of the Notice, (i)
each Eligible Holder (including Amazon.com) may elect to purchase or obtain, at
the price and on the terms specified in the Notice, up to that portion of such
Shares which equals the proportion that the number of shares of Common Stock
issued and held, or issuable upon conversion and exercise of all convertible or
exercisable securities then held by such Eligible Holder bears to the total
number of shares of Common Stock then outstanding (assuming full conversion and
exercise of all convertible or exercisable securities); and (ii) Amazon.com may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, the lesser of (A) all such remaining Shares and (B) up to that portion
of such Shares that, when aggregated with the total number of shares of the
Company's Common Stock issued and held, or issuable upon conversion or exercise
of all convertible or exercisable securities then held by Amazon.com, plus all
shares which Amazon.com has the right to purchase under Subsection (i) of this
Section 2.3(b), equals 46% of the total number of shares of the Company's Common
Stock then outstanding on a fully-diluted basis (assuming full conversion and
exercise of all convertible or exercisable securities of the Company, including
securities reserved for issuance and not granted under the Company's stock and
option plans) (the "Threshold Percentage"). The Company shall promptly, in
writing, inform each Eligible Holder that purchases all the shares available to
it (each, a "Fully-Exercising Investor") of any other Eligible Holder's failure
to do likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Eligible Holders were entitled to subscribe but
which were not subscribed for by the Eligible Holders that is equal to the
proportion that the number of shares of Common Stock
<PAGE> 16
issued and held, or issuable upon conversion and exercise of all convertible or
exercisable securities then held, by such Fully-Exercising Investor bears to the
total number of shares of Common Stock then outstanding (assuming full
conversion and exercise of all convertible or exercisable securities), provided,
however, that in no event shall Amazon.com be entitled to purchase under this
Section 2.3 a number of Shares that, when aggregated with the total number of
shares of Common Stock issued and held, or issuable upon conversion or exercise
of all convertible or exercisable securities then held by Amazon.com, plus all
shares which Amazon.com has the right to purchase under Subsection (i) of this
Section 2.3(b), equals an amount greater than the Threshold Percentage. The
right of Amazon.com to purchase up to the Threshold Percentage pursuant to this
Section 2.3 may not be transferred to any third party or parties, other than to
a corporation or limited liability company which is a parent or subsidiary of
Amazon.com.
(c) The Company may, during the 45-day period following the
expiration of the later of the ten-day or fifteen-day period provided in
subsection 2.3(b) hereof, offer the remaining unsubscribed portion of the Shares
to any person or persons at a price not less than, and upon terms no more
favorable to the offeree than those specified in the Notice. If the Company does
not enter into an agreement for the sale of the Shares within such period, or if
such agreement is not consummated within 60 days of the execution thereof, the
right provided hereunder shall be deemed to be revived and such Shares shall not
be offered unless first reoffered to the Eligible Holders in accordance
herewith.
(d) The right of first offer in this Section 2.3 shall not be
applicable (i) to the issuance or sale of Common Stock (or options therefor) to
employees, consultants and directors, pursuant to plans or agreements approved
by the Board of Directors for the primary purpose of soliciting or retaining
their services, (ii) to or after consummation of a Qualified IPO, except that
with respect to Amazon.com (subject to Sections 2.3(e) through (i) below) and
with respect to Bowman Capital Management or any fund over which Bowman Capital
Management exercises control or is under common control with (collectively
"Bowman") (subject to Sections 2.3(j) and (k) below), the right of first offer
in this Section 2.3 shall terminate immediately after consummation of a
Qualified IPO, (iii) to the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities, (iv) to the issuance of
securities to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings, or similar transactions, or (v) to
the issuance or sale of the Series A Preferred Stock or Series B Preferred
Stock.
(e) Notwithstanding anything in this Section 2.3 to the
contrary, and subject to paragraphs (f), (g), (h) and (i) below, to the extent
permissible under the federal securities laws, the rules and regulations of the
National Association of Securities Dealers, Inc. (the "NASD"), and all other
applicable laws, rules and regulations, the Company hereby agrees that in
connection with the Company's initial public offering of Common Stock pursuant
to a registration statement filed under the Securities Act (the "IPO"), the
Company shall use reasonable efforts to cause the managing underwriter or
underwriters (who were selected with the prior approval, not to be unreasonably
withheld, of Amazon.com) for such IPO to offer to Amazon.com the right to
purchase up to such number of shares of the Company's Common Stock to be sold in
the IPO (the "IPO Shares") sufficient to raise Amazon.com's total equity
ownership in the Company upon consummation of the IPO to its permitted Threshold
Percentage. The IPO Shares shall be offered to Amazon.com on the same terms and
at the same price at which they are being offered to the public. If Amazon.com
wishes to purchase the IPO Shares, it shall promptly respond to such offer
within the time frame reasonably requested by the managing underwriter(s). The
foregoing provisions are not intended to be, and shall not be
<PAGE> 17
construed as, an offer by the Company to sell the IPO Shares. Any such offer
will be made pursuant to applicable requirements of the federal securities laws,
the rules and regulations of the NASD, and all other applicable laws, rules and
regulations, as well as the provisions of this Section 2.3(e).
(f) In the event that despite all purchases by Amazon.com of
shares of the Company's capital stock under this Section 2.3, Amazon.com's total
equity ownership in the Company will not reach its permitted Threshold
Percentage upon consummation of the IPO, then to the extent permissible under
the federal securities laws, the rules and regulations of the NASD, and all
other applicable laws, rules and regulations, and to the extent the managing
underwriter(s) determine that the sale of the Additional Shares (as defined
below) will not jeopardize the success of the IPO, the Company shall use its
best efforts to sell and issue to Amazon.com, and Amazon.com may, but shall not
be required to, purchase from the Company, in a private placement transaction
such number of shares of the Company's Common Stock ("Additional Shares")
sufficient to raise Amazon.com's total equity ownership in the Company
(including, without limitation, any IPO Shares and Additional Shares purchased)
to its permitted Threshold Percentage upon consummation of the IPO. The price
per share paid by Amazon.com for such Additional Shares shall be the price at
which the IPO Shares are offered to the public. The purchase of such shares
shall be contingent upon the closing of the IPO. The foregoing provisions are
not intended to be, and shall not be construed as, an offer by the Company to
sell such shares. Any such offer will be made pursuant to applicable
requirements of the federal securities laws, the rules and regulations of the
NASD, and all other applicable laws, rules and regulations, as well as the
provisions of this Section 2.3(f).
(g) Notwithstanding Sections 2.3(e) and (f) above, if the
managing underwriter(s) of the IPO determine in their sole discretion that
Amazon.com's purchase of IPO Shares in the amount otherwise specified in Section
(e) or Amazon.com's purchase of Additional Shares in the amount otherwise
specified in Section (f) is not compatible with the success of the IPO, then the
managing underwriter(s) may prohibit Amazon.com from purchasing any IPO Shares
or Additional Shares or may allow Amazon.com to purchase only that number of IPO
Shares or Additional Shares that the managing underwriter(s) determine in their
sole discretion will not jeopardize the success of the IPO; provided however
that in no event shall Bowman be permitted to purchase any shares in the
Company's IPO pursuant to Section 2.3(j) below until Amazon.com shall have been
permitted to purchase its full allocation of IPO Shares.
(h) Notwithstanding anything in this Section 2.3 to the
contrary, and subject to paragraph (i) below, to the extent Amazon.com is not
permitted to purchase the number of shares of additional shares of the Company's
Common Stock which it has requested to purchase pursuant to Section 2.3(e) (the
"Refused Shares"), the Company hereby agrees that for a period of one year
following the IPO, the Company shall in good faith negotiate with Amazon.com to
agree upon a means by which Amazon.com may purchase the Refused Shares (as
adjusted for stock splits, stock dividends, recapitalizations and the like) at
the then fair market value of the Company's Common Stock. Such means may include
a private placement of shares by the Company or the sale of shares by the
Company to Amazon.com in a secondary public offering.
<PAGE> 18
(i) The rights of Amazon.com under Sections 2.3(e), (f) and (h)
above shall terminate at such time as Amazon.com has disposed of any shares of
the Company's capital stock held by it as of the time of this Agreement or
acquired thereafter, provided however, that any transfer of shares by Amazon.com
to a corporation or limited liability company which is a parent or subsidiary of
Amazon.com will not be deemed to trigger the terms of this Section 2.3(i).
(j) Notwithstanding anything in this Section 2.3 to the
contrary, and subject to paragraphs (g) above and (k) below, to the extent
permissible under the federal securities laws, the rules and regulations of the
NASD, and all other applicable laws, rules and regulations, the Company hereby
agrees that in connection with the Company's IPO, the Company shall use
reasonable efforts to cause the managing underwriter or underwriters for such
IPO to offer to Bowman the right to purchase up to two and one-half percent
(2.5%) of the shares offered and sold by the Company in the IPO. The IPO shares
shall be offered to Bowman on the same terms and at the same price at which they
are being offered to the public. If Bowman wishes to purchase such shares, it
shall promptly respond to such offer within the time frame reasonably requested
by the managing underwriter(s). The foregoing provisions are not intended to be,
and shall not be construed as, an offer by the Company to sell such shares. Any
such offer will be made pursuant to applicable requirements of the federal
securities laws, the rules and regulations of the NASD, and all other applicable
laws, rules and regulations, as well as the provisions of this Section 2.3(j).
Notwithstanding the foregoing provisions, if the managing underwriter(s) of the
IPO determine in their sole discretion that Bowman's purchase of such shares is
not compatible with the success of the IPO, then the managing underwriter(s) may
prohibit Bowman from purchasing any shares in the IPO or may allow Bowman to
purchase only that number of shares that the managing underwriter(s) determine
in their sole discretion will not jeopardize the success of the IPO.
(k) The rights of Bowman under Section 2.3(j) above shall
terminate at such time as Bowman has disposed of any shares of the Company's
capital stock held by it as of the time of this Agreement or acquired
thereafter.
2.4 REIMBURSEMENT OF DIRECTOR EXPENSES. The Company shall reimburse
the reasonable documented expenses incurred by the directors elected by the
holders of Series A Preferred Stock and Series B Preferred Stock pursuant to
that certain Amended and Restated Voting Agreement between the Company and the
Investors of even date herewith (the "Voting Agreement") in connection with such
directors' attendance of meetings of the Company's Board of Directors promptly
upon receipt of documentation of such expenses.
2.5 NOTICE OF SALE OF COMPANY. Until the Standstill Termination Date
(as defined below in Section 4.1), promptly following commencement of any
discussion with any third-party and in any event at least ten (10) days prior to
signing any letter of intent (whether binding or non-binding) or any definitive
documents, the Company shall provide Amazon.com with written notice of its
intent to enter into an agreement to sell, convey, or otherwise dispose of all
or substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary corporation) or
effect any other transaction or series of related transactions in which more
than fifty percent (50%) of the Company's voting
<PAGE> 19
power would be disposed of, provided such notice shall not be required in
connection with a merger effected solely for the purpose of changing the
domicile of the Company.
2.6 VESTING UNDER 1999 STOCK PLAN. Unless otherwise approved by a
majority of the Company's Board of Directors, options and Common Stock granted
by the Company pursuant to its 1999 Stock Plan (the "Plan") will be subject to
the following vesting schedule: 25% of the shares comprising each grant to
employees shall vest on the one-year anniversary of the vesting commencement
date for such grant, and thereafter 1/48th of the shares comprising the grant
shall vest on each monthly anniversary of the vesting commencement date for such
grant. Unvested shares of Common Stock issued to employees pursuant to the Plan
will be subject to the Company's right of repurchase at the original grantee's
purchase price.
2.7 CONFLICTS OF INTERESTS. The Company shall use its best efforts
to ensure that the Company's employees, during the term of their employment with
the Company, do not engage in activities which would result in a conflict of
interest with the Company. The Company's obligations hereunder include, but are
not limited to, requiring that the Company's employees devote their primary
productive time, ability and attention to the business of the Company (provided,
however, the Company's employees may engage in other professional activity if
such activity does not materially interfere with their obligations to the
Company), requiring that the Company's employees enter into agreements regarding
proprietary information and confidentiality and inventions, and preventing the
Company's employees from engaging or participating in any business that is in
competition with the business of the Company.
2.8 QUALIFIED SMALL BUSINESS. The Company shall use its best efforts
to provide notice to the Investors of any proposed action that could affect its
qualification as a "Qualified Small Business" as defined in Section 1202(d) of
the Code, and covenants that so long as Registrable Securities are held by the
Series B Investors (or a transferee or assignee of Series B Investors), prior to
taking any such action, it will discuss such action with the Eligible Holders.
To the extent that such disqualification could be avoided by parties, other than
the Company, repurchasing shares of outstanding stock, the Eligible Holders or
any other persons or entities designated by the Company's Board of Directors may
purchase such stock in accordance with the procedures set forth in Section
1.1(b) of the Amended and Restated Right of First Refusal and Co-Sale Agreement
dated the same date herewith. The Company shall use its best efforts to comply
with the reporting requirements of the State of California regarding "Qualified
Small Business Stock" and similar federal regulations when and if promulgated.
2.9 PROPRIETARY AGREEMENTS. The Company shall have each officer,
employee and consultant of the Company execute the Company's standard form of
non-disclosure and proprietary information agreement prior to disclosing any
proprietary information to any such officer, employee and consultant. The
Company will use its best efforts to prevent any employee from violating the
confidentiality and proprietary information agreement entered into between the
Company and each of its officers, employees and consultants.
<PAGE> 20
2.10 DIRECTORS AND OFFICERS INSURANCE. The Company will use its best
efforts to maintain directors and officers insurance, upon a determination by
the Company's Board of Directors that such insurance is economically feasible.
2.11 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's Second
Amended and Restated Articles of Incorporation (the "Restated Articles") and
Bylaws shall provide (a) for elimination of the liability of director to the
maximum extent permitted by law and (b) for indemnification of directors for
acts on behalf of the Company to the maximum extent permitted by law. In
addition, the Company shall indemnify such directors to the maximum extent
permissible under California law pursuant to an indemnification agreement.
2.12 AUDITORS. The Company will retain independent public
accountants of recognized national standing (i.e., a firm acknowledged to be
among the Big Five or their successors) who shall audit the Company's financial
statements at the end of each fiscal year.
2.13 EXTRAORDINARY REMUNERATION. The Board of Directors may not
approve any plan or action to grant extraordinary remuneration to management in
connection with the sale of the Company or any subsidiary of the Company, or the
termination of employment or otherwise, unless such plan or action has been
approved by the non-employee members of the Board of Directors.
2.14 APPROVAL OF HOLDERS OF PREFERRED STOCK. The Company shall
disclose all terms, including those provided in side letters, relating to the
issuances described in Article III(B), Sections 6(b)(ii) and 6(c)(ii) of the
Restated Articles to the holders of Preferred Stock before such holders are to
vote on such issuances.
2.15 ISSUANCE OF SERIES B PREFERRED STOCK. After the date of the
Closing (as defined in the Purchase Agreement), the Company shall not issue any
shares of Series B Preferred Stock to any person or entity not referenced in
Article III(B), Section 4(d)(i)(B)(3) of the Restated Articles.
2.16 TERMINATION OF COVENANTS.
(a) The covenants set forth in Sections 2.1 through 2.3 and 2.6
through 2.15 shall terminate as to each Investor and be of no further force or
effect (i) immediately prior to the consummation of a Qualified IPO (except as
otherwise noted in Section 2.3), or (ii) when the Company shall sell, convey, or
otherwise dispose of or encumber all or substantially all of its property or
business or merge into or consolidate with any public corporation (other than a
wholly-owned subsidiary corporation) or effect any other transaction or series
of related transactions in which more than fifty percent (50%) of the voting
power of the Company is disposed of, provided that this subsection (ii) shall
not apply to a merger effected exclusively for the purpose of changing the
domicile of the Company.
(b) The covenants set forth in Sections 2.1 and 2.2 shall
terminate as to each Holder and be of no further force or effect when the
Company first becomes subject to the
<PAGE> 21
periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act, if
this occurs earlier than the events described in Section 2.16(a) above.
(c) The covenant set forth in Section 2.4 shall terminate and be
of no further force or effect at such time as the Voting Agreement terminates
pursuant to its terms.
3. COVENANTS OF THE INVESTORS.
3.1 NOTICE OF PROPOSED TRANSFER. Prior to any transfer of
Registrable Securities, the Holder of such Registrable Securities (the "Seller")
must give to the Company a written notice signed by the Seller (the "Seller's
Notice") stating (a) the Seller's bona fide intention to transfer such
Registrable Securities (the "Offered Stock") and the name and address of the
proposed transferee (the "Transferee"); (b) the number of shares of the Offered
Stock; and (c) the bona fide cash price or, in reasonable detail, other
consideration, per share for which the Seller proposes to transfer such Offered
Stock (the "Offered Price"). Upon the request of the Company, the Seller will
promptly furnish information to the Company as may be reasonably requested to
establish that the offer and proposed transferee are bona fide.
3.2 RIGHT OF FIRST REFUSAL.
(a) The Company shall have the right of first refusal to
purchase all or any part of the Offered Stock, if the Company gives written
notice of the exercise of such right to the Seller within thirty (30) days (the
"Company's Refusal Period") after the date of the Seller's Notice to the
Company, provided however, that for purposes of this Section 3.2, Offered Stock
shall not include proposed transfers of stock to any Transferee who is either
(i) a partner or affiliate of the Seller or (ii) a corporation or limited
liability company which is a parent or subsidiary of the Seller.
(b) The purchase price for the Offered Stock to be purchased by
the Company exercising its right of first refusal under this Agreement will be
the Offered Price, and will be payable as set forth in Section 3.2(c) hereof. If
the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration will be determined by the Board of Directors
of the Company in good faith, which determination will be binding upon the
Company and the Seller, absent fraud or error.
(c) Payment of the purchase price for the Offered Stock
purchased by the Company exercising its right of first refusal will be made
within fifteen (15) days after the end of the Company's Refusal Period. Payment
of the purchase price will be made, at the option of the Company (i) in cash (by
check), (ii) by cancellation of all or a portion of any outstanding indebtedness
of the Seller to the Company, or (iii) by any combination of the foregoing.
(d) If the Company exercises its right of first refusal to
purchase the Offered Stock, then, upon the date the notice of such exercise is
given by the Company, the Seller will have no further rights as a holder of the
Offered Stock except the right to receive payment for the Offered Stock from the
Company in accordance with the terms of this
<PAGE> 22
Agreement and the Seller will forthwith cause all certificate(s) evidencing such
Offered Stock to be surrendered for transfer to the Company.
(e) The right of the Company to purchase any part of the Offered
Stock may be assigned in whole or in part to any third party in the Company's
sole discretion.
(f) If the Company (or its designated assignee) has not elected
to purchase all of the Offered Stock, then the Seller may transfer the remaining
shares of Offered Stock to the Transferee at the Offered Price or at a higher
price, provided that such transfer (i) is consummated within thirty (30) days
after the end of the Company's Refusal Period, (ii) is on terms no more
favorable than the terms proposed in the Seller's Notice and (iii) is in
accordance with all the terms of this Agreement. If the Offered Stock is not so
transferred during such thirty (30) day period, then the Seller may not transfer
any of such Offered Stock without complying again in full with the provisions of
this Agreement.
3.3 RESTRICTIVE LEGEND AND STOP-TRANSFER ORDERS.
(a) Each Investor understands and agrees that the Company will
cause the legend set forth below, or a legend substantially equivalent thereto,
to be placed upon any certificate(s) or other documents or instruments
evidencing ownership of the Registrable Securities:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RIGHTS
OF FIRST REFUSAL AS SET FORTH IN AN AGREEMENT ENTERED INTO BY THE HOLDER
OF THESE SHARES AND THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF THE COMPANY. SUCH RIGHTS OF FIRST REFUSAL ARE
BINDING ON CERTAIN TRANSFEREES OF THESE SHARES.
(b) Each Investor agrees, to ensure compliance with the
restrictions referred to herein, that the Company may issue appropriate "stop
transfer" certificates or instructions and that, if the Company transfers its
own securities, it may make appropriate notations to the same effect in its
records.
3.4 TRANSFERS. No securities shall be transferred unless (i) such
transfer is made in compliance with applicable federal and state securities laws
and (ii) prior to such transfer, the transferees sign a counterpart to this
Agreement pursuant to which it or they agree to be bound by the terms of this
Agreement. The Company shall not be required (a) to transfer on its books any
shares that shall have been sold or transferred in violation of any of the
provisions of this Agreement or (b) to treat as the owner of such shares or to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such shares shall have been so transferred.
3.5 TERMINATION OF RIGHT OF FIRST REFUSAL. The Company's right of
first refusal pursuant to Section 3.2 hereof shall terminate immediately prior
to the closing of: (i) a Qualified IPO or (ii) the sale, conveyance, disposal,
or encumbrance of all or substantially all of the Company's property or business
or the Company's merger into or consolidation with any
<PAGE> 23
other corporation (other than a wholly-owned subsidiary corporation) or any
other transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Company is disposed of, provided that
this Section 3.5 shall not apply to a merger effected exclusively for the
purpose of changing the domicile of the Company.
4. COVENANTS OF AMAZON.COM. Amazon.com hereby covenants and agrees as
follows:
4.1 LIMITATION ON OWNERSHIP. Except with the prior written consent
of a majority of the Company's Board of Directors (excluding the vote of any
director designated by Amazon.com), Amazon.com shall not, directly or
indirectly, acquire beneficial ownership of any capital stock of the Company,
any securities convertible into or exchangeable for capital stock of the
Company, or any other right to acquire capital stock of the Company (except, in
any case, by way of stock dividends or other distributions or offerings made
available to holders of any capital stock generally) if the effect of such
acquisition would be to increase the capital stock owned by Amazon.com to more
than the Threshold Percentage; provided, however, that Amazon.com may acquire
additional shares of capital stock of the Company without regard to the
foregoing limitation upon the earliest to occur of the following (the
"Standstill Termination Date"):
(a) the second anniversary of the closing date of a Qualified
IPO;
(b) immediately following the effective date on which the
Company shall sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge or consolidate with any
other corporation (other than a wholly-owned subsidiary corporation) or effect
any other transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Company is disposed of, except in each
case a merger effected exclusively for the purpose of changing the domicile of
the Company; or
(c) April 22, 2003.
Notwithstanding the foregoing, if the Company repurchases or recapitalizes any
of its shares and such repurchases or recapitalization result in Amazon.com
owning more than the Threshold Percentage at the effective time of such
repurchases or recapitalization, Amazon.com shall not be obligated to divest
itself of shares of capital stock of the Company to meet the foregoing the
Threshold Percentage, but shall not acquire any additional shares of capital
stock of the Company unless such acquisition would otherwise be permitted under
this Section 4.1.
4.2 NOTICE OF CAPITAL STOCK PURCHASES. Amazon.com shall notify the
Company as to any future acquisition of beneficial ownership of capital stock,
or rights thereto, within ten (10) business days after such action in order for
the Company to monitor compliance with the terms of this Agreement. All
purchases of capital stock of the Company by Amazon.com shall be made in
compliance with applicable laws and regulations.
4.3 ACQUISITION BY POOLING. In the event the Company enters into any
agreement providing for the acquisition of the Company by merger, sale of assets
or otherwise in a negotiated transaction approved by the Board of Directors of
the Company, then if such
<PAGE> 24
agreement provides, as a condition to closing, that the transaction shall be
treated as a pooling of interests under generally accepted accounting
principles, Amazon.com shall (i) refrain from exercising any right of appraisal;
and (ii) not sell or otherwise reduce its risk relative to any securities
received in such combination until such time as financial results covering at
least 30 days of post-transaction combined operations have been published.
4.4 PERMITTED TRANSACTION. Notwithstanding the provisions of this
Section 4, on and after the eleventh business day after the commencement of a
proxy contest, tender offer or exchange offer which could result in a "Change of
Control Transaction" (as defined below) for the outstanding shares of capital
stock of the Company or on or after the public announcement that the Company has
entered into an agreement with a third party not affiliated with the Company
that would result in a Change of Control Transaction, Amazon.com shall be
permitted to make a proposal to the Company's Board of Directors or shareholders
or to tender or exchange shares of capital stock beneficially owned by it
pursuant to such transaction. As used herein, "Change of Control Transaction"
shall mean (a) any tender or exchange offer, merger, consolidation,
recapitalization or other business combination or transaction pursuant to which
either (1) the holders of the outstanding voting power immediately prior to the
transaction would hold less than 50% of the outstanding voting power outstanding
immediately after the transaction or (2) 50% of the assets of the Company would
be transferred to or controlled by a third party not affiliated with the
Company, excluding in each case a merger effected exclusively for the purpose of
changing the domicile of the Company, or (b) any action by the shareholders of
the Company that results in the directors, who as of the date of Closing
constitute the Company's Board of Directors (the "Incumbent Board"), ceasing to
constitute at least a majority of the Company's Board of Directors; provided,
however that any individual becoming a director subsequent to the date of
Closing whose nomination for election by the shareholders of the Company was
approved by the vote of the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board.
5. MISCELLANEOUS.
5.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Series A Preferred Stock, Series B
Preferred Stock or any Common Stock issued upon conversion thereof). Subject to
the threshold provisions generally included above herein, the parties agree that
the Investors may assign their rights and obligations under this Agreement to
any of their current or former partners, members or affiliates, including to any
corporation or limited liability company which is a parent or subsidiary of such
Investor. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
5.2 AMENDMENTS AND WAIVERS. This Agreement (including the Exhibit
hereto) constitutes the full and entire understanding and agreement among the
parties with regard to the subjects hereof and supersedes and terminates in its
entirety the Investors' Rights
<PAGE> 25
Agreement dated as of April 22, 1999. Any term of this Agreement may be amended
or waived (either generally or in a particular instance and either retroactively
or prospectively) only with the written consent of the Company and the holders
of at least seventy percent (70%) of the Registrable Securities then
outstanding, not including the Founders' Stock; provided that if such amendment
has the effect of affecting the Founders' Stock (i) in a manner different than
securities issued to the Investors and (ii) in a manner adverse to the interests
of the holders of the Founders' Stock, then such amendment shall also require
the consent of the holder or holders of a majority of the Founders' Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company. Notwithstanding the
foregoing, this Agreement (including Exhibit A hereto) may be amended with only
the written consent of the Company to include additional purchasers of Series B
and/or Series B-1 Preferred Stock as "Investors" or "Holders."
5.3 NOTICES. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by fax
(with confirmation of successful electronic transmission), or forty-eight (48)
hours after being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, and addressed to the party (with a copy to such party's
counsel at such counsel's address or fax number as set forth in the Purchase
Agreement or the Prior Purchase Agreement, whichever applicable) to be notified
at such party's address or fax number as set forth on the signature page or on
Exhibit A hereto or as subsequently modified by written notice.
5.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
5.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
5.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.7 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.
5.8 AGGREGATION OF STOCK. All shares of the Preferred Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
<PAGE> 26
5.9 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
5.10 WAIVER OF RIGHT OF FIRST OFFER IN PRIOR RIGHTS AGREEMENT. By
executing this Agreement, the undersigned agrees that it hereby waives on behalf
of itself and all other Investors (as defined in the Prior Rights Agreement) the
right of first offer contained in Section 2.3 of the Prior Rights Agreement to
purchase additional Shares of the Company to which such Investors would
otherwise be entitled.
5.11 TERMINATION OF PRIOR RIGHTS AGREEMENT. Upon the execution of
this Agreement by the Company, the Founders and the Investors, the Prior Rights
Agreement shall be amended and restated in its entirety as set forth herein, and
the terms of the Prior Rights Agreement shall be of no further force or effect.
[Signature Page Follows]
<PAGE> 27
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
PETS.COM, INC.
By: /s/ Julie Wainwright
---------------------------------------
Name: Julie Wainwright
-------------------------------------
(print)
Title: CEO
-------------------------------------
Address: 435 Brannan Street
San Francisco, CA 94107
Tel: (415) 222-9999
Fax: (415) 222-9998
FOUNDER:
/s/ Greg McLemore
-------------------------------------------
Greg McLemore
Address: 87 N. Raymond Avenue, Suite 850
Pasadena, CA 91103
Fax: 626-794-8500
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 28
INVESTORS:
SPINNAKER TECHNOLOGY FUND LP
By: /s/ Thomas Pindelski
---------------------------------------
Name: Thomas Pindelski
-------------------------------------
(print)
Title: Managing Director of Operations
------------------------------------
Address: 1875 South Grant Street
Suite 600
San Mateo, CA 94402
Tel: (415) 222-9999
Fax:
SPINNAKER TECHNOLOGY OFFSHORE FUND LTD.
By: /s/ Thomas Pindelski
---------------------------------------
Name: Thomas Pindelski
-------------------------------------
(print)
Title: Managing Director of Operations
------------------------------------
Address: 1875 South Grant Street
Suite 600
San Mateo, CA 94402
SPINNAKER FOUNDERS FUND LP
By: /s/ Thomas Pindelski
---------------------------------------
Name: Thomas Pindelski
-------------------------------------
(print)
Title: Managing Director of Operations
-------------------------------------
Address: 1875 South Grant Street
Suite 600
San Mateo, CA 94402
-1-
<PAGE> 29
SPINNAKER OFFSHORE FOUNDERS FUND LTD
By: /s/ Thomas Pindelski
---------------------------------------
Name: Thomas Pindelski
--------------------------------------
(print)
Title: Managing Director of Operations
-------------------------------------
Address: 1875 South Grant Street
Suite 600
San Mateo, CA 94402
AMAZON.COM, INC.
By: /s/ Randy Tinsley
---------------------------------------
Name: Randy Tinsley
-------------------------------------
(print)
Title: VP, Corp. Dev.
-------------------------------------
Address: 1200 - 12th Ave. S., Suite 1200
Seattle, WA 98144
HUMMER WINBLAD VENTURE PARTNERS IV, L.P.
By: /s/ Deborah Wright
---------------------------------------
Name: Deborah Wright
--------------------------------------
(print)
Title: Member
-------------------------------------
Address: 2 South Park
San Francisco, CA 94115
-2-
<PAGE> 30
THE PHOENIX PARTNERS IV LIMITED PARTNERSHIP
By: The Phoenix Management IV, LLC
---------------------------------------
its General Partner
By: /s/ David B. Johnston
---------------------------------------
Name: David B. Johnston
-------------------------------------
(print)
Title: Managing Member
-------------------------------------
Address: 1000 Second Avenue
Suite 3600
Seattle, WA 98104
THE AVRAM MILLER TRUST
By: /s/ Avram Miller trust
---------------------------------------
Name: Avram Miller
-------------------------------------
(print)
Title: Trustee
-------------------------------------
Address: c/o The Avram Miller Company
505 Montgomery St., 20th Fl.
San Francisco, CA 94111
(415) 835-7267
COMCAST INTERACTIVE CAPITAL, L.P.
By: CIC Venture Management L.P.
---------------------------------------
By: /s/ Abram E. Patlore
---------------------------------------
Name: Abram E. Patlore
-------------------------------------
(print)
-3-
<PAGE> 31
Title: Vice President
------------------------------------
Address: 1201 Market Street, Suite 2201
Wilmington, DE 19801
CYBER CONTROL DEVELOPMENT LIMITED
By: /s/ Mico Chung
---------------------------------------
Name: Mico Chung
-------------------------------------
(print)
Title: Director
------------------------------------
Address: 38th Floor, Citibank Tower,
Citibank Plaza
3 Garden Road, Central
Hong Kong
ASIA PACIFIC TECHNOLOGY & FINANCE 1 N.V.
By: /s/ Giorgo Ronchi
---------------------------------------
Name: Pleadis Investment Management B.V.
By Giorgo Ronchi, Managing Director
(print)
Title:
------------------------------------
Address: 62 de Ruyterkade, Curacao
Netherlands Antilles
With a copy: ETF Group, Via
Cantonale, The Fantastic Building
CH-6928 Manno, Switzerland
Fax number: 41 91 610 71 66
Attention: Counsel and Secretary
BAYSTAR INTERNATIONAL LTD, a British
Virgin Islands Corporation
-4-
<PAGE> 32
By: BayStar International Management,
LLC
Its General Partner
By: /s/ Steven M. Lamar
-------------------------------
Name: Steven M. Lamar
Title: Vice President
1500 West Market Street, Suite 200
Mequon, WI 53092
Fax: 415-835-3777
WORLD ONLINE INTERNATIONAL B.V.
By: [SIGNATURES ILLEGIBLE]
---------------------------------------
Name: [SIGNATURES ILLEGIBLE]
-------------------------------------
Title: Director/COO/CFO
-------------------------------------
Address: Parklaan 28
P O Box ____
3000 AA Rottendam,
Netherlands
THE BALOUSEK FAMILY LIMITED PARTNERSHIP
DTD 1/7/99
/s/ Kathleen Balousek
/s/ John B. Balousek
------------------------------------
Name: Kathleen Balousek
John B. Balousek
------------------------------------
Title: General Partners
------------------------------------
Address: 11 Magee Ct.
Moraga, CA 94556
-5-
<PAGE> 33
FRANK M. (PETE) HIGGINS
By: /s/ Frank M. Higgins
---------------------------------------
Name: Frank M. Higgins
-------------------------------------
Address: 7650 SE 22nd St.
Mercer Island, WA 98040
MICHAEL B. SLADE
By: /s/ Michael B. Slade
---------------------------------------
Address: 3732 E. High Ln.
Seattle, WA 98112
KEITH GRINSTEIN
By: /s/ Keith Grinstein
---------------------------------------
Name: Keith Grinstein
-------------------------------------
NICK HANAUER PARTNERSHIP
By: /s/ Nick Hanauer
---------------------------------------
Name: Nick Hanauer
-------------------------------------
Address: The Highlands
Seattle, WA 98177
-6-
<PAGE> 1
EXHIBIT 10.25
LEASE OF COMMERCIAL SPACE
This Lease of Commercial Space ("Lease") is entered into as of April 8,
1999, by and between The Paulsen Family Partnership (hereafter called
"Landlord"), and Pets.com a California corporation (hereafter called "Tenant").
Now, therefore, it is agreed:
1. PREMISES: Effective as of the "Commencement Date" (hereafter
defined), Tenant hereby leases from Landlord a portion of the ground floor
containing approximately Fifteen Thousand (15,000) rentable square feet in the
building located in the City and County of San Francisco, California, commonly
known as 435 Brannan Street. The square footage indicated herein is approximate
only, and the rent provided herein shall not be adjusted by reason of the fact
the actual square footage leased is more or less than the indicated square
footage. The leased space is hereafter called the "Premises."
2. TERM: Unless sooner terminated as provided herein, the term of this
Lease shall be a period of three years from the Commencement Date. The
"Commencement Date" shall be the date when the present tenant vacates and the
Premises are delivered to Tenant, but not later than June 1, 1999. The Lease
term may be terminated for any default as herein provided.
3. BASE RENT: Tenant agrees to pay as base rent for the entire three
year term the sum of [*] as indicated in the following chart. Base rent shall be
an annual per square foot rental of [*] with annual [*] increases. The first
four month's rent (including abatement of 1st month's rent) of [*] is due upon
execution of this Lease.
<TABLE>
<CAPTION>
MONTHLY
PERIOD RENT INSTALLMENTS
------ ---- -------------
<S> <C> <C>
Year 1: First month. $0. Rent is abated.
11 month Balance of Year 1: [*] per rsf per month, industrial [*]
gross.
Year 2: [*] per rsf per month, industrial gross [*]
Year 3: [*] per rsf per month, industrial gross [*]
</TABLE>
ADDITIONAL RENT: In addition to the base rent, Tenant shall pay as
additional rent all other payments required under this Lease, including but not
limited to, any payments for utilities, late charges and interest on delinquent
sums due hereunder.
4. ASSIGNMENT & SUBLETTING: Except as expressly provided herein, Tenant
shall not assign this Lease or sublet any portion of the Premises without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld. Tenant agrees to provide Landlord with all information on the proposed
subtenant or assignee requested by Landlord and the terms upon which the
intended subtenancy or assignment is proposed. If Tenant wishes to sublet or
assign the Lease and the remaining balance of the term is less than
*CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-1-
<PAGE> 2
two years, then Landlord may terminate the Lease and recapture the space by
giving written notice to Tenant within 30 days of Tenant's request to sublet or
assign, except for assignments related to a merger or acquisition, or a sublease
to a related entity. Any assignment or subletting without Landlord's written
consent shall be void, and Landlord may, at its option, terminate this Lease on
such account.
If; with Landlord's consent, Tenant assigns any interest in this Lease
or sublets all or any portion of the Premises, any excess of the amounts
received by Tenant for such assigned or sublet space over the amounts payable by
Tenant hereunder with respect to such space shall be shared equally by Tenant
and Landlord.
5. LATE PAYMENTS: The above stated monthly installments of base rent for
each calendar month of the term hereof shall be paid to Landlord monthly, in
advance, on the first calendar day of each month of the term. If such base rent
is not paid by the tenth calendar day of the month in question, it is agreed
that Landlord will suffer damages the amount of which are difficult or
impractical to fix. Therefore, Tenant will pay Landlord damages in the amount of
$1,000 for each month that the base rent is not paid within such ten day period.
Amounts due hereunder other than base rent shall be paid to Landlord within ten
days after payment is demanded. All amounts which are not paid to Landlord when
due, including base rent, shall bear interest at the rate of 10% per annum (or
if a higher rate is permissible then at the maximum legal rate) from the date
the same become delinquent (the eleventh of the month for base rent, the
eleventh day after demand for all other amounts) until paid. Notwithstanding the
foregoing, Tenant shall be entitled to one late payment exemption per Lease
Year; as to the one annual late payment exemption, interest shall not commence
to run until the first of the next month after the due date and shall run
thereafter until paid. No interest shall accrue on the late payment charge.
6. USE: Tenant may use the Premises for general office purposes. Tenant
shall not use the Premises for any purpose which is unlawful, or contrary to
applicable laws, regulations, or ordinances, or which tends to increase the
existing rate of insurance on the building in which the Premises are located.
7. ORDINANCES & STATUTES: Tenant shall comply with all statutes,
ordinances and requirements of all municipal, state and federal authorities now
in force, or which may hereafter be in force, applicable to Tenant's particular
use or occupancy of the Premises.
8. MAINTENANCE & REPAIRS: Tenant shall, at its expense, clean, repair,
and maintain the Premises in good order and repair, including, without
limitation, maintenance and repair of the Premises to conform with applicable
statutory requirements which apply to Tenant's particular use, and shall
surrender the same upon termination of this Lease in as good a condition as
received, normal wear and tear and acts of God and other casualties excepted.
Without limiting the generality of the foregoing, Tenant, at Tenant's sole cost
and expense shall comply with all requirements imposed by fire, health and
safety codes and handicap access laws (including the American With Disabilities
Act of 1992 ("ADA"), as such may be amended from time to time) when such
compliance is required solely within the Premises by reason of with
-2-
<PAGE> 3
Tenant's specific use of the Premises or because Tenant's application for a
building permit triggers modifications to the Premises. If modifications to the
Premises are required to make the same ADA compliant, but this requirement is
imposed by a governmental entity having jurisdiction and is not triggered by any
action of Tenant, Landlord and Tenant shall share equally the cost of
compliance. If modifications to the building without the Premises are required
to make the building ADA compliant, and this requirement of compliance is not
triggered by any action of Tenant, Landlord shall be solely responsible for the
cost of said modifications. Except as provided in the preceding two sentences,
Landlord shall be responsible only for maintenance and repair of the roof,
exterior walls, structural foundations, heating system, and common areas of the
building. Landlord shall not be responsible for the repair of any damage caused
by Tenant. Tenant waives the provisions of Sections 1941, 1941.1, 1941.2,
1941.4, and 1942 of the California Civil Code.
9. IMPROVEMENTS: Except as provided in Section 34 below, Tenant shall
make no alteration or improvement of the Premises without the prior written
consent of Landlord, which consent shall not be unreasonably withheld beyond
five (5) business days following Tenant's request. Prior to the commencement of
any improvement or alteration, Tenant shall give Landlord copies of all proposed
work to be performed and a schedule of the time for completion of such work. At
least ten days before the commencement of any such work, Tenant shall give
advance notice in writing to Landlord such that Landlord may post appropriate
notices to avoid liability for liens. If any contractor, subcontractor, laborer
or supplier of Tenant shall impose or seek to impose any lien upon the property
in which the Premises are located, upon demand, Tenant shall promptly discharge
and release or bond over any and all such liens. The failure to discharge or
bond over any lien within fifteen (15) days following request shall be a default
hereunder.
10. WASTE: Tenant shall not commit any waste upon the Premises or permit
or maintain any nuisance or act which may disturb the quiet enjoyment of any
tenant in the building or the Landlord's management of the building.
11. ENTRY & INSPECTION: Tenant shall permit Landlord or its agents to
enter upon the Premises, at reasonable times and upon reasonable notice, for the
purpose of inspecting the same, and will permit Landlord, at any time within one
hundred eighty days prior to the expiration of this lease, to place upon the
Premises any usual "For Lease" signs, and will permit persons proposing to lease
the same to inspect the Premises. No notice shall be necessary prior to
Landlord's entry of the Premises in response to an emergency.
12. LIABILITY & INDEMNIFICATION: Landlord shall not be liable for any
damage or injury to person or property of Tenant, its employees or agents,
excepting only such damage or injury as may be caused solely by Landlord's
negligent or willful acts. Tenant shall indemnify, defend, save and hold
Landlord harmless from any and all liability, costs and expenses (including
attorneys' fees) arising from injury to any person and/or damage to any property
occurring in, on or about the Premises excepting only such damage or injury as
may be caused solely by Landlord's negligent or willful acts. Tenant also shall
indemnify, defend, save
-3-
<PAGE> 4
and hold harmless Landlord from any and all liability, costs and expenses
(including attorneys' fees) arising from damage to the property of or injury to
the person of any employee, customer or business invitee of Tenant wherever the
same may occur excepting only such damage or injury as may be caused solely by
Landlord's negligent or willful acts. The obligation of Tenant to indemnify
hereunder shall survive the termination of this Lease.
13. INSURANCE: Tenant will, at its expense, maintain commercial general
liability insurance covering personal injuries and property damage with coverage
not less than $1,000,000 single limit. Landlord shall be named as an additional
insured on such policy or policies, and Landlord shall be provided a certificate
of insurance for each. All such policies shall require thirty (30) days advance
written notice to Landlord prior to cancellation or material change of coverage
caused by Tennant. Tenant also, at its expense, shall insure all personal
property, trade fixtures and improvements on the Premises against damage,
excepting only such damage caused solely by Landlord's negligence or willful
acts. All insurance policies required to be provided by Tenant shall be primary
and shall contain a waiver of subrogation against Landlord. In the event that
Tenant fails to provide Landlord with a certificate of insurance within 30 days
of renewal, then upon written notice to Tenant, Landlord may, but shall have no
obligation to, obtain insurance on Tenant's behalf and the cost of such
insurance shall be paid by Tenant upon demand of Landlord. Landlord will obtain
a waiver of subrogation against Tenant in the insurance policies Landlord
maintains with respect to the Premises.
14. UTILITIES: Tenant shall pay for all the utilities, including
electricity, heat and other services, provided to the Premises excepting water,
gas, taxes, refuse removal and sewer Tenant shall pay 44.8% of Landlord's bill
for water, gas, refuse removal and sewer service to the 435 Brannan Street
Building during the lease term. Tenant shall provide and pay for its own
janitorial services and trash removal from the Premises.
15. SIGNS: Landlord reserves the exclusive right to use and control the
roof, side, front and rear walls of the building in which the Premises are
located. Tenant shall not install any sign or awning without the prior written
consent of Landlord. All signs and awnings installed by Tenant shall comply with
all applicable laws and regulations.
16. ABANDONMENT: Tenant shall not vacate or abandon the Premises at any
time during the term hereof. If Tenant shall abandon or vacate the Premises, or
be dispossessed by process of law or otherwise, any personal property belonging
to Tenant left upon the Premises shall be deemed to be abandoned, at the option
of Landlord. Tenant shall be deemed to have abandoned the Premises if Tenant
vacates the Premises for more than 15 consecutive days.
17. TRADE FIXTURES: Any and all improvements made to the Premises during
the term hereof shall belong to Landlord except Tenant's trade fixtures. Tenant
may, upon termination hereof, remove all its trade fixtures, but shall repair or
pay for all repairs necessary for damages to the Premises occasioned by such
removal. Tenant shall pay all property taxes levied with respect to Tenant's
trade fixtures, equipment and personal property.
-4-
<PAGE> 5
18. CONDEMNATION: If any part of the Premises shall be taken or
condemned for public use or transferred under threat of such condemnation, and a
part thereof remains which is susceptible of occupation hereunder, this Lease
shall, as to the part taken, terminate as of the date the condemnor acquires
possession. Thereafter, Tenant shall pay such proportion of the base rent for
the remaining term as the value of the Premises remaining bears to the total
value of the Premises at the date of condemnation; provided however, that
Landlord or Tenant may, at its option, terminate this Lease as of the date the
condemnor acquires possession. In the event that, the Premises are condemned in
whole, or that such portion is condemned or transferred under threat of
condemnation so that the remainder is not susceptible for use hereunder, this
Lease shall terminated upon the date upon which the condemnor acquires
possession. All amounts which may be payable on account of any condemnation or
transfer under threat of condemnation shall belong to Landlord, and Tenant shall
not be entitled to any part thereof Notwithstanding the foregoing, Tenant may
separately apply to the condemnor for compensation payable, if any, for Tenant's
trade fixtures and moving expenses provided that such application will not
unreasonably delay or diminish Landlord's award. The parties waive the
provisions of Section 1265.130 of the California Code of Civil Procedure.
19. DESTRUCTION OF PREMISES: In the event of a partial destruction of
the Premises during the term hereof from any cause covered by insurance,
Landlord will forthwith repair the same provided that in Landlord's judgment
such repairs can reasonably be made within ninety (90) days following the date
of such destruction under existing governmental laws and regulations, taking
into consideration the availability of labor and materials and based on regular
working hours without overtime. Such partial destruction shall not terminate
this Lease, except that Tenant shall be entitled to a proportionate reduction of
base rent while such repairs are being made, based upon the extent to which the
making of such repairs interferes with the business of Tenant on the Premises.
In the event Landlord elects not to make repairs which are uninsured or cannot
reasonably be made within the ninety (90) day period, this Lease may be
terminated at the option of either party. In the event the building in which the
Premises are situated is destroyed to an extent of not less than one-third of
the replacement cost thereof, Landlord may elect to terminate this Lease whether
the Premises are injured or not. A total destruction of the building in which
the Premises are located shall terminate this Lease. Tenant waives the
provisions of Section 1932 and 1933(4) of the California Civil Code.
20. HAZARDOUS MATERIALS: Tenant shall not use, store, or dispose of any
hazardous substances upon or about the Premises or the building. The term
"hazardous substances" means any hazardous waste, substance or toxic materials
regulated under any federal, state or local environmental laws or regulations.
Tenant will indemnify, hold harmless and defend Landlord against any loss,
clean-up cost, governmental fines, and any other kind of liability which
Landlord may incur or suffer as a result of Tenant's breach of this provision,
whether such liability is incurred before, during or after the term of this
Lease. This obligations of Tenant hereunder shall survive the termination of the
Lease.
21. INSOLVENCY: In the event a receiver is appointed to take over the
business of Tenant, or Tenant makes a general assignment for the benefit of
creditors, or Tenant takes or
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suffers any action under any insolvency or bankruptcy act, the same shall
constitute a breach of this Lease by Tenant.
22. REMEDIES OF LANDLORD ON DEFAULT: In the event of any breach of this
Lease by Tenant, Landlord may, at its option, terminate the Lease and recover
from Tenant: (a) the worth at the time of award of the unpaid rent which had
been earned at the time of termination; (b) the worth at the time of award of
the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; (c) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term after
the time of award exceeds the amount of such rental loss that Tenant proves
could be reasonably avoided; and (d) any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom. Landlord may, in the alternative, continue this
Lease in effect, as long as Landlord does not terminate Tenant's right to
possession, and Landlord may enforce all its rights and remedies under the
Lease, including the right to recover the rent as it becomes due. If said breach
of Lease continues, Landlord may, at any time thereafter, elect to terminate
this Lease. In addition to any and all other remedies, Landlord has the remedy
described in California Civil Code Section 1951.4 (lessor may continue lease in
effect after lessee's breach and abandonment and recover rent as it becomes due,
if lessee has right to sublet or assign, subject only to reasonable
limitations). Nothing herein shall be deemed to limit any other rights or
remedies which Landlord may have in law, equity or by contract.
23. SECURITY DEPOSIT: Upon execution of this Lease, Tenant shall pay
Landlord the cash sum of [*] as a security deposit.
The security deposit shall be held by Landlord to secure the performance
of Tenant's obligations hereunder. Landlord may, but is not obligated, to apply
all or portions of said deposit on account of Tenant's obligations hereunder. To
the extent the deposit is so applied by Landlord, Tenant shall, upon demand by
Landlord, replenish such deposit to [*]. Tenant does not have the right to apply
the security deposit in payment of the last month's rent. Any unapplied balance
of the security deposit remaining upon termination of the Lease shall be
returned to Tenant within two weeks following delivery of possession of the
Premises to Landlord, and Landlord shall upon such return advise Tenant in
writing of all charges made against the security deposit. Landlord may commingle
the funds of the security deposit with other funds of Landlord. No interest
shall be payable by Landlord on the security deposit.
24. ATTORNEY'S FEES & COSTS: In any arbitration, legal action or other
proceeding involving a dispute between Landlord and Tenant arising out of the
execution of this Lease, or to enforce the terms and conditions of this Lease,
or to recover possession of the Premises from Tenant, or to monitor any
bankruptcy or insolvency proceeding in which Tenant is the bankrupt or insolvent
party, the prevailing party shall be entitled to receive from the other party
reasonable attorneys' fees, expert witness fees, appraisal fees and all other
costs incurred in
*CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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connection with such arbitration, legal action or proceeding, (including the
cost of enforcing any judgment or order) to be determined by any court or
arbitration panel.
25. ARBITRATION: Any dispute with respect to determinations under
paragraphs 5, 6, 18, and 19 hereof shall be resolved by arbitration before one
arbitrator selected by agreement of both parties, or if no agreement is reached
within ten days then as selected by the Presiding Judge of the Superior Court
sitting in San Francisco. The arbitration shall be conducted in accordance with
the Rules of Commercial Arbitration of the American Arbitration Association.
26. WAIVER: No failure of Landlord to enforce any term here of shall be
deemed to be a waiver of that or of any other term or condition, and Landlord's
acceptance of rent shall not be construed as a waiver of any breach of this
Lease occurring prior to such rent payment.
27. NOTICES: Any notice which any party may or is required to give may
be given by personal delivery or by mailing the same, with first class postage
prepaid, addressed to Landlord at 435 Brannan Street, San Francisco, CA 94107,
to Tenant at 435 Brannan Street, San Francisco, CA 94107, or to such other
address as either party may designate in writing from time to time.
28. HOLDING OVER: Any holding over after the expiration of this Lease,
with the Landlord, shall be construed as a month-to-month tenancy at a monthly
base rental 150% of the base rental for the month immediately preceding the
expiration of the Lease and otherwise in accordance with the terms hereof as
applicable. Any holding over without the consent of Landlord shall be a breach
of this Lease and in addition to any amounts due hereunder, Landlord shall also
recover from Tenant all consequential damages arising from such holding over.
29. TIME: Time is of the essence of this Lease.
30. SUCCESSOR LANDLORD: In the event of transfer of Landlord's interest
in the building in which the Premises are located, the Landlord named herein (or
the grantor in case of any subsequent transfers) shall be relieved of all
liability related to Landlord's obligations to be performed after such transfer.
Provided, however, that any security deposit or other funds in the hands of
Landlord (or grantor) at the time of such transfer shall be delivered to the
transferee. Landlord's obligations hereunder shall be binding upon Landlord's
successors and assigns only during their respective periods of ownership of the
building in which the leased Premises are located. Except as heretofore
provided, this Lease is binding upon and inures to the benefit of the heirs,
assigns and successors in interest of the parties.
31. ESTOPPEL CERTIFICATE: (a) Tenant shall at any time upon not less
than ten (10) days prior written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing (1) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect), the amount of any security deposit, and the date to which the
rent and other charges are paid in advance, if any, and (2) acknowledging that
there are not, to Tenant's
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<PAGE> 8
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective buyer or encumbrance of the building in which the
Premises are located.
(b) At Landlord's option, Tenant's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Tenant (1) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (2) that there are no
uncured defaults in Landlord's performance, and (3) that not more that one
month's rent has been paid in advance, except pursuant to the Lease terms..
(c) If Landlord desires to finance, refinance, or sell the
building in which the Premises are located, or any part thereof, Tenant agrees
to deliver to any prospective lender or buyer designated by Landlord such
financial statements of Tenant as may be reasonably required by such lender or
buyer. All such financial statements shall be received by Landlord and such
lender or buyer in confidence and shall be used only for the purposes herein set
forth.
32. INTERPRETATION: All provisions hereof, whether covenants or
conditions, on the part of Tenant shall be deemed to be both covenants and
conditions. The unenforceability, invalidity, or illegality of any provision
hereof shall not render the other provisions unenforceable, invalid or illegal.
The paragraph captions of this Lease are for ease of reference only and shall
have no effect on its interpretation. Where required by the context hereof, the
singular shall include the plural and the neuter shall include the masculine and
feminine.
33. CONDITION OF PREMISES: Landlord will deliver the Premises to Tenant
in a broom clean condition. Tenant understands and agrees that it is leasing the
Premises in an "As Is, Where Is" condition and that Landlord has not agreed to
make any leasehold improvements to the Premises. Landlord has made no structural
report with respect to the condition of the Premises nor has Landlord made any
investigation with respect to the presence of asbestos or other toxic substances
on the Premises, and Landlord makes no representation with respect thereto.
Tenant acknowledges that to the extent Tenant wishes any such investigation or
report to be made, Tenant will undertake the same at Tenant's expense.
34. TENANT'S EXPANSION REQUIREMENTS: Landlord will endeavor to work with
tenants to accommodate Tenant's expansion requirements.
35. POSSESSION: It is Landlord's intention to deliver possession of the
Premises to Tenant upon vacation of the same by the present tenant, with the
Commencement Date (for purposes of beginning the rent abatement period, and
thereafter for the payment of rent) being no later than June 1, 1999. Should
Landlord be unable to deliver possession of the Premises at the Commencement
Date provided herein, Landlord will not be liable for any damage caused by the
delay nor will this Lease be void or voidable, but Tenant will not be liable for
any rent until possession is delivered. Tenant may terminate this Lease if
possession is not delivered by July 1, 1999.
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<PAGE> 9
36. TAX INCREASES: In the event there is any increase during any year of
the term of this Lease in real property taxes on the land and building in which
the Premises are situated over and above the amount of such taxes assessed for
the tax year during which the term of the Lease commences, Tenant will pay to
Landlord an amount equal to 44.8% of the increase in such taxes. In the event
such taxes are assessed for a tax year extending beyond the Lease term, the
obligation of Tenant will be prorated.
37. RENT TAXES: Tenant shall reimburse Landlord for all occupation
taxes, gross receipts taxes or similar taxes (other than taxes on net income)
assessed on or measured by the rentals paid to Landlord hereunder.
38. ENTIRE AGREEMENT: This Lease constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior and
contemporaneous oral or written agreements, understandings, representations and
negotiations with respect thereto. This Lease may be modified only by an
agreement in writing executed by all parties.
IN WITNESS WHEREOF these presents are executed as of the date first
above written.
"Tenant" "Landlord"
Pets.com The Paulsen Family Partnership
/s/ Julie Wainwright /s/ Alice H. Paulsen
- ------------------------------ -------------------------------
CEO Alice H. Paulsen
- ------------------------------ -------------------------------
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<PAGE> 10
AMENDMENT TO COMMERCIAL LEASE
This Amendment to Commercial Lease ("Amendment") is entered into as of
June 1, 1999 (the "Effective Date"), by and between The Paulsen Family
Partnership (hereinafter called "Landlord") and Pets.com, a California
corporation (hereinafter called "Tenant). Now, therefore, it is agreed:
Recitals
A. Landlord and Tenant are parties to that certain Lease of Commercial
Space ("Lease") covering a portion of the ground floor containing approximately
fifteen thousand (15,000) rentable square feet in the building located in the
City and County of San Francisco commonly known as 435 Brannan Street. Said
Lease commenced on June 1 ,1999.
B. Landlord has available for lease, and Tenant desires to lease, suite
200 in said 435 Brannan Street building, consisting of approximately two
thousand (2,000) rentable square feet located on the second floor as set forth
in Exhibit A ("Amendment Space"). The square footage indicated herein is
approximate only, and the rent provided in this Amendment shall not be adjusted
by reason of the fact the actual square footage leased pursuant to this
Amendment is more or less than the indicated square footage.
C. The Amendment Space, and the rent payable pursuant to this Amendment
shall be a part of, and shall be governed by the terms and conditions of the
Lease, except as otherwise set forth in this Amendment. The rent adjustment
dates provided for in paragraph 1 below shall be the same dates as the rent
adjustment dates for the Base Rent under the Lease. This lease for the Amendment
Space shall be co-terminus with the termination date of the Lease. Except for
the first period of the Amendment Space lease term and the rent payable for the
Amendment Space, all of the terms and conditions of the Lease shall be fully
applicable to the Amendment Space.
Agreement
NOW THEREFORE it is agreed as follows:
1. All of the above recitals are incorporated into this Amendment.
2. On or before the Effective Date, Landlord shall deliver possession of
the Amendment Space to Tenant.
<PAGE> 11
3. Commencing on the Effective Date, and subject to the terms of the
Lease, Tenant agrees to pay as base rent for the Amendment Space the rent
indicated in the following chart. Base rent shall be an annual per square foot
rental of [*] with annual [*] increases. The first month's rent of [*] is due
upon execution of the Amendment.
<TABLE>
<CAPTION>
PERIOD RENT MONTHLY INSTALLMENTS
------ ---- --------------------
<S> <C> <C>
Balance of first year under ground floor Lease [*] per rsf per month [*]
Year 2 [*] per rsf per month [*]
Year 3 [*] per rsf per month [*]
</TABLE>
4. Except as otherwise set forth in this Amendment, all of the terms and
conditions of the Lease, including, but not limited to the Lease termination
date, apply to this Amendment as if the same were fully set forth herein.
IN WITNESS WHEREOF, the parties have executed this Amendment to Lease as
of the day and year first above written.
"Tenant" "Landlord"
Pets.com Paulsen Family Partnership
By /s/ Julie Wainwright By /s/ Alice H. Paulsen
---------------------------- --------------------------------
By By
---------------------------- --------------------------------
*CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 12
SECOND AMENDMENT TO COMMERCIAL LEASE
This Second Amendment to Commercial Lease ("Second Amendment") is
entered into as of October 1, 1999 (the "Effective Date"), by and between The
Paulsen Family Partnership (hereinafter called "Landlord") and Pets.com, a
California corporation (hereinafter called "Tenant). Now, therefore, it is
agreed:
Recitals
A. Landlord and Tenant are parties to that certain Lease of Commercial
Space ("Lease") covering a portion of the ground floor containing approximately
fifteen thousand (15,000) rentable square feet in the building located in the
City and County of San Francisco commonly known as 435 Brannan Street ("the
Property"). Said Lease commenced on June 1, 1999.
B. Landlord and Tenant are parties to that certain Amendment to
Commercial Lease ("Amendment") through which the parties added Suite 200 in
said 435 Brannan Street building, consisting of approximately two thousand
(2,000) rentable square feet located on the second floor of the Property. The
effective date of the Amendment is June 1, 1999. The space covered by the Lease
and the Amendment is referred to herein as the Premises.
C. In connection with certain leasehold improvements which Tenant is
making to the Premises, the applicable governmental authority is requiring
certain changes to the building common area in order to comply with applicable
codes, statutes and regulations, including, but not limited to, the requirements
of the Americans with Disabilities Act. Tenant is willing to make said changes
at Tenant's sole cost and expense, but only if Landlord will grant Tenant an
option to extend the term of Tenant's Lease of the Premises for an additional
two (2) years and if Landlord will make certain other adjustments to the terms
of the Lease.
D. Tenant desires to add suite 207 on the second floor of the building
in which the Premises are located and Landlord is willing to lease said suite to
Tenant at a rental rate of [*] per month. The total rent payable under the Lease
will be increased by this monthly amount. Tenant shall have the right to
surrender suite 207 upon sixty (60) day's written notice to Landlord. Upon
surrender of suite 207 the total rent due under the Lease will be reduced by the
then applicable rent for said space. The rent for suite 207 will increase by
three percent [*] per year adjusted on the first anniversary of the original
Lease and on each anniversary thereafter.
Agreement
NOW THEREFORE it is agreed as follows:
1. All of the above recitals are incorporated into this Second
Amendment.
2. On condition that Tenant is not in default in the performance of any
of the terms and conditions of the Lease, either at the time of exercise or at
the time of the commencement of the option term, Landlord grants to Tenant the
option ("Option") to extend the term of Tenants Lease of the Premises for a
period of two (2) years, on the following terms and conditions.
a. Tenant shall give Landlord written notice of its election to
exercise this Option not less then nine (9) months prior to the commencement of
the Option term.
*CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 13
b. The rent for the period of the first year of the option term
shall be a three percent [*] per annum increase over the rent paid by Tenant
during the last year of the original Lease term. The rent for the period of the
second year of the Option term shall be a three percent [*] per annum increase
over the rent paid by Tenant during the first year of the Option term, as
reflected in the following table:
<TABLE>
<CAPTION>
Period Rent Monthly Installments
------ ---- --------------------
<S> <C> <C>
Year 1 of Option term [*] per rsf per month [*]
ground floor, [*]
per rsf per month for suite 200 on the second floor and
[*] per month for suite 207 on the second floor, Industrial
gross
Year 2 of Option term [*] per rsf per month [*]
ground floor, [*]
per rsf per month for suite 200 on the second floor and
[*] per month for suite 207 on the second floor, Industrial
gross
</TABLE>
3. The third sentence of Paragraph 4 of the Lease, which presently reads
as follows:
"If Tenant wishes to sublet or assign the Lease and the remaining balance of the
term is less than two years, then Landlord may terminate the Lease and recapture
the space by giving written notice to Tenant with in 30 days of Tenant's request
to sublet or assign, except for assignments related to a merger or acquisition,
or a sublease to a related entity."
hereby is deleted in its entirety.
The last paragraph of Paragraph 4 of the Lease is amended to
read, in its entirety, as follows:
"If, with Landlord's consent, Tenant assigns any interest in this Lease or
sublets all or any portion of the Premises, any excess of the amounts received
by Tenant for such assigned or sublet space over the amounts paid by Tenant with
respect to such space as detailed on Exhibit A hereto and any leasing
commissions and attorney's fees for new subtenant or assignee paid by Tenant,
shall be shared equally by Tenant and Landlord."
A new paragraph is added at the end of Paragraph 4 of the Lease,
which new paragraph reads as follows:
"Notwithstanding anything to the contrary in this Lease, Tenant may, without
Landlord's prior written consent and without any participation by Landlord in
assignment or subletting proceeds, sublet the Premises or assign the Lease to
(a) a subsidiary, affiliate, division or corporation
*CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 14
controlling, controlled by or under common control with Tenant; (b) a successor
corporation related to Tenant by merger, consolidation, nonbankruptcy
reorganization, or government action; of (c) a purchaser of substantially all of
Tenant's assets located in the Premises. The above is referenced hereafter as
"Permitted Transfer". For purposes of this Lease, sale of Tenant's capital stock
through any public exchange or issuance for purposes of raising capital shall
not be deemed an assignment, subletting or any other transfer of the Lease of
the Premises."
4. Except as otherwise set forth in this Second Amendment, during the
Option term all of the terms and conditions of the Lease, including, but not
limited to, the provisions relating to Additional Rent, Late Payments,
Insurance, Utilities, Security Deposit, Holding Over, Tax Increases and Rent
Taxes, shall apply to this Second Amendment as if the same were fully set forth
herein. Where applicable, the base year from which any payment increases are to
be measured shall continue to be 1999.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Lease as of the day and year first above written.
"Tenant" "Landlord"
Pets.com, Inc. Paulsen Family Partnership
By /s/Julie Wainwright CEO By /s/ A. R.Paulsen
----------------------------- -------------------------------
By By Alice H. Paulsen
----------------------------- -------------------------------
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<PAGE> 16
ROOFTOP SATELLITE DISH LICENSE AGREEMENT
This Rooftop Satellite Dish License Agreement ("Agreement') is made as
of the 28th day of May, 1999 by and between The Paulsen Family Partnership
("Landlord") and pets.com ("Tenant") with reference to the following:
Recitals
A. Landlord and Tenant have entered into that certain Lease of
Commercial Space dated April 8, 1999, relating to a portion of the building
commonly known as 435 Brannan Street, San Francisco, California (the "Lease").
B. Notwithstanding the provisions of Section 15 of the Lease (reserving
to Landlord exclusive right to use and control the roof, side front and rear
walls of the building in which the Premises are located), Landlord is willing to
grant to Tenant the right to install, operate and maintain a rooftop satellite
dish ("Satellite Dish") on the 435 Brannan Street building, subject, however, to
the terms and conditions of this Agreement.
C. Tenant understands that the installation, operation and maintenance
of the Satellite Dish may expose the Landlord to liability by reason of, but not
limited to, the following: (i) injury to persons or property if the Satellite
Dish or any of the installation brackets, bolts, wires or other fixtures or
fastenings used to secure the same should become dislodged during installation,
maintenance, removal, or by reason of weather conditions or otherwise; (ii)
injury to workers and their property, vehicles or equipment, during the
installation, maintenance or removal of the Satellite Dish, if said workers
should fall, drop tools or materials, or otherwise; (iii) damage to the building
by reason of (aa) the temporary or permanent installation of ladders, hoists,
scaffolding, or other means of access to the roof, (bb) damage to the roof by
reason of roof, penetrations for the mounting, securing or other fastening of
the Satellite Dish to the structure, (cc) damage to the building or its contents
(whether belonging to the Landlord, the Tenant or other Tenants, customers,
employees or invitees of Landlord or any building tenant) because of water, air,
dust or other elements which flow, seep or pass through roof penetrations made
to secure the Satellite Dish to the building.
NOW THEREFORE, IT IS AGREED:
1. During the term of Tenant's Lease, Landlord hereby grants to Tenant
permission to install, operate and maintain one (1) rooftop Satellite Dish on
the building at 435 Brannan Street, San Francisco, California, all as more
particularly described on Exhibit A attached hereto and made a part hereof.
2. Tenant shall not be required to pay additional rent or a license fee
in conjunction with the license granted herein.
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<PAGE> 17
3. Tenant, for itself, its owners, officers, directors, agents,
successors and assigns hereby agrees to indemnify, hold harmless and defend
Landlord and Landlord's current and former officers, shareholders, members,
agents, employees, successors and assigns ("Indemnified Parties") from any and
all claims, demands, liabilities, actions, causes of action or costs, including,
but not limited to, attorneys' fees and expenses arising out of or in any way
connected with the installation, operation, maintenance and/or removal of said
Satellite Dish, together with attorneys' fees and costs incurred in the
preparation of this Agreement in an amount not to exceed $250.
4. Upon expiration or earlier termination of Tenant's Lease, or upon
Landlord's earlier written demand, Tenant shall cause the Satellite Dish to be
removed from the building and all damage caused thereby to be repaired.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"Landlord" "Tenant"
The Paulsen Family Trust Pets.com.
By /s/ A. R. Paulsen By /s/ Julie Wainwright
----------------------------- -------------------------------
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<PAGE> 1
EXHIBIT 10.26
INDUSTRIAL REAL ESTATE SUBLEASE
(MULTI-TENANT FACILITY)
This Agreement constitutes a sublease of a portion of the premises at
33201 Dowe Avenue, Union City, California (the "Property"), between National
Distribution Agency, Inc., a Delaware corporation ("Landlord or Sublessor"), and
Pets.com, Inc., a California corporation ("Tenant" or "Sublessee"), for (the
"Lease" or the "Sublease"). This Lease is subject to that certain lease between
Landlord as Lessee and Chino Pacific Warehouse Corporation as Lessor, dated
September 25, 1997, (the "Master Lease").
Landlord warrants and represents to Tenant that the Master Lease has
not been amended or modified except as expressly set forth herein, that Landlord
is not now, and as of the commencement of the Term hereof will not be, in
default or breach of any of the provisions of the Master Lease, and the Landlord
has no knowledge of any claim by the Master Lessor that Landlord is in default
or breach of any of the provisions of the Master Lease.
Tenant shall not commit or suffer any act or omission that will violate
any of the provisions of the Master Lease. Landlord shall exercise due diligence
in attempting to cause the Master Lessor to perform its obligations under the
Master Lease for the benefit of Tenant. If the Master Lease terminates this
Sublease shall terminate and the parties shall be relieved of any further
liability or obligation under this Sublease provided however, that if the Master
Lease terminates as a result of a default or breach by Landlord or Tenant under
this Sublease and/or the Master Lease, then the defaulting party shall be liable
to the non-defaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, if the Master Lease gives Landlord
any right to terminate the Master Lease in the event of the partial or total
damage, destruction, or condemnation of the Master Premises or the building or
project of which the Master Premises are a part, the exercise of such right by
Landlord shall not constitute a default or breach hereunder, provided that
Tenant receives a pro rata portion of any proceeds, or other remuneration, if
any, which Landlord receives as a result of such termination.
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: July 1, 1999.
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): National Distribution
Agency, Inc., a Delaware corporation, herein also known and sometimes described
as Sublessor. Address of Landlord: c/o 528 Arizona Avenue, Suite 206, Santa
Monica, CA 90401-1437.
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): Pets.com, a California
corporation, herein also known and sometimes described as Sublessee herein.
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<PAGE> 2
Address of Tenant:
Section 1.04 PROPERTY: The Property leased hereunder is part of a
multi-tenant real property leased to Landlord under the Master Lease, and
described or depicted in Exhibit "A". The premises comprise the total property
and includes the land, the buildings and all other improvements located on the
land, and the common areas described in Paragraph 4.05(a), (the "Project"). The
leased Property is located at 33201 Dowe Avenue, Union City, California, and
includes 73,920 square feet of warehouse space, and 4,800 square feet of office
space in the Southeastern portion of the Project, as more fully reflected in
Exhibit "A", and outlined in red.
Section 1.05. LEASE TERM: Five (5) years and one and one-half (1 1/2)
months BEGINNING ON July 1, 1999, or such other date as specified in this Lease,
and ENDING ON August 14, 2004. Tenant shall pay no Base Rent for the period July
1, 1999 to August 14, 1999. During this free rent period, Tenant shall be
obligated to pay its pro rata share of taxes, insurance, maintenance and
utilities. In addition, Tenant shall have one Option to Renew, as more fully
provided in Rider No. 3, attached and incorporated herein by reference.
Section 1.06. PERMITTED USES: (See Article Five)
Warehousing and storage of Pets.com, or its affiliates, products, and
for no other purpose, without the prior or concurrent written consent of
Landlord.
Section 1.07. TENANT'S GUARANTOR: Not applicable.
Section 1.08. BROKERS: (See Article Fourteen)
Landlord's Broker: Colliers International
Tenant's Broker: GVA Beitler.
Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) Per separate agreement with Landlord.
Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) [*].
LETTER-OF-CREDIT: [*]. Provided the Sublessee is not in
default of the Sublease, the Letter-of-Credit shall be reduced to [*], as of
August 14, 2000. As of August 14, 2001, the Letter-of-Credit shall no longer be
on deposit with the Landlord.
Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: (See Section
4.05) Thirty (30) unassigned parking spaces.
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* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 3
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT:
<TABLE>
<CAPTION>
RATE PER SQ. FT. AMOUNT
MONTHS PER MO. PER MO.
------ ------- -------
<S> <C> <C>
July 1 - Aug. 14, 1999 Free rent
Aug. 15, 1999 - April 14, 2001 [*] psf/mth/nnn
April 15, 2001 - Dec. 14, 2002 Annual minimum CPI (All Consumers
S.F. Bay Area) increase of [*];
annual maximum CPI (All Consumers
S.F. Bay Area) of [*] over base
rental rate in months 1 - 20.
Dec. 15, 2002 - Aug. 14, 2004 Annual Minimum CPI (All Consumers
S.F. Bay Area) increase of [*];
annual maximum CPI (All Consumers
S.F. Bay Area) of [*] over base
rental rate in months 21 - 40.
</TABLE>
The rents payable hereunder are more fully set forth in Lease
Rider No. 1 attached and incorporated herein by reference, and
as referred to in Lease Rider No. 2, also attached and
incorporated herein by reference.
In the event that Landlord is in default under the Master Lease and either
Landlord or Tenant receive notice of such default from the Master Lessor under
the Master Lease, Tenant shall have the right (without any obligation to do so),
to pay rent provided in this section, and all other sums due Landlord hereunder,
which Landlord is obligated to pay directly to the Master Lessor.
(a) OTHER PERIODIC PAYMENTS INCLUDED AS RENT : (i) Real Property
Taxes (See Section 4.02); (ii) Utilities (See Section 4.03);
(iii) Insurance Premiums (See Section 4.04); (iv) Tenant's
Initial Pro Rata Share of Common Area Expenses (25.67%) (See
Section 4.05); (v) Impounds for Insurance Premiums and
Property Taxes (See Section 4.08); (vi) Maintenance, Repairs
and Alterations (See Article Six).
Section 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE:
(See Section 9.05) seventy percent (70%) of the Profit (the "Landlord's Share").
Section 1.14. RIDERS: The following Riders are attached to and made a
part of this Lease:
Rider No. 1 - Base Rent Schedule
Rider No. 2 - Tenant Improvement Allowance
Rider No. 3 - Options to Renew
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is
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<PAGE> 4
for the period stated in Section 1.05 above and shall begin and end on the dates
specified in Section 1.05 above, unless the beginning or end of the Lease Term
is changed under any provision of this Lease. The "Commencement Date" shall be
the date specified in Section 1.05 above for the beginning of the Lease Term,
unless advanced or delayed under any provision of this Lease.
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-deliver of the Property to Tenant on that date
shall not affect this Lease or the obligations of Tenant under this Lease except
that the Commencement Date shall be delayed until Landlord delivers possession
of the Property to Tenant and the Lease Term shall be extended for a period
equal to the delay in delivery of possession of the Property to Tenant, plus the
number of days necessary to end the Lease Term on the last day of a month. If
Landlord does not deliver possession of the Property to Tenant within sixty (60)
days after the Commencement Date, Tenant may elect to cancel this Lease by
giving written notice to Landlord within ten (10) days after the sixty (60) day
period ends. If Tenant gives such notice, the Lease shall be cancelled and
neither Landlord nor Tenant shall have any further obligations to the other. If
Tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and expiration date of the
Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent in effect shall be
increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance within five (5) business days after the
commencement of each month, without offset, deduction or prior demand. The
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Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
Section 3.02. COST OF LIVING INCREASE. The Base Rent shall be increased
on each date (the "Rental Adjustment Date") subject to Paragraph 1.12(a) above
in accordance with the increase in the United States Department of Labor, Bureau
of Labor Statistics, Consumer Price Index for All Urban Consumer (all items for
the geographical Statistical Area in which the Property is located on the basis
of 1982-1984 = 100) (the "Index") as follows:
(a) The Base Rent (the "Comparison Base Rent") in effect
immediately before each Rental Adjustment Date shall be
increased by the percentage that the Index has increased from
the date (the "Comparison Date') on which payment of the
Comparison Base Rent began through the month in which the
applicable Rental Adjustment Date occurs. The Base Rent began
through the month in which the applicable Rental Adjustment
Date occurs. The Base Rent shall not be reduced by reason of
such computation. Landlord shall notify Tenant of each
increase by a written statement which shall include the Index
for the applicable Comparison Date, the Index for the increase
in the Base Rent provided for in this Section 3.02 shall be
subject to any minimum or maximum increase, if provided for in
Paragraph 1.12(a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date.
Landlord's notice may be given after the applicable Rental
Adjustment Date of the increase, and Tenant shall pay Landlord
the accrued rental adjustment for the months elapsed between
the effective date of the increase and Landlord's notice of
such increase within ten (10) days after Landlord's notice. If
the format or components of the Index are materially changed
after the Commencement Date, Landlord shall substitute an
index which is published by the Bureau of labor Statistics or
similar agency and which is most nearly equivalent to the
Index in effect on the Commencement Date. The substitute index
shall be used to calculate the increase in the Base Rent
unless Tenant objects to such index in writing within fifteen
(15) days after receipt of Landlord's notice. If Tenant
objects, Landlord and Tenant shall submit the selection of the
substitute index for binding arbitration in accordance with
the rules and regulations of the American Arbitration
Association at its office closest to the Property. The costs
of arbitration shall be borne equally by Landlord and Tenant.
Section 3.03. SECURITY DEPOSIT; INCREASES.
(a) Upon the execution of this Lease, Tenant shall deposit with
Landlord a cash Security Deposit in the amount set forth in
Section 1.10 above. Landlord may apply all or part of the
Security Deposit to any unpaid rent or other charges due from
Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit, Tenant shall restore
the Security Deposit to its fully amount within ten (10) days
after Landlord's written request. Tenant's failure to do so
shall be a material default under this Lease. No interest
shall be paid on the
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<PAGE> 6
Security Deposit. Landlord shall not be required to keep the
Security Deposit separate from its other accounts and no trust
relationship is created with respect to the Security Deposit.
Section 3.04. TERMINATION; ADVANCE PAYMENT. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord, and any amounts paid for real property taxes and other reserves which
apply to any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes
on the Property (including any fees, taxes or assessments
against, or as a result of, any tenant improvements installed
on the Property by or for the benefit of Tenant) during the
Lease Term. Subject to Paragraph 4.02(c) and Section 4.08
below, such payment shall be made at lease ten (10) days prior
to the delinquency date of the taxes. Within such ten (10) day
period, Tenant shall furnish Landlord with satisfactory
evidence that the real property taxes have been paid. Landlord
shall reimburse Tenant for any real property taxes paid by
Tenant covering any period prior to or after the Lease Term.
If Tenant fails to pay the real property taxes when due,
Landlord may pay the taxes and Tenant shall reimburse Landlord
for the amount of such tax payments as Additional rent.
(b) DEFINITION OF "REAL PROPERTY TAX". "Real property tax" means:
(i) any fee, license fee, license tax, business license fee,
commercial rental tax, levy, charge, assessment, penalty or
tax imposed by any taxing authority against the Property; (ii)
any tax on the Landlord's right to receive, or the receipt of,
rent or income from the Property or against Landlord's
business of leasing the Property; (iii) any tax or charge for
fire protection, streets, sidewalks, road maintenance, refuse
or other services provided to the Property by any governmental
agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of
ownership, as defined by applicable law, or other transfer of
all or part of Landlord's interest in the Property; and (v)
any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does
not, however, include Landlord's federal or state income,
franchise, transfer, inheritance or estate taxes.
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(c) JOINT ASSESSMENT. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the real
property tax payable by Tenant under Paragraph 4.02(a) from
the assessor's worksheets or other reasonably available
information. Tenant shall pay such share to Landlord within
fifteen (15) days after receipt of Landlord's written
statement. Tenant's share of such real property tax shall be
25.67% of the total amount assessed on the Project, based on
the total square footage occupied at the time of the execution
of this Sublease, divided by the total square footage of the
premises (78,720 square feet / 306,650 square feet = 25.67%).
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other
personal property belonging to Tenant. Tenant shall
try to have personal property taxed separately from
the Property.
(ii) If any of Tenant's personal property is taxed with
the Property, Tenant shall pay Landlord the taxes for
the personal property within fifteen (15) days after
Tenant receives a written statement from Landlord for
such personal property taxes.
Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay its share to Landlord within fifteen (15) days after receipt of Landlord's
written statement. Tenant's share of such non-jointly metered costs shall be
25.67% of the total charged to the Project, based on the square footage occupied
by Tenant at the time of the execution of this Sublease.
Section 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance
(sometimes known as broad form comprehensive general liability
insurance) insuring Tenant against liability for bodily
injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or
occupancy of the Property. Tenant shall name Landlord as an
additional insured under such policy. The initial amount of
such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based
upon inflation, increased liability awards, recommendation of
Landlord's professional insurance advisers and other relevant
factors. The liability insurance obtained by Tenant under this
Paragraph 4.04(a) shall be (i) primary and non-contributing;
(ii) contain cross-liability endorsements; and (iii) insure
Landlord against Tenant's performance under Section 5.05, if
the matters giving rise to the indemnity under Section 5.05
result from the negligence
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<PAGE> 8
of Tenant. The amount and coverage of such insurance shall not
limit Tenant's liability nor relieve Tenant of any other
obligation under this Lease. Landlord may also obtain
comprehensive public liability insurance in an amount and with
coverage determined by Landlord insuring Landlord against
liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord
shall not be contributory and shall not provide primary
insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of
or damage to the Property in the full amount of its
replacement value. Such policy shall contain an Inflation
Guard Endorsement and shall provide protection against all
perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, special extended
perils (all risk), sprinkler leakage and any other perils
which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required
by any lender holding a security interest in the Property.
Landlord shall not obtain insurance for Tenant's fixtures or
equipment or building improvements installed by Tenant on the
Property. During the Lease Term, Landlord shall also maintain
a rental income insurance policy, with loss payable to
Landlord, in an amount equal to one year's Base Rent, plus
estimated real property taxes and insurance premiums. Tenant
shall be liable for the payment of any deductible amount under
Landlord's or Tenant's insurance policies maintained pursuant
to this Section 4.04, in an amount not to exceed Five Thousand
Dollars ($5,000). Tenant shall not do or permit anything to be
done which invalidates any such insurance policies.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.08, Tenant shall pay
all premiums for the insurance policies described in
Paragraphs 4.04(a) and (b) (whether obtained by Landlord or
Tenant) within fifteen (15) days after Tenant's receipt of a
copy of the premium statement or other evidence of the amount
due, except Landlord shall pay all premiums for non-primary
comprehensive public liability insurance which Landlord elects
to obtain as provided in Paragraph 4.04(a). For insurance
policies maintained by Landlord which cover improvements on
the entire Project, Tenant shall pay Tenant's pro rata share
of the premiums, in accordance with the formula in Paragraph
4.05(e) for determining Tenant's share of Common Area costs.
If insurance policies maintained by Landlord cover
improvements on real property other than the Project, Landlord
shall deliver to Tenant a statement of the premium applicable
to the Property showing in reasonable detail how Tenant's
share of the premium was computed. If the Lease Term expires
before the expiration of an insurance policy maintained by
Landlord, Tenant shall be liable for Tenant's pro rata share
of the insurance premiums. Before the Commencement Date,
Tenant shall deliver to Landlord a copy of any policy of
insurance which Tenant is required to maintain under this
Section 4.04. At least thirty (30) days prior to the
expiration of any such policy, Tenant shall deliver to
Landlord a renewal of such policy. As an alternative to
providing a policy of insurance, Tenant shall have the right
to provide Landlord a certificate of insurance, executed by an
authorized officer of the insurance company, showing
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<PAGE> 9
that the insurance which Tenant is required to maintain under
this Section 4.04 is in full force and effect and containing
such other information which Landlord reasonably requires.
(d) GENERAL PROVISIONS.
(i) Any insurance which Tenant is required to maintain
under this Lease shall include a provision which
requires the insurance carrier to give Landlord not
less than thirty (30) days' written notice prior to
any cancellation or decrease of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within
the prescribed time period of if any such policy is
cancelled or modified during the Lease Term without
Landlord's consent, landlord may obtain such
insurance, in which case Tenant shall reimburse
Landlord for the cost of such insurance within twenty
(20) days after receipt of a statement that indicates
the cost of such insurance.
(iii) Tenant shall maintain all insurance required under
this Lease with companies holding a "General
Policyholders Rating of at least B+, V, or such other
rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current
issue of "Best's Insurance Guide." Landlord and
Tenant acknowledge the insurance markets are rapidly
changing and that insurance in the form and amounts
described in this Section 4.04 may not be available
in the future. Tenant acknowledges that the insurance
described in this Section 4.04 is for the primary
benefit of Landlord. If at any time during the Lease
Term, Tenant is unable to maintain the insurance
required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and
commercially reasonable in the insurance industry for
Tenant's type of business, as that coverage may
change from time to time. Landlord makes no
representation as to the adequacy of such insurance
to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional
property or liability insurance which Tenant deems
necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby
waive any and all rights of recovery against the
other, or against the officers, employees, agents or
representatives of the other, for loss of or damage
to its property or the property of others under its
control, if such loss or damage is covered by any
insurance policy in force (whether or not described
in this Lease) at the time of such loss or damage.
Upon obtaining the required policies of insurance,
Landlord and Tenant shall give notice to the
insurance carriers of this mutual waiver of
subrogation.
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Section 4.05. COMMON AREAS; USE, MAINTENANCE AND COSTS.
(a) COMMON AREAS. As used in this Lease, "Common Areas" shall mean
all areas within the Project which are available for the
common use of tenants of the Project and which are not leased
or held for the exclusive use of Tenant or other tenants,
including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping
and planted areas. Landlord, from time to time, may change the
size, location, nature and use of any of the Common Areas into
leaseable areas, construct additional parking facilities
(including parking structures) in the Common Areas, and
increase or decrease Common Area land and/or facilities.
Tenant acknowledges that such activity may result in
inconvenience to Tenant. Such activities and changes are
permitted if they do not materially affect Tenant's use of the
Property.
(b) USE OF COMMON AREAS. Tenant shall have the nonexclusive right
(in common with other tenants and all others to whom Landlord
has granted or may grant such rights) to use the Common Areas
for the purposes intended, subject to such reasonable rules
and regulations as Landlord may establish from time to time.
Tenant shall abide by such rules and regulations and shall use
its best effort to cause others who use the Common Areas with
Tenant's express or implied permission to abide by Landlord's
rules and regulations. At any time, Landlord may close any
Common Areas to perform any acts in the Common Area as, in
Landlord's judgment, are desirable to improve the Project.
Tenant shall not interfere with the rights of Landlord, other
tenants or any other person entitled to use the Common Areas.
(c) SPECIFIC PROVISION RE: VEHICLE PARKING. Tenant shall be
entitled to use the number of vehicle parking spaces in the
Project allocated to Tenant in Section 1.11 of the Lease
without paying any additional rent. Tenant's parking shall not
be reserved and shall be limited to vehicles no larger than
the standard size automobiles or pickup utility vehicles.
Tenant shall not cause large trucks or other large vehicles to
be parked within the Project or on the adjacent public
streets. Temporary parking of large delivery vehicles in the
Project may be permitted by the rules and regulations
established by the Landlord. Vehicles shall be parked only in
striped parking spaces and not in driveways, loading areas or
other locations not specifically designated for parking.
Handicapped spaces shall only be used by those legally
permitted to use them. If Tenant parks more vehicles in the
parking area than the number set forth in Section 1.11 of this
Lease, such conduct shall be a material breach of this Lease.
In addition to Landlord's other remedies under the Lease,
Tenant shall pay a daily charge determined by Landlord for
each additional vehicle.
(d) MAINTENANCE OF COMMON AREAS. Landlord shall maintain Common
Areas in good order, condition and repair and shall operate
the Project, in Landlord's sole discretion, as a first-class
industrial/commercial real property development. Tenant shall
pay Tenant's pro rata share (as determined below) of all costs
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incurred by Landlord for the operation and maintenance of the
Common Areas. Common Area costs include, but are not limited
to, costs and expenses for the following: gardening and
landscaping; utilities, water and sewage charges; maintenance
of signs (other than tenants' signs); premiums for liability,
property damage, fire and other types of casualty insurance on
the Common Areas and worker's compensation insurance; all
property taxes and assessments levied on or attributable to
the Common Area and all Common Area improvements; all personal
property taxes levied on or attributable to personal property
used in connection with the Common Areas; straight-line
depreciation on personal property owned by Landlord which is
consumed in the operation or maintenance of the Common Areas;
rental or lease payments paid by Landlord for rented or leased
personal property used in the operation or maintenance of the
Common Areas; fees for required licenses and permits;
repairing, resurfacing, repaving, maintaining, painting,
lighting, cleaning, refuse removal, security, underground
piping, fire sprinkler repair, and similar items; reserves for
roof replacement and exterior painting and other appropriate
reserves; and a reasonable allowance to Landlord for
Landlord's supervision of the Common Areas (not to exceed ten
percent (10%) of the common area costs, property tax and
insurance pass-through for the Project for the calendar year).
Landlord may cause any or all of such services to be provided
by third parties and the cost of such services shall be
included in Common Area costs. Common Area costs shall not
include depreciation of real property which forms part of the
Common Areas.
(e) TENANT'S SHARE AND PAYMENT. Tenant shall pay Tenant's annual
pro rata share of all Common Area costs (prorated for any
fractional month) upon notice from Landlord that such costs
are due and payable, and in any event prior to delinquency.
Tenant's pro rata share shall be calculated by dividing the
square footage area of the Property, as set forth in Section
1.04 of the Lease, by the aggregate square foot area of the
Project which is leased or held for lease by tenants, as of
the date on which the computation is made. Tenant's initial
pro rata share is set out in Paragraph 4.03. Any changes in
the Common Area costs and/or the aggregate area of the
Project, leased or held for lease during the Lease Term shall
be effective on the first day of the month after such change
occurs. Landlord may, at Landlord's election, estimate in
advance and charge to Tenant as Common Area costs, all
maintenance and repair costs for which Tenant is liable under
Section 6.04 of the Lease, and all other Common Area costs
payable by Tenant hereunder. At Landlord's election, such
statements of estimated Common Area costs shall be delivered
monthly, quarterly or at any other periodic intervals to be
designated by Landlord. Landlord may adjust such estimates at
any time based upon Landlord's experience and reasonable
anticipation of costs. Such adjustments shall be effective as
of the next rent payment date after notice to Tenant. Within
sixty (60) days after the end of each calendar year of the
Lease Term, Landlord shall deliver to Tenant a statement
prepared in accordance with generally accepted accounting
principles setting forth, in reasonable detail, the Common
Area costs paid or incurred by Landlord during the preceding
calendar year and Tenant's pro rata share. Upon receipt of
such statement, there shall be an
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adjustment between Landlord and Tenant, with payment to or
credit given by Landlord (as the case may be) so that Landlord
shall receive the entire amount of Tenant's share of such
costs and expenses for such period.
Section 4.06. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within five
(5) days after it becomes due, Tenant shall pay Landlord a late charge equal to
five percent (5%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.07. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.08. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES.
If requested by any ground lessor or lender to whom landlord has granted or may
hereafter grant a security interest in the Property, or if Tenant is more than
ten (10) days late in the payment of rent more than once in any consecutive
twelve (12) month period, Tenant shall pay Landlord a sum equal to one-twelfth
(1/12) of the annual real property taxes and insurance premiums payable by
Tenant under this Lease, together with each payment of Base Rent. Landlord shall
hold such payments in a non-interest bearing impound account. If unknown,
Landlord shall reasonably estimate the amount of real property taxes and
insurance premiums when due. Tenant shall pay any deficiency of funds in the
impound account to Landlord upon written request. If Tenant defaults under this
Lease, Landlord may apply any funds in the impound account to any obligation
then due under this lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of tenants of the Project, or which constitutes a nuisance or waste.
Tenant shall obtain and pay for all permits, including a Certificate of
Occupancy, required for Tenant's occupancy of the Property and shall promptly
take all actions necessary to comply with all applicable statues, ordinances,
rules, regulations,
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orders and requirements regulating the use by Tenant of the Property, including
the Occupational Safety and Health Act.
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Material. In no
event, however, shall Landlord be required to consent to the installation or use
of any storage tanks on the Property.
Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on
the Property without Landlord's prior written consent. Tenant shall not conduct
or permit any auctions or sheriff's sales at the Property.
Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising from:
(a) Tenant's use of the Property;
(b) The conduct of Tenant's business or anything else done or
permitted by Tenant to be done in or about the property,
including any contamination of the Property or any other
property resulting from the presence or use of Hazardous
Material caused or permitted by Tenant;
(c) Any breach or default in the performance of Tenant's
obligations under this Lease;
(d) Any misrepresentation or breach of warranty by Tenant under
this Lease; or
(e) Other acts or omissions of Tenant.
Tenant shall defend Landlord against any such cost, claim or liability at
Tenant's expense with counsel reasonably acceptable to Landlord, or at
Landlord's election, Tenant shall reimburse Landlord for any reasonable legal
fees or costs incurred by Landlord in connection with any such claim. As a
material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of
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Landlord's gross negligence or willful misconduct. As used in this Section, the
term "Tenant" shall include Tenant's employees, agents, contractors, and
invitees, if applicable.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an emergency. Landlord
may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property for
the full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS.
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and order. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not
be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from:
(a) Fire, steam, electricity, water, gas or rain;
(b) The breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause;
(c) Conditions arising in or about the Property or upon other
portions of the Project, or from other sources or places; or
(d) Any act or omission of any other tenant of the Project.
Landlord shall not be liable for any such damage or injury
even though the cause of or the means of repairing such damage
or injury are not accessible to Tenant.
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The provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.03. LANDLORD'S OBLIGATION.
(a) Except as provided in Article Seven (Damage or Destruction)
and Article Eight (Condemnation), Landlord shall keep the
following in good order, condition and repair: the
foundations, exterior walls and roof of the Property
(including painting the exterior surface of the exterior walls
of the property not more often than once every five (5) years,
if necessary) and all components of electrical, mechanical,
plumbing, heating and air conditioning systems and facilities
located in the Property which are concealed or used in common
by tenants of the Project. However, Landlord shall not be
obligated to maintain or repair window, doors, plate glass or
the interior surfaces of exterior walls. Landlord shall make
repairs under this Section 6.03 within a reasonable time after
receipt of written notice from Tenant of the need for such
repairs.
(b) Tenant shall pay or reimburse Landlord for all costs Landlord
incurs under Paragraph 6.03(a) above as Common Area costs as
provided for in Section 4.05 of the Lease. Tenant waives the
benefit of any statute in effect now or in the future which
might give Tenant the right to make repairs at Landlord's
expense or to terminate this Lease due to Landlord's failure
to keep the Property in good order, condition and repair.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 6.03, Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Tenant shall
keep all portions of the Property (including nonstructural,
interior, systems and equipment installed by Tenant) in good
order, condition and repair (including interior repainting and
refinishing, as needed). If any portion of the Property or any
system or equipment in the Property which Tenant is obligated
to repair cannot be fully repaired or restored, Tenant shall
promptly replace such portion of the Property or system or
equipment in the Property, regardless of whether the benefit
of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the
Lease Term (as such term may be extended by exercise of any
options), the useful life of such replacement shall be
prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Tenant shall maintain a preventive maintenance contract
providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and
air conditioning contractor, unless Landlord maintains such
equipment under Section 6.03 above. If any part of the
Property or the Project is damaged by any act or omission of
Tenant, Tenant shall pay Landlord the cost of repairing or
replacing such damaged property, whether or not Landlord would
otherwise be obligated to pay the cost of maintaining or
repairing such property. It is the
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intention of Landlord and Tenant that at all times Tenant
shall maintain the portions of the Property which Tenant is
obligated to maintain in an attractive, first-class and full
operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.04 at Tenant's sole expense. If Tenant fails to
maintain, repair or replace the Property as required by this
Section 6.04, Landlord may, upon ten (10) days' prior notice
to Tenant (except that no notice shall be required in the case
of an emergency), enter the Property and perform such
maintenance or repair (including replacement, as needed) on
behalf of Tenant. In such case, Tenant shall reimburse
Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written
consent, except for non-structural alterations which do not
exceed Ten Thousand Dollars ($10,000) in cost cumulatively
over the Lease Term and which are not visible from the outside
of the building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
completion bonds in form and amount satisfactory to Landlord.
Tenant shall promptly remove any alterations, additions, or
improvements constructed in violation of this Paragraph
6.05(a) upon Landlord's written request. All alterations,
additions, and improvements shall be done in a good and
workmanlike manner, in conformity with all applicable laws and
regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord
with "as built" plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least
twenty (20) days' prior written notice of the commencement of
any work on the Property, regardless of whether Landlord's
consent to such work is required. Landlord may elect to record
and post notices of non-responsibility on the Property.
Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination fo the Lease, except Tenant may
remove any of Tenant's machinery or equipment which can be
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removed without material damage to the Property. Tenant shall repair, at
Tenant's expense, any damage to the Property caused by the removal of any such
equipment. In no event, however, shall Tenant remove any of the following
materials or equipment (which shall be deemed Landlord's property) without
Landlord's prior written consent: any power wiring or power panels; lighting or
lighting fixtures; wall coverings; drapes, blinds or other window coverings;
carpets or other floor coverings; heaters, air conditioners or any other heating
or air conditioning equipment; fencing or security gates; or other similar
building operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is
only partially damaged (i.e., less than fifty percent (50%) of
the Property is untenantable as a result of such damage or
less than fifty percent (50%) of Tenant's operations are
materially impaired) and if the proceeds received by Landlord
from the insurance policies described in Paragraph 4.04(b) are
sufficient to pay for the necessary repairs, this Lease shall
remain in effect and Landlord shall repair the damage as soon
as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures,
equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, of if the cause
of damage is not covered by the insurance policies which
Landlord maintains under Paragraph 4.04(b), Landlord may elect
either to (i) repair the damage as soon as reasonably
possibly, in which case this Lease shall remain in full force
and effect, or (ii) terminate this Lease as of the date the
damage occurred. Landlord shall notify Tenant within thirty
(30) days after receipt of notice of the occurrence of the
damage whether Landlord elects to repair the damage or
terminate the Lease. If Landlord elects to repair the damage,
Tenant shall pay Landlord Tenant's pro rata share of the
"deductible amount" (if any) under Landlord's insurance
policies and, if the damage was due to an act or omission of
Tenant, or Tenant's employees, agents, contractors or
invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord
elects to terminate this Lease, Tenant may elect to continue
this Lease in full force and effect, in which case Tenant
shall repair any damage to the Property and any building in
which Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such
repairs, Landlord shall deliver to Tenant any insurance
proceeds received by Landlord for the damage repaired by
Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's
termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more
than thirty (30) days to repair, either
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Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any
insurance proceeds. The party electing to terminate this Lease
shall give written notification to the other party of such
election within thirty (30) days after Tenant's notice to
Landlord of the occurrence of the damage.
Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed
or damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base rent, insurance premiums
and real property taxes. Except for such possible reduction in Base rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
other compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 7.04. WAIVER. Tenant waives the protection of any statute, code
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction of the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice ten (10) days
after the condemning authority takes title or possession). If neither Landlord
nor Tenant terminates this Lease, this Lease shall remain in effect as to the
portion of the Property not taken, except that the Base Rent and Additional
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Rent shall be reduced in proportion to the reduction in the floor area of the
Property. Any Condemnation award or payment shall be distributed in the
following order:
(a) First, to any ground lessor, mortgagee or beneficiary under a
deed of trust encumbering the Property, the amount of its
interest in the Property;
(b) Second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or
removable personal property; and
(c) Third to Landlord, the remainder of such award, whether as
compensation for reduction in the value of the leasehold, the
taking of the fee, or otherwise.
If this Lease is not terminated, Landlord shall repair any damage for which
Tenant has been reimbursed by the condemning authority. If the severance damages
received by Landlord are not sufficient to pay for such repair, Landlord shall
have the right to either terminate this Lease or make such repair at Landlord's
expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property
or of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than twenty percent
(20%) of the partnership interests shall require Landlord's consent. If Tenant
is a corporation, any change in the ownership of a controlling interest of the
voting stock of the corporation shall require Landlord's consent, unless the
change is due to a public offering of Tenant's capital stock.
Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release Tenant
or change Tenant's primary liability to pay the rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of rent from any
other person is not a waiver of any provision of this Article Nine. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's transferee
defaults under this Lease, Landlord may proceed directly against Tenant without
pursuing remedies against the transferee. Landlord may consent to subsequent
assignments or modifications of this Lease by Tenant's transferee, without
notifying Tenant or obtaining its consent. Such action shall not relieve
Tenant's liability under this Lease.
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Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease
or sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all terms and
provisions of the Lease governing termination shall apply. If Landlord does not
so elect, the Lease shall continue in effect until otherwise terminated and the
provisions of Section 9.05 with respect to any proposed transfer shall continue
to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in
Section 9.02 shall set forth in writing the details of the
proposed transfer, including the name, business and financial
condition of the prospective transferee, financial details of
the proposed transfer (e.g., the term of and the rent and
security deposit payable under any proposed assignment or
sublease), and any other information Landlord deems relevant.
Landlord shall have the right to withhold consent, if
reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or
subtenant and the proposed use of the Property; (ii) the net
worth and financial reputation of the proposed assignee or
subtenant; (iii) Tenant's compliance with all of its
obligations under the Lease; and (iv) such other factors as
Landlord may reasonably deem relevant. If Landlord objects to
a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may
nonetheless sublease (but not assign), all or a portion of the
Property to the proposed transferee, but only on the terms of
the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section
1.13) of the Profit (defined below) on such
transaction as and when received by Tenant, unless
Landlord gives written notice to Tenant and the
assignee or subtenant that Landlord's Share shall be
paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to
Tenant for such assignment or sublease, including
"key" money, monthly rent in excess of the monthly
rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease,
including fees under any collateral agreements, less
(B) costs and expenses directly incurred by Tenant in
connection with the execution and performance of such
assignment or sublease for real estate broker's
commissions, reasonable attorney's fees and costs of
renovation or construction of tenant improvements
required under such assignment or sublease. Tenant is
entitled to recover such costs and expenses before
Tenant is obligated to pay Landlord's Share to
Landlord. The Profit in the case of a sublease of
less than all the Property is the rent allocable to
the subleased space as a percentage on a square
footage basis.
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(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment
or sublease of the Property within thirty (30) days
after the transaction documentation is signed, and
landlord may inspect Tenant's books and records to
verify the accuracy of such statement. On written
request, Tenant shall promptly furnish to Landlord
copies of all transaction documentation, all of which
shall be certified by Tenant to be complete, true and
correct. Landlord's receipt of Landlord's Share shall
not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under
this Paragraph 9.05(b) shall be a material default of
the Lease.
Section 9.06. NO MERGER. No merger shall result from Tenant's sublease
of the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance
described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge within three
(3) business days from the date when due, and after written
notice from Landlord.
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days
after written notice from Landlord; provided that if more than
thirty (30) days are required to complete such performance,
Tenant shall not be in default if Tenant commences such
performance within the thirty (30) day period and thereafter
diligently pursues its completion. However, Landlord shall not
be required to give such notice if Tenant's failure to perform
constitutes a non-curable breach of this Lease. The notice
required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in
addition to any such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition
for adjudication of bankruptcy or for reorganization or
rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or
receiver is appointed to take possession of substantially all
of Tenant's assets located at the Property or of Tenant's
interest
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in this Lease and possession is not restored to Tenant within
thirty (30) days; or (iv) if substantially all of Tenant's
assets located at the Property or of Tenant's interest in this
Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a
court of competent jurisdiction determines that any of the
acts described in this subparagraph (d) is not a default under
this Lease, and a trustee is appointed to take possession (or
if Tenant remains a debtor in possession) and such trustee or
Tenant transfers Tenant's interest hereunder, then Landlord
shall receive, as Additional Rent, the excess, if any, of the
rent (or any consideration) paid in connection with such
assignment or sublease over the rent payable by Tenant under
this Lease.
(e) If any guarantor of this Lease revokes or otherwise
terminates, or purports to revoke or otherwise terminate, any
guaranty of all or any portion of Tenant's obligations under
this Lease. Unless otherwise expressly provided, no guaranty
of the Lease is revocable.
Section 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Property
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 (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other
charges which Landlord had earned at the time of the
termination; (ii) the worth at the time of the award of the
amount by which the unpaid Base rent, Additional Rent and
other charges which Landlord would have earned after
termination until the time of the award exceeds the amount of
such rental loss that Tenant proves Landlord could have
reasonably avoided; (iii) the worth at the time of the award
of the amount by which the unpaid Base Rent, Additional Rent
and other charges which Tenant would have paid for the balance
of the Lease term after the time of award exceeds the amount
of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations under the Lease
or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, any costs or
expenses Landlord incurs in maintaining or preserving the
Property after such default, the cost of recovering possession
of the Property, expenses of reletting, including necessary
renovation or alteration of th Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real
estate commission paid or payable. As used in subparts (i) and
(ii) above, the "worth at the time of the award" is computed
by allowing interest on unpaid amounts at the rate of fifteen
percent (15%) per annum, or such lesser amount as may then be
the maximum lawful rate. As used in subpart (iii) the "worth
at the time of the award" is computed by discounting such
amount at the discount rate of
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the Federal Reserve Bank of San Francisco at the time of the
award, plus one percent (1%). If Tenant has abandoned the
Property, Landlord shall have the option of (i) retaking
possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.03(a), or (ii)
proceeding under Paragraph 10.03(b);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has
abandoned the Property. 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;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the
Property is located.
Section 10.04. REPAYMENT OF "FREE" RENT. (INTENTIONALLY DELETED).
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defaulting
of any action in any bankruptcy court or other court with respect to the Lease;
the obtaining of relief from any stay in bankruptcy restraining any action to
evict Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust, mortgage encumbering
the Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lese shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien on its ground lease, deed of trust
or mortgage and gives written notice
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<PAGE> 24
thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed
of trust or mortgage whether this Lease is dated prior or subsequent to the date
of said ground lease, deed of trust or mortgage or the date of recording
thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, or purchaser
at a foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Property upon the transfer of Landlord's
interest.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
business days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement
certifying: (i) that none of the terms or provisions of this
Lease have been changed (or if they have been changed, stating
how they have been changed; (ii) that this Lease has not been
cancelled or terminated; (iii) the last date of payment of the
Base Rent and other charges and the time period covered by
such payment; (iv) that Landlord is not in default under this
Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with
respect to Tenant or the Lease as Landlord may reasonably
request or which any prospective purchaser or encumbrancer of
the Property may require. Tenant shall deliver such statement
to Landlord within ten (10) business days after Landlord's
request. Landlord may give any such statement by Tenant to any
prospective purchaser or encumbrancer of the Property. Such
purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such ten (10) business day period, Landlord and any
prospective purchaser or encumbrancer, may conclusively
presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has
not been cancelled or terminated except as otherwise
represented by Landlord; (iii) that not more than one month's
Base Rent or other charges have been paid in advance; and (iv)
that Landlord is not in default under the Lease. In such
event, Tenant shall be estopped from denying the truth of such
facts.
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<PAGE> 25
Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) business
days after written request from Landlord, Tenant shall deliver to Landlord such
financial statements as Landlord reasonably requires to verify the net worth of
Tenant or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant
shall deliver to any lender designated by Landlord any financial statements
required by such lender to facilitate the financing or refinancing of the
Property. Tenant represents and warrants to Landlord that each such financial
statement is a true and accurate statement as of the date of such statement. All
financial statements shall be confidential and shall be used only for the
purposes set forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and costs.
Tenant shall also indemnify Landlord against and hold Landlord harmless from all
costs, expenses, demands and liability Landlord may incur if Landlord becomes or
is made a party to any claims or action:
(a) Instituted by Tenant against any third party, or by any third
party against Tenant, or by or against any person holding any
interest under or using the Property by license of or
agreement with Tenant;
(b) For any foreclosure of any lien for labor or material
furnished to or for Tenant or such other person;
(c) Otherwise arising out of or resulting from any act or
transaction of tenant or such other person; or
(d) Necessary to protect Landlord's interest under this Lease in a
bankruptcy proceeding of Tenant, or other proceeding of Tenant
under Title 11 of the United States Code, as amended.
Tenant shall defend Landlord against any such claim or action at Tenant's
expense with counsel reasonably acceptable to Landlord or, at Landlord's
election, Tenant shall reimburse Landlord for any legal fees or costs Landlord
incurs in any such claim or action.
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.
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<PAGE> 26
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no discrimination
against, or segregation of, any person or group of persons on the basis of race,
color, sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or
Project or the leasehold estate under a ground lease of the
Property or Project at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this
Lease only during the time such Landlord owns such interest or
title. Any Landlord who transfers its title or interest is
relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date
of transfer. However, each Landlord shall deliver to its
transferee all funds that Tenant previously paid if such funds
have not yet been applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lese to Landlord and
to any ground lessor, mortgagee or beneficiary under any deed
of trust encumbering the Property whose name and address have
been furnished to Tenant in writing. Landlord shall not be in
default under this Lease unless Landlord (or such ground
lessor, mortgagee or beneficiary) fails to cure such
non-performance within thirty (30) days after receipt of
Tenant's notice. However, if such non-performance reasonably
requires more than thirty (30) days to cure, Landlord shall
not be in default if such cure is commenced within such thirty
(30) day period and thereafter diligently pursued to
completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties
and obligations under this Lease is limited to Landlord's
interest in the Property and the Project, and neither the
Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles of Sections
of this Lease are to assist the parties in reading this Lease and are not a part
of the terms or provisions of
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<PAGE> 27
this Lease. Whenever required by the context of this Lease, the singular shall
include the plural and the plural shall include the singular. The masculine,
feminine and neuter genders shall each include the other. In any provision
related to the conduct, acts or omissions of Tenant, the term "Tenant" shall
include Tenant's agents, employees, contractors, invitees, successors or others
using the Property with Tenant's expressed or implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by certified
mail, return receipt requested, postage prepaid. Notices to Tenant shall be
delivered to the address specified in Section 1.03 above, except that upon
Tenant's taking possession of the Property, the Property shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery. Either party may change its notice address upon written notice to the
other party.
Section 13.07. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or Tenant
may require that a "Short Form" memorandum of this Lease executed by both
parties be recorded. The party requiring such recording shall pay all transfer
taxes and recording fees.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is
a corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any
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<PAGE> 28
general partner's withdrawal or addition. Within thirty (30) days after this
Lease is signed, Tenant shall deliver to Landlord a copy of Tenant's recorded
statement of partnership or certificate of limited partners.
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterpart
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. BROKER'S FEE. When this Lease is signed by and delivered
to both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 1.08 above, if any, as provided in the
written agreement between Landlord and Landlord's Broker. Landlord shall pay
Landlord's Broker a commission if Tenant exercises any option to extend the
Lease Term or to buy the Property, or any similar option or right which Landlord
may grant to Tenant, or if Landlord's Broker is the procuring cause of any other
lease or sale entered into between Landlord and Tenant covering the Property.
Such commission shall be the amount set forth in Landlord's Broker's commission
schedule in effect as of the execution of this Lease. If a Tenant's Broker is
named in Section 1.08 above, Landlord's Broker shall pay an appropriate portion
of its commission to Tenant's Broker if so provided in any agreement between
Landlord's Broker and Tenant's Broker. Nothing contained in this Lease shall
impose any obligation on Landlord to pay a commission or fee to any party other
than Landlord's Broker.
Section 14.02. PROTECTION OF BROKERS. If Landlord sells the Property,
or assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the court in such action.
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<PAGE> 29
This Paragraph is included in this Lease for the benefit of Landlord's Broker.
Section 14.03. BROKER'S DISCLOSURE OF AGENCY. Landlord's Broker hereby
discloses to Landlord and Tenant and Landlord and Tenant hereby consent to
Landlord's Broker acting in this transaction as the agent of (check one):
[ ] Landlord exclusively, or
[ ] both Landlord and Tenant.
Section 14.04. NO OTHER BROKERS. Tenant represents and warrants to
Landlord that the brokers named in Section 1.08 above are the only agents,
brokers, finders or other parties with whom Tenant has dealt who are or may be
entitled to any commission or fee with respect to this Lease or the Property.
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<PAGE> 30
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialed all Riders which
are attached to or incorporated by reference to this Lease.
"LANDLORD"
Signed on July 23, 1999. NATIONAL DISTRIBUTION AGENCY, INC.,
a Delaware corporation
at Santa Monica, CA By: /s/ John N. Alphson
-------------------------------------
JOHN N. ALPHSON
Its: CORPORATE SECRETARY
By: /s/ Robert Bernardo
-------------------------------------
ROBERT BERNARDO
Its GENERAL MANAGER
"TENANT"
Signed on July 26, 1999. PETS.COM, INC., a California corporation
at San Francisco, CA
By: /s/ Julie Wainwright
-------------------------------------
JULIE WAINWRIGHT
Its: CHIEF EXECUTIVE OFFICER
By: /s/ Chris Deyo
-------------------------------------
Its: President
------------------------------------
SECRETARY
IN ANY SUCH REAL ESTATE ACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST, OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
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<PAGE> 31
FIRST AMENDMENT TO
INDUSTRIAL REAL ESTATE SUBLEASE
(MULTI-TENANT FACILITY)
This First Amendment is made for the purpose of amending that certain
Agreement dated July 1, 1999, constituting a sublease of a portion of the
premises at 33201 Dowe Avenue, Union City, California (the "Property"), between
National Distribution Agency, Inc., a Delaware corporation ("Landlord or
Sublessor"), and Pets.com, Inc., a California corporation ("Tenant" or
"Sublessee"), for (the "Lease" or the "Sublease"). Said Sublease dated July 1,
1999, is herein referred to as the "Primary Sublease". This First Amendment to
Lease is subject to that certain lease between Landlord as Lessee and Chino
Pacific Warehouse Corporation as Lessor, dated September 25, 1997, (the "Master
Lease").
In connection with the execution of this First Amendment to Sublease,
the following provisions and representations of the Primary Sublease are
incorporated herein:
Landlord warrants and represents to Tenant that the Master Lease has
not been amended or modified except as expressly set forth herein, that Landlord
is not now, and as of the commencement of the Term hereof will not be, in
default or breach of any of the provisions of the Master Lease, and the Landlord
has no knowledge of any claim by the Master Lessor that Landlord is in default
or breach of any of the provisions of the Master Lease.
Tenant shall not commit or suffer any act or omission that will violate
any of the provisions of the Master Lease. Landlord shall exercise due diligence
in attempting to cause the Master Lessor to perform its obligations under the
Master Lease for the benefit of Tenant. If the Master Lease terminates this
Sublease shall terminate and the parties shall be relieved of any further
liability or obligation under this Sublease provided however, that if the Master
Lease terminates as a result of a default or breach by Landlord or Tenant under
this Sublease and/or the Master Lease, then the defaulting party shall be liable
to the non-defaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, if the Master Lease gives Landlord
any right to terminate the Master Lease in the event of the partial or total
damage, destruction, or condemnation of the Master Premises or the building or
project of which the Master Premises are a part, the exercise of such right by
Landlord shall not constitute a default or breach hereunder, provided that
Tenant receives a pro rata portion of any proceeds, or other remuneration, if
any, which Landlord receives as a result of such termination.
The provisions of this First Amendment to Sublease are made to reflect
the desire of Tenant to increase its Primary leased space of approximately
73,920 square feet of warehouse space and 4,800 square feet of office space
under the Primary Sublease, in two separate phases described as First Expansion
Space of approximately 32,256 square feet of warehouse space, and Second
Expansion Space of approximately 32,256 square feet of office space, as more
specifically reflected in amended Exhibit "A" attached.
The provisions and terms of the Primary Sublease are amended,
supplemented and/or
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<PAGE> 32
modified as hereafter set forth. If not amended, supplemented or modified, the
terms are identified as "no change". To the extent not amended, superseded, or
modified herein, the terms of the Primary Sublease shall constitute a part of
this amendment and are hereby incorporated by reference.
ARTICLE ONE: BASIC TERMS - ADDED AND MODIFIED AS FOLLOWS:
Section 1.01. DATE OF LEASE.
THE FOLLOWING PROVISIONS SPECIFIED BELOW ARE ADDED:
FIRST EXPANSION SPACE: October 15, 1999.
SECOND EXPANSION SPACE: November 15, 1999
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): NO CHANGE.
Section 1.03. TENANT (INCLUDED LEGAL ENTITY): NO CHANGE.
Section 1.04. PROPERTY.
THE FOLLOWING PROVISIONS ARE ADDED:
The First Expansion space includes approximately 32,256 square feet of
warehouse space; the Second Expansion Space includes approximately 32,256 square
feet of warehouse space, both of which areas are more fully reflected in Exhibit
"A", as amended and outlined in red.
Section 1.05. LEASE TERM:
THE FOLLOWING PROVISIONS ARE ADDED:
The Lease Term for the First Expansion Space shall become effective
beginning October 15, 1999, and ending on August 14, 2004, a period of Fifty-six
and one-half (56.5) months. Tenant shall pay no Base Rent for the period October
15, 1999 to November 30, 1999. During the period of free rent, Tenant shall be
obligated to pay its pro rata share of taxes, insurance, maintenance and
utilities, effective commencing November 1, 1999, and as provided in Section
1.12(b) herein.
The Lease Term for the Second Expansion Space shall become effective
beginning November 15, 1999, and ending on August 14, 2004, a period of
Fifty-five and one-half (55.5) months. Tenant shall pay no base rent for the
period November 15, 1999 to December 31, 1999. During the period of free rent,
Tenant shall be obligated to pay its pro rata share of taxes, insurance,
maintenance and utilities, effective commencing November 1, 1999, and as
provided in Section 1.12(b) herein.
In the event Lessor fails to deliver the First Expansion Space on or before
October 15, 1999,
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<PAGE> 33
Lessor shall compensate Lessee for the delay in possession as
follows:
- Beginning October 15, 1999, one (1) day free rent for each day
possession is delayed.
In the event Lessor fails to deliver the Second Expansion Space on or before
November 15, 1999, Lessor shall compensate Lessee for the delay in possession as
follows:
- Beginning November 15, 1999, one (1) day free rent for each
day possession is delayed.
Notwithstanding the above, should Lessor deliver either Expansion space at any
time prior to the original commencement date of the Term of the particular
Expansion Space, Lessee agrees to begin the Lease term for the particular
Expansion Space, upon receipt of the space.
The Option to Renew referenced herein, shall include both Expansion
Spaces.
Section 1.06. PERMITTED USES: (See Article Five) NO CHANGE.
Section 1.07. TENANT'S GUARANTOR: NO CHANGE.
Section 1.08. BROKERS: (See Article Fourteen) NO CHANGE.
Section 1.09. NO CHANGE. COMMISSION PAYABLE TO LANDLORD'S BROKER:
Section 1.10. INITIAL SECURITY DEPOSIT: These provisions are MODIFIED
AND/OR ADDED TO as set forth below:
The existing initial security deposit of [*] shall be increased by [*],
by November 15, 1999, for a total Security Deposit of [*].
The Letter-of-Credit for [*] shall be increased by [*] by November 15,
1999, for a total Letter-of-Credit of [*]. Provided the Tenant is not in
default of the Sublease, the Letter-of-Credit in the sum of [*], shall be
reduced to [*] as of August 14, 2000. As of August 14, 2001, no
Letter-of-Credit shall be required to be on deposit.
Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT. THE FOLLOWING
PROVISIONS ARE ADDED:
Upon occupancy of the Second Expansion Space, Tenant shall be entitled
to an additional
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* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 34
35 unassigned parking spaces.
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT: MODIFIED AS SET
FORTH BELOW.
(a) BASE RENT: MODIFIED AS FOLLOWS:
(i) EXISTING SPACE:
<TABLE>
<CAPTION>
BASE RENTAL
RATE PER SQ. FT. AMOUNT
MONTHS PER MO. PER MO.
------ ------- -------
<S> <C> <C>
July 1 - Aug. 14, 1999 Free rent
Aug. 15, 1999 - April 14, 2001 [*] psf/mth/nnn [*]
April 15, 2001 - Dec. 14, 2002 Annual minimum CPI (All
Consumers S.F. Bay Area)
increase of [*]; annual
maximum CPI (All Consumers
S.F. Bay Area) of [*] over
base rental rate in months
1 - 20.
Dec. 15, 2002 - Aug. 14, 2004 Annual Minimum CPI (All
Consumers S.F. Bay Area)
increase of [*]; annual
maximum CPI (All Consumers
S.F. Bay Area) of [*] over
base rental rate in months
21 - 40.
</TABLE>
(ii) FIRST EXPANSION SPACE:
<TABLE>
<CAPTION>
BASE RENTAL
RATE PER SQ. FT. AMOUNT
MONTHS PER MO. PER MO.
------ ------- -------
<S> <C> <C>
Oct. 15, 1999 - Nov. 30, 1999 Free rent.
Dec. 1, 1999 - April 14, 2001 [*] psf/mth/nnn [*]
April 15, 2001 - Dec. 14, 2002 Increase concurrently per
subsection (i) above
Dec. 15, 2002 - Aug. 14, 2004 Increase concurrently per
subsection (i) above
</TABLE>
(iii) SECOND EXPANSION SPACE:
<TABLE>
<CAPTION>
BASE RENTAL
RATE PER SQ. FT. AMOUNT
MONTHS PER MO. PER MO.
<S> <C> <C>
Nov. 15, 1999 - Dec. 31, 1999 Free rent.
Jan. 1, 2000 - April 14, 2001 [*] psf/mtn/nnn [*]
April 15, 2001 - Dec. 14, 2002 Increase concurrently per
subsection (i) above
Dec. 15, 2002 - Aug. 14, 2004 Increase concurrently per
subsection (i) above
</TABLE>
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* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 35
The Base Rents payable hereunder are more fully set forth in REVISED Lease Rider
No. 1 attached and incorporated herein by reference, and as referred to in
REVISED Lease Rider No. 3, also attached and incorporated herein by reference.
In the event that Landlord is in default under the Master Lease and either
Landlord or Tenant receive notice of such default from the Master Lessor under
the Master Lease, Tenant shall have the right (without any obligation to do so),
to pay rent provided in this section, and all other sums due Landlord hereunder,
which Landlord is obligated to pay directly to the Master Lessor.
(b) OTHER PERIODIC PAYMENTS INCLUDED AS RENT - REVISED TO READ IN
FULL AS FOLLOWS: (i) Real Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums
(See Section 4.04); (iv) Tenant's Initial Pro Rata Share of
Common Area Expenses presently at 25.67% shall be increased to
(46.7%) effective November 1, 1999. (See Section 4.05); (v)
Impounds for Insurance Premiums and Property Taxes (See
Section 4.08); (vi) Maintenance, Repairs and Alterations (See
Article Six).
Section 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: NO
CHANGE.
Section 1.14. RIDERS: The following Riders ARE REVISED as indicated and
are attached and made a part of this Lease:
Rider No. 1 - Base Rent Schedule - REVISED TO READ IN FULL AS ATTACHED.
Rider No. 2 - Tenant Improvement Allowance - NO CHANGE. All Tenant
Improvements to Expansion Spaces are to be made at Tenant's sole cost and
expense and in accordance with Section 6.05 (a) and (b) of the Primary Lease.
Rider No. 3 - Options to Renew and to Expand Space - REVISED TO READ IN
FULL AS ATTACHED.
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. REVISED AS FOLLOWS:
Landlord leases the Property to Tenant and Tenant leases the Property from
Landlord for the Lease Term, as amended. The Lease term is for the period stated
in Section 1.05, as amended, and shall begin and end on the dates specified in
Section 1.05, as amended, unless the beginning or end of the Lease Term is
changed under any provision of this Lease. The "Commencement Date" shall be the
dates specified in Section 1.05, as amended, for the beginning of the Lease
Term, unless advanced or delayed under any provision of this Lease. The Lease
Term for all space shall end on August 14, 2004, unless extended by exercise of
any option provided, or under any applicable provision of the Lease.
Section 2.02. DELAY IN COMMENCEMENT. NO CHANGE.
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<PAGE> 36
Section 2.03. EARLY OCCUPANCY. NO CHANGE.
Section 2.04. HOLDING OVER. NO CHANGE.
ARTICLE THREE: BASE RENT - MODIFIED AS SET FORTH BELOW.
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this First
Amendment to Lease, Tenant shall continue to pay Landlord the Base Rent for the
existing space in the amount stated in Paragraph 1.12(a)(i) above, on the first
day of the each month of the Lease Term. On December 1, 1999, Tenant shall pay,
in addition to such rent, the Base Rent for the First Expansion Space for the
first month and each month thereafter as provided in Section 1.12(a)(ii). On
January 1, 2000, Tenant shall pay additional Base Rent for the Second Expansion
Space for first month and each month thereafter, as provided in Section
1.12(a)(iii). Tenant shall pay Landlord the Base Rent, in advance within five
(5) business days after the commencement of each month, without offset,
deduction or prior demand. The Base Rent shall be payable at Landlord's address
or at such other place as Landlord may designate in writing. If the Term of
either the First Expansion Space or the Second Expansion Space commences other
than on the first day of a month, then the Base Rent provided for such partial
month shall be prorated based upon a thirty (30) day month and the prorated
installment shall be paid on the first day of the calendar month next succeeding
the Term Commencement Date together with the other amounts payable on that day.
If such Term terminates on other than the last day of a calendar month, then the
Rent provided for such partial month shall be prorated based upon a thirty (30)
day month and the prorated installment shall be paid on the first day of the
calendar month in which the date of termination occurs.
Section 3.02. COST OF LIVING INCREASE. The Base Rent for all space
shall be increased on each date (the "Rental Adjustment Date") as provided in
Paragraph 1.12(a) above in accordance with the increase in the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price Index for All
Urban Consumer (all items for the geographical Statistical Area in which the
Property is located on the basis of 1982-1984 = 100) (the "Index") as follows:
(a) The Base Rent (the "Comparison Base Rent") in effect
immediately before each Rental Adjustment Date shall be
increased by the percentage that the Index has increased from
the date (the "Comparison Date') on which payment of the
Comparison Base Rent began through the month in which the
applicable Rental Adjustment Date occurs. The Base Rent shall
not be reduced by reason of such computation. Landlord shall
notify Tenant of each increase by a written statement which
shall include the Index for the applicable Comparison Date,
the Index for the increase in the Base Rent provided for in
this Section 3.02 shall be subject to any minimum or maximum
increase, if provided for in Paragraph 1.12(a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date
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<PAGE> 37
until the next Rental Adjustment Date. Landlord's notice may
be given after the applicable Rental Adjustment Date of the
increase, and Tenant shall pay Landlord the accrued rental
adjustment for the months elapsed between the effective date
of the increase and Landlord's notice of such increase within
ten (10) days after Landlord's notice. If the format or
components of the Index are materially changed after the
Commencement Date, Landlord shall substitute an index which is
published by the Bureau of labor Statistics or similar agency
and which is most nearly equivalent to the Index in effect on
the Commencement Date. The substitute index shall be used to
calculate the increase in the Base Rent unless Tenant objects
to such index in writing within fifteen (15) days after
receipt of Landlord's notice. If Tenant objects, Landlord and
Tenant shall submit the selection of the substitute index for
binding arbitration in accordance with the rules and
regulations of the American Arbitration Association at its
office closest to the Property. The costs of arbitration shall
be borne equally by Landlord and Tenant.
Section 3.03. SECURITY DEPOSIT; INCREASES. NO CHANGE.
Section 3.04. TERMINATION; ADVANCE PAYMENT. NO CHANGE.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT - NO CHANGE, EXCEPT FOR REVISIONS
IN SUBPARAGRAPH 4.02(c) AND 4.03.
Section 4.01. ADDITIONAL RENT. NO CHANGE.
Section 4.02. PROPERTY TAXES. NO CHANGE, EXCEPT FOR SUBSECTIONS (c)
JOINT ASSESSMENT.
(a) REAL PROPERTY TAXES. NO CHANGE.
(b) DEFINITION OF "REAL PROPERTY TAX". NO CHANGE.
(c) JOINT ASSESSMENT. REVISED AS SHOWN: If the Property is not
separately assessed, Landlord shall reasonably determine
Tenant's share of the real property tax payable by Tenant
under Paragraph 4.02(a) from the assessor's worksheets or
other reasonably available information. Tenant shall pay such
share to Landlord within fifteen (15) days after receipt of
Landlord's written statement. Until November 1, 1999, Tenant's
share of such real property tax shall be 25.67% of the total
amount assessed on the Project, based on the total square
footage occupied at the time of the execution of this
Sublease, divided by the total square footage of the premises
(78,720 square feet / 306,650 square feet = 25.67%). Effective
November 1, 1999, the Tenant's share shall be 46.7% based upon
the total square footage, including Expansion Spaces, covered
by the Lease, as amended, divided by the total square footage
of the premises. (143,232 / 306,650 = 46.7%).
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<PAGE> 38
(d) PERSONAL PROPERTY TAXES. NO CHANGE.
Section 4.03. UTILITIES - REVISED AS FOLLOWS: Tenant shall pay,
directly to the appropriate supplier, the cost of all natural gas, heat, light,
power, sewer service, telephone, water, refuse disposal and other utilities and
services supplied to the Property. However, if any services or utilities are
jointly metered with other property, Landlord shall make a reasonable
determination of Tenant's proportionate share of the cost of such utilities and
services and Tenant shall pay its share to Landlord within fifteen (15) days
after receipt of Landlord's written statement. Tenant's share of such
non-jointly metered costs shall be 25.67% of the total charged to the Project,
based on the square footage occupied by Tenant at the time prior to and at the
execution of this Sublease, and 46.7% as of November 1, 1999.
Section 4.04. INSURANCE POLICIES. NO CHANGE.
(a) LIABILITY INSURANCE. NO CHANGE.
(b) PROPERTY AND RENTAL INCOME INSURANCE. NO CHANGE.
(c) PAYMENT OF PREMIUMS. NO CHANGE.
(d) GENERAL PROVISIONS. NO CHANGE.
Section 4.05. COMMON AREAS; USE, MAINTENANCE AND COSTS. REVISED PER
SUBSECTION (e) AS FOLLOWS:
(a) COMMON AREAS. NO CHANGE.
(b) USE OF COMMON AREAS. NO CHANGE.
(c) SPECIFIC PROVISION RE: VEHICLE PARKING. NO CHANGE.
(d) MAINTENANCE OF COMMON AREAS. NO CHANGE.
(e) TENANT'S SHARE AND PAYMENT. REVISED TO READ IN FULL AS
FOLLOWS: Tenant shall pay Tenant's annual pro rata share of
all Common Area costs (prorated for any fractional month) upon
notice from Landlord that such costs are due and payable, and
in any event prior to delinquency. Tenant's pro rata share
shall be calculated by dividing the square footage area of the
Property, as set forth in Section 1.04 of the Lease, by the
aggregate square foot area of the Project which is leased or
held for lease by tenants, as of the date on which the
computation is made. Tenant's initial and subsequent pro rata
share is set out in Section 1.12(b), AS AMENDED. Any changes
in the Common Area costs and/or the aggregate area of the
Project, leased or held for lease during the Lease Term shall
be effective on the first day of the month after such change
occurs. Landlord may, at Landlord's election,
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<PAGE> 39
estimate in advance and charge to Tenant as Common Area costs,
all maintenance and repair costs for which Tenant is liable
under Section 6.04 of the Lease, and all other Common Area
costs payable by Tenant hereunder. At Landlord's election,
such statements of estimated Common Area costs shall be
delivered monthly, quarterly or at any other periodic
intervals to be designated by Landlord. Landlord may adjust
such estimates at any time based upon Landlord's experience
and reasonable anticipation of costs. Such adjustments shall
be effective as of the next rent payment date after notice to
Tenant. Within sixty (60) days after the end of each calendar
year of the Lease Term, Landlord shall deliver to Tenant a
statement prepared in accordance with generally accepted
accounting principles setting forth, in reasonable detail, the
Common Area costs paid or incurred by Landlord during the
preceding calendar year and Tenant's pro rata share. Upon
receipt of such statement, there shall be an adjustment
between Landlord and Tenant, with payment to or credit given
by Landlord (as the case may be) so that Landlord shall
receive the entire amount of Tenant's share of such costs and
expenses for such period.
Section 4.06. LATE CHARGES. NO CHANGE.
Section 4.07. INTEREST ON PAST DUE OBLIGATIONS. NO CHANGE.
Section 4.08. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES.
NO CHANGE.
ARTICLE FIVE: USE OF PROPERTY - NO CHANGE.
Section 5.01. PERMITTED USES. NO CHANGE.
Section 5.02. MANNER OF USE. NO CHANGE.
Section 5.03. HAZARDOUS MATERIALS. NO CHANGE.
Section 5.04. SIGNS AND AUCTIONS. NO CHANGE.
Section 5.05. INDEMNITY. NO CHANGE.
Section 5.06. LANDLORD'S ACCESS. NO CHANGE.
Section 5.07. QUIET POSSESSION. NO CHANGE.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS. NO
CHANGE.
Section 6.01. EXISTING CONDITIONS. NO CHANGE.
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<PAGE> 40
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. NO CHANGE.
Section 6.03. LANDLORD'S OBLIGATION. NO CHANGE.
Section 6.04. TENANT'S OBLIGATIONS. NO CHANGE.
Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS. NO CHANGE.
Section 6.06. CONDITION UPON TERMINATION. NO CHANGE.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION - NO CHANGE.
ARTICLE EIGHT: CONDEMNATION - NO CHANGE.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING - NO CHANGE.
ARTICLE TEN: DEFAULTS; REMEDIES - NO CHANGE.
ARTICLE ELEVEN: PROTECTION OF LENDERS - NO CHANGE.
ARTICLE TWELVE: LEGAL COSTS - NO CHANGE.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS - THE PROVISIONS OF SECTIONS 13.15
AND 13.16 ARE ADDED:
Section 13.01. NON-DISCRIMINATION. NO CHANGE.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES. NO CHANGE.
Section 13.03. SEVERABILITY. NO CHANGE.
Section 13.04. INTERPRETATION. NO CHANGE.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. NO
CHANGE.
Section 13.06. NOTICES. NO CHANGE.
Section 13.07. WAIVERS. NO CHANGE.
Section 13.08. NO RECORDATION. NO CHANGE.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. NO CHANGE.
Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. NO CHANGE.
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<PAGE> 41
Section 13.11. JOINT AND SEVERAL LIABILITY. NO CHANGE.
Section 13.12. FORCE MAJEURE. NO CHANGE.
Section 13.13. EXECUTION OF LEASE. NO CHANGE.
Section 13.14. SURVIVAL. NO CHANGE.
Section 13.15. TENANT'S RESTROOM FACILITY.
JOINT RESTROOM USE. The parties agree that during the term of this
Sublease, they shall be jointly entitled to use the restroom facility marked as
"JOINT RESTROOM" on Exhibit "A", and Landlord agrees to provide for Tenant's
access as indicated in solid Green lines on Exhibit "A" at Tenant's sole cost
for alterations for access, security and other requirements to permit joint use
but retaining security for the respective operation of Landlord and Tenant.
TENANT'S SEPARATE RESTROOM. Alternatively, the parties agree that
during the term of this Sublease, Tenant at its election, may be exclusively
entitled to construct and use the restroom facility marked as "RESTROOM" on
Exhibit "A", as indicated in Green. Tenant shall install such facility at its
sole cost and expense at the approximate location indicated in dotted Green
lines on Exhibit "A", and according to plans and specifications approved by
Landlord.
Section 13.16. TENANT'S CONTRIBUTION TO LANDLORD'S RELOCATION EXPENSE.
Tenant agrees, in further consideration, for this Sublease, to pay Landlord the
sum of $43,947 to defray, to that extent, Landlords cost of relocating its
existing customers and facility in the Expansion Spaces. Said payment shall be
made by Tenant concurrently with execution by Tenant of this Sublease. Tenant
further agrees to disassemble, remove, transport, and reinstall, Landlord's
existing racking in the Expansion Spaces to Landlord's facilities at 1345
Doolittle Rd., San Leandro, California, at Tenant's sole cost and expense.
Tenant shall accomplish such relocation of racking on occupation of the First
Expansion Space and in coordination with Landlord's on-site management.
ARTICLE FOURTEEN: BROKERS - NO CHANGE.
Landlord and Tenant have signed this Amendment to Lease at the place and on the
dates specified adjacent to their signatures below and have initialed all Riders
which are attached to or incorporated by reference to this Lease.
"LANDLORD"
Signed on October 20, 1999. NATIONAL DISTRIBUTION AGENCY, INC.,
a Delaware corporation
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<PAGE> 42
at Santa Monica, CA By: /s/ John N. Alphson
-------------------------------------
JOHN N. ALPHSON
Its: CORPORATE SECRETARY
By:
--------------------------------------
ROBERT BERNARDO
Its GENERAL MANAGER
"TENANT"
Signed on October 22, 1999. PETS.COM, INC., a California corporation
at San Francisco, CA
-----------------------------------------
By: /s/ Julie Wainwright
-------------------------------------
JULIE WAINWRIGHT
Its: CHIEF EXECUTIVE OFFICER
By:
--------------------------------------
Its:
-------------------------------------
SECRETARY
IN ANY SUCH REAL ESTATE ACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH
A PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST, OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
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<PAGE> 1
EXHIBIT 10.27
STANDARD INDUSTRIAL "GROSS" LEASE FOR SINGLE TENANT
This Lease is made as of September 20, 1999 ("Execution Date"),
between Bryant Springs LLC, a California limited liability company ("Landlord"),
and Pets.com, a California corporation ("Tenant").
1. BASIC LEASE INFORMATION; DEFINITIONS
1.1 Basic Lease Information. If there is a conflict between the Basic
Lease Information in this Section 1.1 and the remainder of the Lease, the latter
shall control.
Premises: The entire building at 945 Bryant Street, San
Francisco, California ("Building"), as outlined
on the site plan attached as Exhibit A, as
further described in Sections 2.1 and 2.2.
Rentable Area: Approximately 40,410 rentable square feet,
subject to verification under Section 2.1
Term: Ten (10) years from Commencement Date (see
Section 3.1)
Extension Option: One (1) 5-year extension option (see Section
3.3)
Commencement Date: If Landlord performs the "Tenant Improvement
Work" (as defined in Section 2.4), then the
Commencement Date shall be the later of (a) the
date Landlord delivers the Premises to Tenant
with the Tenant Improvement Work substantially
completed in accordance with the Work Letter
attached as Exhibit B, or (b) April 1, 2000.
If Tenant elects to perform the Tenant
Improvement Work pursuant to the Work Letter;
the Commencement Date shall be fixed at
seventy-five (75) days from Landlord's Delivery
Date (as defined in Section 3.2(b)).
Estimated Commencement Date: April 1, 2000
<TABLE>
<CAPTION>
Monthly Base Rent: Year Rent/Square Foot Monthly Base Rent*
- ------------------ ---- ---------------- ------------------
<S> <C> <C> <C>
1-2 [*]/Year [*]
3-4 [*]/Year [*]
5-6 [*]/Year [*]
7-8 [*]/Year [*]
9-10 [*]/Year [*]
</TABLE>
* Based on 40,410 rentable square feet, subject
to recalculation pursuant to Section 2.1
-1-
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 2
Base Year: 2000, except that with respect to Property Taxes
(as defined in Section 26), the Base Year shall
be tax year 2000/2001 Security Deposit:
[*] irrevocable letter of credit (see Section
4.5, including Tenant's right thereunder to
reduce the letter of credit)
Permitted Use: Multimedia, business services and general
office, to the extent general office use is
permitted under applicable zoning and other Laws
(see Section 6.1)
Parking Allotment: Thirty-three (33) unassigned parking spaces (see
Section 7)
Tenant's Liability Insurance: $2,000,000 (see Section 12.1)
Address of Landlord: Bryant Springs LLC
1981 N. Broadway, Suite 415
Walnut Creek, CA 94596
Attn: Michael Kelly
Phone: (925) 937-4111
Fax: (925) 937-4173
Address of Tenant: Before Commencement Date
Pets.com
435 Brannan Street
San Francisco, CA 94107
Attn: Mark Lemma
Phone: (415) 343-1547
Fax: (415) 222-9998
After Commencement Date
945 Bryant Street
San Francisco, CA 94107
Attn: Mark Lemma
Phone: (415) 343-1547
Fax: (415) 222-9998
Brokers: Colliers International (Michael D. McCarthy)
(Landlord's broker); BT Commercial (Chad
Clemetson) (Tenant's broker) (see Section 27.14)
TI Allowance: [*]/rentable square foot (see Work Letter
attached as Exhibit B)
1.2 Definitions. Unless otherwise provided, definitions of capitalized
words and phrases are set forth in Section 26 of this Lease.
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* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 3
2. PREMISES; CONDITION PRECEDENT
2.1 Demise of Premises. Landlord leases to Tenant and Tenant leases from
Landlord the premises described in the Basic Lease Information in Section 1.1
("Premises"), on and subject to the terms and conditions of this Lease. Tenant
acknowledges that, as of the Execution Date, the Premises consist of a two-story
building to which Landlord will add a third floor before the Commencement Date.
Before the Commencement Date, Landlord's architect shall verify the number of
rentable square feet in the Premises in accordance with standards published by
the Building Owners and Managers Association. Tenant's architect may consult
with Landlord's architect regarding such verification. Once the rentable square
footage of the Premises has been verified, the Monthly Base Rent stated in the
Basic Lease Information shall be recalculated if needed to reflect the correct
amount. Upon such verification, Tenant shall have no claim against Landlord or
defense to enforcing this Lease based on any difference between the agreed upon
rentable square footage and the actual rentable square footage in the Premises.
2.2 Landlord's Reserved Rights. Notwithstanding anything to the contrary
in this Lease, the Premises shall exclude the exterior walls, the foundation,
the roof and the structural components of the Building. In addition, Landlord
reserves the right, from time to time, to: (a) locate, install, repair and
replace any pipes, utility lines, ducts, wires, mains and structural elements
through the Premises in locations that will not materially interfere with
Tenant's use of or access to the Premises; (b) change the lines of the lot on
which the Building stands ("Lot") and make other reasonable changes and grant
others rights thereto, including without limitation grant easements, rights of
way and rights of ingress and egress and similar rights to users and owners of
adjacent parcels; and (c) alter or relocate any Base Building Facilities (as
defined in Section 26), without material impairment (other than temporary
interruptions as may be necessary in the case of emergency) to Tenant's use of
or access to the Premises.
2.3 Condition of Premises. Landlord agrees to perform, at its cost, the
addition of a third story to the Building, work on the Base Building Facilities
and other related work, all described as "Landlord's Work" in Exhibit C
attached. Landlord also agrees to perform, on Tenant's behalf, that certain
tenant improvement work described as "Tenant Improvement Work" in the Work
Letter attached as Exhibit B, in accordance with the terms and conditions of the
Work Letter, unless Tenant elects to perform the Tenant Improvement Work
pursuant to the Work Letter. Except for Landlord's Work and, if Tenant elects
not to perform the Tenant Improvement Work, the Tenant Improvement Work,
Landlord shall have no obligation to improve or otherwise modify the Premises
for Tenant's use. Subject to Landlord's representations and warranties in
Section 2.4, Tenant shall accept the Premises in its "as is" condition as of the
Execution Date, including but not limited to title, physical condition, size or
dimensions of the Premises, and the zoning, building and land use restrictions
applicable to the Premises.
2.4 Landlord's Representations. If Landlord performs the Tenant
Improvement Work, Landlord represents and warrants that, as of the Commencement
Date, the Premises and the Building are in good condition and repair, all
Building systems and equipment are in good operating condition, and the Premises
and the Building comply in all material respects with all
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<PAGE> 4
Laws (as defined in Section 26). If Tenant performs the Tenant Improvement Work,
Landlord represents and warrants that, as of the Commencement Date, Landlord's
Work is in good condition and repair and comply in all material respects with
all Laws. If Landlord becomes aware that any of the foregoing representations
and warranties was not true as of the Commencement Date, Landlord shall remedy
or cure any such violation promptly and diligently at Landlord's sole cost and
expense. This Lease shall not be void or voidable as a result of Landlord's
violation of any representation and warranty, nor shall Landlord or its
Authorized Representatives (as defined in Section 26) have any liability to
Tenant therefor provided Landlord remedies or cures any such violation promptly
and diligently at Landlord's sole cost and expense. Tenant acknowledges that,
except for the representations and warranties in this Section, neither Landlord
nor its Authorized Representatives have made any representations or warranties
to Tenant regarding the Premises or the Building.
2.5 Condition Precedent to Obligations. The obligations of the parties
under this Lease are expressly conditioned upon the issuance by the City of San
Francisco of a building permit for the Tenant Improvement Work for the Permitted
Use ("Permit"). If the City refuses to issue the Permit, then either Landlord or
Tenant shall have the right to terminate this Lease by written notice to the
other, delivered within fifteen (15) days after receipt of the City's notice.
Upon such termination, Landlord and Tenant shall have no further liability under
the Lease and each party shall be responsible for paying its own costs and fees.
3. TERM; EXTENSION OPTION; HOLDING OVER
3.1 Term. The initial term of this Lease shall be for the period
specified in the Basic Lease Information ("Initial Term"), unless sooner
terminated pursuant to other provisions of this Lease; provided, however, if the
Commencement Date is not the first day of the month, the Term will expire on the
last day of the calendar month during which the Term would otherwise expire. All
references in this Lease to "Term" shall mean the Initial Term and, upon the
exercise of the Extension Option (as defined in Section 3.3), shall mean the
Initial Term as extended by such Extension Option.
3.2 Term Commencement.
(a) If Landlord performs the Tenant Improvement Work, this
paragraph (a) shall govern. Landlord shall use reasonable diligence to cause the
Commencement Date to occur on or before the Estimated Commencement Date
specified in the Basic Lease Information, as such date is extended for any
delays caused by Force Majeure (as defined in Section 26) or Tenant Delays (as
defined in the Work Letter). The actual Commencement Date shall be the later of
the Estimated Commencement Date or the date Landlord delivers the Premises to
Tenant with Substantial Completion (as defined in the Work Letter) of the Tenant
Improvement Work. Notwithstanding the foregoing, if Landlord is delayed in the
Substantial Completion of the Tenant Improvement Work as a result of a Tenant
Delay, Landlord may determine, in its sole good-faith judgment, that the actual
Commencement Date is the date that Substantial Completion of the Tenant
Improvement Work would have occurred but for such delay.
(b) If Tenant elects to perform the Tenant Improvement Work, this
paragraph (b) shall govern. The Commencement Date shall be fixed at seventy-five
(75) days after
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<PAGE> 5
Landlord's Delivery Date. "Landlord's Delivery Date" shall be the date that
Landlord delivers the Premises to Landlord with the Minimal Landlord's Work
substantially completed. "Minimal Landlord's Work" shall consist of that portion
of Landlord's Work that, in Landlord's good-faith judgment, must be completed in
order for Tenant to commence the Tenant Improvement Work, including the
construction of the third floor of the Building. Tenant acknowledges that
Landlord shall continue to perform Landlord's Work even after Landlord's
Delivery Date, and that Landlord and Tenant shall cooperate with each other in
coordinating the performance of Landlord's Work and the Tenant Improvement Work.
(c) As soon as the actual Commencement Date is known, the parties
will execute an addendum to this Lease stating the actual Commencement Date and
termination date of this Lease.
3.3 Extension Option. Tenant shall have the option to renew this Lease
as to the entire Premises then demised under this Lease ("Extension Option") for
one (1) additional consecutive period of five (5) years ("Extended Term"),
commencing on expiration of the Initial Term on the following terms and
conditions:
(a) Tenant shall exercise the Extension Option, if at all, by
delivering to Landlord an irrevocable notice of option exercise no later than
nine (9) months and no earlier than twelve (12) months before the expiration of
the Initial Term. Any notice of option exercise delivered after the deadline
shall, at Landlord's option, be void.
(b) All terms and conditions of this Lease shall apply during the
Extended Term except that: (i) there shall be no further Extension Option; and
(ii) the Monthly Base Rent for the Extended Term shall be the greater of (x)
"Fair Market Rent" for the Premises as determined in Section 4.3 below, or (y)
the Monthly Base Rent for the last month of the Initial Term.
(c) Notwithstanding anything to the contrary in this Lease, the
Extension Option is personal to the Tenant originally named in the Lease (or its
Permitted Transferee, as defined in Section 15.10 below) and may be exercised
only if the Tenant originally named in the Lease physically occupies at least
two full floors of the Premises as of the date Tenant exercises the Extension
Option and as of the commencement of the Extension Term. At Landlord's option,
Tenant shall not have the right to exercise the Extension Option (and any
Extension Option exercised by Tenant will be voided) if (a) Landlord has given
Tenant written notice, on or before the date Tenant exercises the Extension
Option or the commencement of the Extension Term, that a default has occurred
and Tenant has not yet cured such default, or (b) Landlord has given Tenant
written notice from Landlord, on more than two (2) occasions in the preceding
twelve (12) month period, that a default in the payment of Rent or any other
material default has occurred (regardless of whether such defaults subsequently
are cured).
3.4 No Liability for Landlord. This Lease shall not be void or voidable,
nor shall Landlord or its Authorized Representatives have any liability to
Tenant, by reason of Landlord's failure to deliver the Premises by the Estimated
Commencement Date. Postponement of the Commencement Date shall be Tenant's
exclusive remedy and in sole satisfaction of all Claims
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Tenant might otherwise have by reason of Landlord's failure to deliver the
Premises by the Estimated Commencement Date.
3.5 Holding Over. If Tenant, with Landlord's written consent, remains in
possession of the Premises after the Term ends, such holding over by Tenant
shall be a month-to-month tenancy only, terminable on thirty (30) days' notice
at any time by either party. The Monthly Base Rent during such holdover tenancy
shall be: (a) for the initial thirty (30) days of such holdover, one hundred
fifty percent (150%) of the Monthly Base Rent in effect for the month before the
Term end, and (b) thereafter, two hundred percent (200%) of the Monthly Base
Rent in effect for the month before the end of the Term, and all other terms and
conditions of this Lease shall apply to the holdover tenancy except those
pertaining to the Extension Option or the Right of First Offer in Section 25.
Nothing contained in this Lease shall be construed as Landlord's consent to any
holding over by Tenant, and Landlord expressly reserves the right to require
Tenant to surrender possession of the Premises to Landlord as provided in this
Lease upon the expiration or other termination of this Lease. If Tenant fails to
surrender the Premises upon the termination or expiration of this Lease, in
addition to any other liabilities to Landlord accruing therefrom, Tenant shall
indemnify, defend and hold Landlord harmless from all Claims resulting from such
failure, including, without limitation, any Claims by any succeeding tenant
based on such failure to surrender, and any lost profits to Landlord resulting
therefrom.
4. RENT
4.1 Monthly Base Rent. From and after the Commencement Date, Tenant
shall pay to Landlord as monthly base rent for the Premises the amount stated in
the Basic Lease Information as "Monthly Base Rent." Monthly Base Rent for the
first full month after the Commencement Date shall be paid upon Tenant's
execution of this Lease. Thereafter, Tenant shall pay the Monthly Base Rent on
the first day of each calendar month, in advance, without deduction, setoff,
prior notice or demand. If the Commencement Date is not the first day of the
month, then, on the Commencement Date, Tenant shall pay the prorated portion of
the Monthly Base Rent for the partial month during which the Commencement Date
falls.
4.2 Additional Rent. Tenant shall pay to Landlord, as additional Rent
(as defined in Section 26), any increase in Operating Costs (as defined in
Section 26) for each calendar year over the Operating Costs for the Base Year
("Increased Operating Costs"), in accordance with Section 5. Tenant shall pay
the Increased Operating Costs, together with Tenant's payment of the Monthly
Base Rent, without deduction, setoff, prior notice or demand except as provided
in Section 5.
4.3 Fair Market Rent. "Fair Market Rent" under Section 3.3 shall be the
then going market rental rate (including escalations and an adjusted base year),
calculated at the average effective rate after taking into account any "free
rent" or other equivalent concessions in lieu of free rent and tenant
improvements or allowances (including the value of the existing improvements in
the Premises, whether paid for by Landlord or Tenant), for comparable space in
comparable buildings in the area known as "South of Market" in San Francisco,
California, for a term equivalent to the Extended Term.
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(a) If Landlord and Tenant do not agree on the Fair Market Rent
for the Premises within thirty (30) days after Landlord's receipt of Tenant's
notice exercising the Extension Option, the Fair Market Rent of the Premises
will be determined as follows:
(b) Each of Landlord and Tenant shall, by notice to the other,
appoint an appraiser with at least five (5) years' experience appraising the
rental values of buildings comparable to the Building in the South of Market
area. The appraisers appointed by the parties shall be independent and have no
economic interest in the outcome of the appraisal procedure apart from the
payment of customary appraisal fees.
(c) If either party fails to give notice of appointment of an
appraiser within ten (10) business days after receipt of the other party's
notice of appointment, the appraiser selected by the first party will solely
determine the Fair Market Rent of the Premises and, in the absence of fraud or
intentional misconduct, such appraiser's determination will be conclusive and
binding on the parties. If Fair Market Rent is determined by only one appraiser,
Landlord and Tenant each shall pay one-half of such appraiser's fees and costs.
(d) If two appraisers are timely appointed as described above,
they will jointly select an independent third appraiser who shall be a member of
the American Appraisal Institute holding the "MAI" designation and meeting the
qualifications described above. If the two appraisers appointed by the parties
cannot agree on a qualified third appraiser within ten (10) business days after
they have both been appointed, either Landlord or Tenant may apply to the
President or any Vice President of the local chapter of the American Appraisal
Institute for appointment of an independent appraiser meeting such
qualifications, in which case the appraiser first selected by such procedure
will serve as the third appraiser.
(e) Within thirty (30) days after the appointment of the third
appraiser, the appraisers will meet and attempt to determine the Fair Market
Rent for the Premises. If at least two (2) of the appraisers agree on the Fair
Market Rent for the Premises, such agreement will be conclusive and binding on
the parties and the appraisers will notify Landlord and Tenant of the Fair
Market Rent agreed upon.
(f) If at least two (2) appraisers cannot agree on the Fair
Market Rent for the Premises at their meeting, all appraisers shall submit to
Landlord and Tenant simultaneously an independent appraisal of the Fair Market
Rent for the Premises within thirty (30) days after appointment of the third
appraiser. The parties shall then determine the Fair Market Rent for the
Premises by averaging the appraisals, provided, however, that any high or low
appraisal that differs from the averaged appraisal by more than ten percent
(10%) shall be disregarded and the two remaining appraisals shall be averaged.
Each party shall pay the fees and costs of the appraiser it selects, and
one-half of the fees and costs of the third appraiser, if any.
(g) Upon determining the Fair Market Rent of the Premises,
Landlord and Tenant shall execute an amendment to this Lease setting forth the
Monthly Base Rent, the new Base Year and any other relevant economic terms and
conditions for the Extended Term. If such determination of Fair Market Rent is
not made before the commencement of the Extended Term, Tenant will continue
paying Monthly Base Rent at the rental rate in effect immediately before
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the commencement of the Extended Term and an adjustment shall be made
retroactively when the Fair Market Rent is determined.
4.4 Late Charge and Interest. Late payment of Rent will cause Landlord
to lose the use of such funds and incur costs not contemplated by this Lease,
the exact amount of which is difficult and impracticable to fix. Accordingly, if
any Rent is not paid by the due date, Tenant shall pay to Landlord a late charge
equal to ten percent (10%) of the overdue amount. In addition, if any Rent is
not paid by the due date, all such past due Rent shall bear interest from the
due date until paid at the Interest Rate (as defined in Section 26). At any time
that Rent has been paid after the due date for two (2) consecutive months for
whatever reason, Landlord shall have the option to require that, beginning with
the first payment of Rent due following the second late payment, Tenant shall
pay Rent in quarterly installments (i.e., three months' Rent shall be paid with
each installment) until Tenant has made four (4) consecutive quarterly
installments on or before the due date at which time Tenant may commence paying
Rent on a monthly basis. Landlord's acceptance of late payment charges and
interest is not a release or waiver by Landlord of a default by Tenant.
4.5 Security Deposit.
(a) Within five (5) business days after execution of this Lease,
Tenant shall deposit with Landlord the amount specified in the Basic Lease
Information as security deposit ("Security Deposit") in the form of a clean,
irrevocable, standby letter of credit meeting the requirements in Section 4.5(b)
("Letter of Credit"). The Security Deposit shall secure Tenant's obligations
under this Lease, including Tenant's obligation to pay Rent and other monetary
amounts. If Tenant defaults under this Lease (even if an Event of Default (as
defined in Section 16.1) has not occurred), Landlord may, but without any
obligation to do so, apply any portion of the Security Deposit towards
fulfilling Tenant's unperformed obligations. If Landlord draws down the Letter
of Credit and uses, retains or applies all or a portion of the funds received
therefrom to cure Tenant's default under this Lease or to compensate Landlord
for damages resulting from Tenant's default, Tenant shall deposit with Landlord
cash in an amount equal to that used, retained or applied by Landlord so that
the total amount of Security Deposit held by Landlord equals that the amount
shown in the Basic Lease Information. Tenant 's failure to do so within five (5)
days after receipt of such demand shall constitute an incurable Event of
Default. Landlord shall hold the Security Deposit without liability for interest
on the same. Landlord is entitled to commingle the Security Deposit with its own
funds. Upon termination of this Lease, Landlord shall return the Security
Deposit to Tenant, less any amounts needed to compensate Landlord for Tenant's
failure to comply with the terms of this Lease. If Landlord sells or otherwise
transfers Landlord's right or interest under this Lease, Landlord shall deliver
the Security Deposit to the transferee, whereupon Landlord shall be released
from any further liability to Tenant with respect to the Security Deposit.
(b) The Letter of Credit shall be issued in favor of Landlord by
a reputable California financial institution reasonably satisfactory to Landlord
("Issuing Bank"). The Letter of Credit shall: (i) have a maturity date not less
than one (1) year from the date of issuance; (ii) require the Issuing Bank to
provide notice to Landlord of the scheduled expiration date not less than thirty
(30) days nor more than forty-five (45) days before the scheduled expiration of
the Letter of Credit; (iii) permit full or partial drawings to be made by
Landlord at any time before
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expiration; (iv) require the Issuing Bank to pay on the Letter of Credit upon
Landlord's presentation thereof, together with a sight draft and a statement
signed by Landlord certifying that, under the provisions of Section 4.5 of the
Lease, Landlord is entitled to draw upon the Letter of Credit; and (v) prevent
Tenant from revoking, canceling, or otherwise modifying the Letter of Credit
before the Term expires.
(c) If the Letter of Credit is due to expire before the
expiration date of the Lease and the Issuing Bank has not issued and Tenant has
not delivered to Landlord, at least thirty (30) days before the scheduled
expiration of the Letter of Credit, a new Letter of Credit meeting all of the
requirements stated above (except that the expiration date of the new Letter of
Credit need not extend beyond the expiration date of the Lease), then Landlord
may draw down the entire amount of the expiring Letter of Credit and retain such
amount as a cash Security Deposit and use any such amount pursuant to Section
4.5(a) above. If an Event of Default occurs, Landlord shall have the right to
draw down the Letter of Credit, in whole or in part, and to use, retain or apply
the funds thereupon obtained by Landlord in the manner permitted under Section
4.5(a) above.
(d) Provided an Event of Default has not occurred, Tenant shall
have the right to reduce the Letter of Credit to [*] after the second year of
the Initial Term, [*] after the fourth year of the Initial Term, [*] after
the sixth year of the Initial Term and [*] after the eighth year of the Initial
Term (which Tenant shall maintain for the remaining Term).
5. OPERATING COSTS
5.1 Increased Operating Costs. Before the start of each calendar year
during the Term, or as soon thereafter as practicable, Landlord shall furnish
Tenant with a statement of its estimate of the Increased Operating Costs for the
following calendar year ("Landlord's Estimate"). On the first day of each
calendar month during such calendar year, Tenant shall pay to Landlord
one-twelfth (1/12th) of the amount in Landlord's Estimate, together with the
Monthly Base Rent.
5.2 Reconciliation of Operating Costs. By April 30th after the end of
each calendar year, or as soon thereafter as Landlord has sufficient data,
Landlord shall submit to Tenant a statement showing the actual Operating Costs
paid or incurred by Landlord during the previous calendar year. If the actual
Increased Operating Costs is less than the amount Tenant paid under Section 5.1
for such calendar year, then Landlord shall credit the amount of such difference
against the next payments of Increased Operating Costs coming due or, if the
Term has expired, pay such difference directly to Tenant . If the actual
Increased Operating Costs is more than the amount Tenant paid under Section 5.1
for such calendar year, Tenant shall pay to Landlord the full amount of such
difference at the monthly rent payment date next following the submittal of such
statement to Tenant.
5.3 Tenant's Inspection Rights. Provided there is no Event of Default,
within thirty (30) days after receipt of Landlord's annual statement ("Audit
Period"), Tenant may, upon reasonable prior written notice to Landlord and
during normal business hours at the place where Landlord's records for the
Building are maintained, cause a certified public accountant ("CPA")
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to copy (at Tenant's expense), inspect and audit those books and records of
Landlord relating to the determination of Operating Costs for the calendar year
for which such statement was prepared. If Landlord's computation of Increased
Operation Costs exceeds the actual Increased Operation Costs by more than five
percent (5%) and Tenant has conducted such an audit, Landlord shall pay within
thirty (30) days of its receipt of an invoice, the reasonable costs and expenses
of the audit which shall not exceed One Thousand Dollars ($1,000). If Tenant
fails to exercise its inspection rights or dispute Landlord's annual statement
within the Audit Period, Landlord's annual statement shall conclusively be
deemed to be correct, and Tenant shall be bound by Landlord's determination.
5.4 Proration. If the Term commences on a date other than January 1, or
ends on a date other than December 31, the Increased Operating Costs for such
first or last calendar year of the Term shall be prorated based on what the
number of days in the Term in that year bears to 365; and any amounts owed or to
be credited pursuant to Section 5.2 shall be paid in the year immediately
following the year in which the Term ends, in accordance with Section 5.2.
6. USE OF PREMISES
6.1 Permitted Use. Tenant shall use the Premises solely for the uses
specified in the Basic Lease Information as a "Permitted Use," and shall not use
or permit the Premises to be used for any other purpose, except with Landlord's
prior written consent (which may be withheld in Landlord's sole and absolute
discretion).
6.2 Limitations on Use. Tenant shall not do, bring, or keep anything in
or about the Premises that will cancel any insurance covering the Building. If
any insurance rate increases as a result of Tenant's use of the Premises, Tenant
shall pay for any such increase within ten (10) days after Landlord's notice.
Tenant shall not use or permit the Premises to be used in any way that will
constitute waste, nuisance, or unreasonable annoyance to other tenants in the
Building.
6.3 Compliance with Laws. Tenant shall comply with all Laws concerning
the Premises or Tenant's use and occupancy of the Premises, including, without
limitation, the obligation, at Tenant's cost, to alter, maintain, or restore the
Premises in compliance with all Laws. Notwithstanding the foregoing, except with
respect to the Tenant Improvement Work, Tenant shall not be responsible for
performing capital improvements to the Premises or the Building except to the
extent they arise from Tenant's particular use of the Premises, Tenant's
Alterations (as defined in Section 26), Tenant's employment practices or
Tenant's space design.
6.4 Heavy Load. Tenant shall not bring into the Building, or keep in the
Premises, any furniture, equipment, or other objects which individually or
collectively overload the Premises or the Building. Landlord reserves the right
to prescribe the weight and position of all safes, fixtures and heavy
installations in the Premises so as to distribute properly the weight, or to
require plans prepared by a qualified structural engineer, at Tenant's sole
cost, for such heavy objects. Furthermore, Tenant shall take such measures as
Landlord requires to eliminate any noise and/or vibration caused by Tenant's
machines and equipment if such noise and/or vibration may be transmitted to the
Building's structure. Notwithstanding the foregoing, Landlord shall have no
liability for damage caused by the installation of safes and heavy equipment, or
by the noise and/or vibration caused by Tenant's machines and equipment.
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6.5 Hazardous Substances. Tenant shall not use, produce, manage,
contain, store, treat or dispose of ("Use") Hazardous Substances (as defined in
Section 26) in, on or about the Premises, except with Landlord's prior written
consent and in compliance with all Laws. Notwithstanding the foregoing, Tenant
may Use any ordinary and customary materials that are used as a routine part of
Tenant's business, so long as such Use (i) complies with all Laws, (ii) does not
require a permit from, or with respect to which a report, notice, registration
or business plan is required to be filed with, any governmental authority, and
(iii) does not expose the Premises or the Building, or the neighboring
properties to any meaningful risk of contamination or damage or expose Landlord
to any liability. Tenant shall notify Landlord in writing of the presence of any
Hazardous Substance in, on or about the Premises, of any regulatory action or
notice, and of any third party claim arising from any Hazardous Substance.
7. PARKING
7.1 Tenant's Right to Use. Tenant shall have the right to use up to
thirty-three (33) unassigned parking spaces ("Parking Allotment") in the parking
lot located behind the Building ("Parking Lot"), provided Tenant pays the
parking fee for such spaces ("Parking Fee"). For the first year of the Term, the
Parking Fee shall be $200 per month per parking space. Thereafter, the Parking
Fee shall be adjusted as of each anniversary of the Commencement Date to its
then current market rate as determined by Landlord in its sole determination
exercised in good faith, provided, however, that the Parking Fee shall not be
less than $200 per month per parking space. The Parking Fee shall be payable on
the first day of each calendar month during the Term. If at any time during the
Term Tenant elects to use fewer parking spaces than the Parking Allotment,
Tenant shall be able to use additional parking spaces up to the Parking
Allotment only as such spaces become available from time to time for rental.
Thus, for example, if in year three of the Lease, Tenant elects to use
twenty-five (25) parking spaces, and in year six of the Lease, Tenant desires to
use the four (4) parking spaces remaining in the Parking Allotment, Tenant shall
have the right to use those spaces only if they are then available for rental.
Notwithstanding anything to the contrary in this Lease, if Landlord "recaptures"
a portion of the Premises pursuant to Section 15.3, the Parking Allotment shall
be proportionately reduced to reflect the decreased size of the Premises leased
by Tenant.
7.2 Landlord's Management of Parking Lot. Landlord shall manage, operate
and control the Parking Lot in such manner as Landlord in its sole discretion
deems appropriate. Provided Tenant's right to use the permitted number of
parking spaces is not adversely and materially affected, Landlord shall have the
right to: (a) establish and enforce reasonable rules and regulations applicable
to all users of the Parking Lot (and Tenant and its Authorized Representatives
shall observe such rules and regulations); (b) change, alter or add to the
Parking Lot, or rearrange parking spaces therein, (c) temporarily close the
Parking Lot so long as Landlord makes alternative, temporary parking
arrangements for Tenant, and (d) repair, maintain, restore and perform such
other acts with respect to the Parking Lot that Landlord deem appropriate.
7.3 Additional Parking Rights. Once Landlord has received all required
approvals and permits to construct the building at 840 Brannan Street ("Brannan
Building") and has constructed the Brannan Building and the parking facilities
therefor, Tenant shall have the right to lease an additional eight (8)
unassigned parking spaces ("Additional Parking") on the same
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terms and conditions as the Parking Allotment except as otherwise provided in
this Section 7.3. The right to the Additional Parking shall be personal to the
Tenant originally named in the Lease and shall terminate automatically if
Landlord is no longer the owner of the Brannan Building. Landlord shall also
have the right to terminate Tenant's right to the Additional Parking by giving
Tenant thirty days' written notice, in which case Tenant shall have the right,
without payment of additional Parking Fees, to park eight (8) additional cars in
a tandem configuration ("Tandem Spaces") within the spaces originally used in
the Parking Lot for the Parking Allotment, but only to the extent the Tandem
Spaces permitted under Laws and do not interfere with driveways, firelanes and
the like. Notwithstanding anything to the contrary in this Lease, if Landlord
"recaptures" a portion of the Premises pursuant to Section 15.3, the Additional
Parking and the Tandem Spaces shall be proportionately reduced to reflect the
decreased size of the Premises leased by Tenant.
8. UTILITIES AND SERVICES
8.1 Tenant's Responsibility. Landlord shall cause gas, electricity,
water and sewer utility lines to be made available up to the Premises as part of
Landlord's Work. Tenant shall make all arrangements for and pay for all
utilities and services furnished to or used by it, including, without
limitation, gas, electricity, water, telephone service, trash removal,
telecommunications, fiber optic cable, and for all connection charges. Tenant
agrees that its normal business hours shall be from 7 AM to 6:30 PM Mondays
through Fridays, excluding holidays. Tenant shall also make all arrangements for
and pay for janitorial services to the Premises pursuant to a janitorial
contract with a provider approved by Landlord (which shall not unreasonably be
withheld). Tenant shall also be responsible for all trash removal from the
Premises.
8.2 No Liability for Interruption. Landlord shall not be liable in
damages or otherwise for any failure or interruption of any utility service or
other service being furnished to the Premises and no such failure or
interruption shall entitle Tenant to an abatement of Rent or to terminate this
Lease. Except as may be installed as part of the Tenant Improvement Work, Tenant
shall not, except with Landlord's prior written consent, either: (a) use any
heating or cooling apparatus or device in the Premises; or (b) connect with
electric current or water pipes any device or apparatus for the purpose of using
electrical current or water.
9. TENANT'S TAXES
9.1 Payment by Tenant. Tenant shall pay before delinquency all taxes,
assessments, license fees, and other charges (collectively, "Taxes") that are
levied or assessed against Tenant during the Term, including, but not limited
to, Taxes levied or assessed against Tenant's leasehold interest or Tenant's
Personal Property (as defined in Section 26), Alterations, Tenant Improvement
Work, or Tenant's Trade Fixtures (as defined in Section 26) installed or located
in or on the Premises. On demand by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of these payments.
9.2 Reimbursement of Landlord. If any Taxes are levied against Landlord
or Landlord's property, or if the assessed value of the Building, or any portion
thereof, is increased by the inclusion of a value placed on Tenant's Personal
Property, Alterations, Tenant
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Improvement Work or Tenant's Trade Fixtures (or Tenant's leasehold interest),
and if Landlord pays the Taxes on any of these items or the Taxes based on the
increased assessment of these items, Tenant, on demand, shall immediately
reimburse Landlord for the sum of the Taxes levied against Landlord, or the
proportion of the Taxes resulting from the increase in Landlord's assessment.
Landlord shall have the right but not the obligation to pay and be immediately
reimbursed by Tenant for these Taxes regardless of the validity of the levy.
10. MAINTENANCE AND REPAIR
10.1 Landlord's Obligations. Except as provided in Sections 13 and 14,
Landlord shall maintain in good condition, reasonable wear and tear excepted:
(a) at Landlord's cost, the foundation, bearing and exterior walls (but
excluding any glass, windows, doors and the interior surfaces of exterior
walls), subflooring, and the structural portions of the roof (and excluding
gutters and downspouts) of the Building, and (b) subject to Section 5 of this
Lease, the Base Building Facilities, the sidewalks and landscaped areas around
the Building and the Parking Lot. If any such maintenance and repair to any part
of the Building which Landlord is obligated to maintain or the Parking Lot is
required because of the acts or omissions of Tenant or Tenant's Authorized
Representatives, Landlord shall perform such maintenance and repair at Tenant's
sole cost. Tenant waives the benefit of any statute, ordinance or judicial
decision now or hereafter existing which permits Tenant to make repairs at
Landlord's expense.
10.2 Tenant's Maintenance. Except as provided in Sections 10.1, 13 and
14, Tenant at its cost shall maintain, in good operating condition and repair,
all portions of the Premises, including, without limitation, all fixtures,
interior walls, ceilings, floors, floor coverings, windows, doors, Tenant's
Personal Property, Alterations, Tenant Improvement Work and Tenant's Trade
Fixtures and signs. If Tenant fails to perform its obligations under this
Section, Landlord may, but need not, make such repairs and replacements and
Tenant shall pay Landlord the cost thereof as Rent under this Lease upon being
billed for same.
10.3 ADDITIONS AND ALTERATIONS
10.4 Landlord's Consent. Except for Minor Alterations (as defined
below), Tenant shall make any Alterations to the Premises only with Landlord's
prior written consent, which shall not be unreasonably withheld, conditioned or
delayed. Landlord hereby consents to Tenant's installation of a security system
in the Premises (which system shall include coverage of the stairwells),
provided, however, that all such work shall be performed at Tenant's sole cost
and in accordance with Section 11.2 below, and Tenant shall be responsible, at
its cost, for the maintenance and repair of such system. "Minor Alterations"
shall consist of nonstructural alterations, additions and improvements to the
Premises not involving the Base Building Facilities, not affecting the exterior
of the Building, not involving Alterations that may materially and adversely
affect the value of the Building and not exceeding Fifteen Thousand Dollars
($15,000) in hard costs per project. While Landlord's prior written consent
shall not be required for Minor Alterations, Tenant shall give Landlord at least
thirty (30) days' prior written notice describing the proposed Minor Alterations
and the construction schedule therefor.
10.5 Manner of Construction. Landlord may impose, as a condition of its
consent to any Alterations, such requirements as Landlord in its reasonable
discretion may deem desirable,
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including (but not limited to) the requirement that Tenant use for such purposes
only contractors selected by Tenant and approved by Landlord (which approval
shall not be unreasonably withheld); provided, however, that Tenant shall use
subcontractors of Landlord's selection to perform all work that may affect the
Building systems and equipment, structural aspects of the Building, or exterior
appearance of the Building. Tenant shall construct all Alterations (including
Minor Alterations) in compliance with all Laws and pursuant to a valid building
permit, issued by the City of San Francisco and in accordance with Landlord's
construction rules and regulations. Any Alterations shall be performed in
conformance with plans, specifications and working drawings ("Plans") first
approved by Landlord. Landlord's approval of the Plans shall create no
responsibility or liability on Landlord's part for their completeness, design
sufficiency, or compliance with Laws. Tenant agrees to carry "Builder's All
Risk" insurance in an amount approved by Landlord, and such other insurance as
Landlord may reasonably require. In addition, for projects which will cost more
than One Hundred Thousand Dollars ($100,000), Landlord may, in its discretion,
require Tenant to obtain a lien and completion bond or some alternate form of
security satisfactory to Landlord in an amount sufficient to ensure the
lien-free completion of such Alterations and naming Landlord as a co-obligee.
Upon completion of any Alterations, Tenant agrees to cause a Notice of
Completion to be recorded in the Office of the Recorder of the City and County
of San Francisco in accordance with Section 3093 of the California Civil Code or
any successor statute and Tenant shall deliver to the Building management office
a reproducible copy of the "as built" drawings of the Alterations.
10.6 Payment for Alterations. Tenant shall pay for the cost of all
Alterations, even if such Alterations involve or affect areas outside the
Premises. If Tenant orders any Alteration directly from Landlord (or from
Landlord's contractor), the charges for such work shall be deemed Additional
Rent under this Lease, payable upon billing therefor. Once the Alterations are
completed, Tenant shall deliver to Landlord, if Tenant has paid contractors
directly, evidence of payment, contractors' affidavits and full and final
waivers of all liens for labor, services or materials. If Tenant does not order
any work directly from Landlord, Tenant shall reimburse Landlord for Landlord's
reasonable out-of-pocket costs and expenses actually incurred in connection with
Landlord's review of and/or involvement with such work.
10.7 Landlord's Property and Fixtures. All Alterations shall become
Landlord's property ad shall be surrendered with the Premises at the end of the
Term, except that Tenant may remove any Alterations which Tenant can
substantiate to Landlord have not been paid for with any funds from Landlord,
provided Tenant repairs any damage to the Premises and Building caused by such
removal. Furthermore, Landlord can elect at the end of the Term, by written
notice, to require Tenant to remove any Alterations. If Landlord so elects,
Tenant at its sole cost shall remove such Alterations and restore the Premises
to the condition designated by Landlord, before the last day of the Term. At
Tenant's request, Landlord shall advise Tenant in writing when Tenant requests
Landlord's consent to an Alteration whether Landlord will require Tenant to
remove such Alteration at the end of the Term. If Tenant fails to promptly
complete such removal and/or to repair any damage caused by the removal of any
Alterations, Landlord may do so and may charge the cost thereof to Tenant.
Tenant hereby indemnifies, defends and holds Landlord harmless from any Claims
(as defined in Section 26) relating to the installation, placement, removal or
financing of any Alterations.
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10.8 Covenant Against Liens. Tenant shall give Landlord at least ten
(10) business days' written notice before commencing any Alterations so that
Landlord can post and record a notice of nonresponsibility. Tenant shall keep
the Building free of all liens resulting from work done or materials furnished
by or for Tenant. Tenant may contest such lien if Tenant records a lien release
bond for one and one-half times the lien amount. If such lien is not released
and removed within thirty (30) days after the date Landlord delivers notice of
such lien to Tenant, Landlord, at its sole option, may immediately take all
action necessary to release and remove such lien, without any duty to
investigate the validity thereof, and all sums, costs and expenses, including
attorneys' fees and costs, that Landlord incurs in connection with such lien
shall be deemed Additional Rent under this Lease and shall immediately be due
and payable by Tenant.
11. INSURANCE, WAIVERS, INDEMNIFICATION
11.1 Tenant's Liability Insurance. Tenant, at its cost, shall maintain
liability insurance on an occurrence basis, in the minimum amount specified in
the Basic Lease Information, insuring against all liability of Tenant and its
Authorized Representatives arising out of and in connection with Tenant's use or
occupancy of the Premises or the Building and the business conducted by Tenant
or any other persons within the Premises. Such insurance shall include
contractual liability insurance coverage insuring performance by Tenant of the
indemnity provisions of Section 12.7. Such coverage shall also contain
endorsements reasonably required by Landlord from time to time. Tenant shall
also maintain Workers' Compensation insurance in accordance with California law.
11.2 Tenant's Personal Property Insurance. Tenant, at its cost, shall
maintain on all Tenant's Personal Property, Tenant's Work and Alterations, in,
on, or about the Premises, an "all risk" policy, with vandalism and malicious
mischief endorsements, for one hundred percent (100%) of their replacement cost.
If there is any plate glass in the Premises, Tenant shall also, at its cost,
maintain full coverage plate glass insurance on the Premises.
11.3 Landlord's Insurance. Landlord shall maintain an "all risk" policy,
with vandalism and malicious mischief endorsements, for at least ninety percent
(90%) of replacement cost of the Building. Landlord shall maintain a policy of
public liability and property damage insurance insuring against death or injury
to persons or damage to property occurring in or about the Building. Landlord
may procure and maintain such other forms of insurance coverage as Landlord
deems necessary or appropriate for the protection of the Building or Landlord's
interest in the Building (including, without limitation, insurance for loss of
rental income or damage due to earthquake), or as may be required by any
Landlord's Lender (as defined in Section 20).
11.4 General Insurance Requirements. All insurance required to be
maintained by Tenant under this Lease shall: (a) be issued by insurance
companies authorized to do business in California, with a financial rating of at
least A-XII as rated in the most recent edition of Best's Insurance Reports; (b)
be issued as a primary policy, and any insurance held by Landlord shall be
excess insurance; (c) contain an endorsement requiring thirty (30) days' prior
written notice from the insurance company to both parties and Landlord's Lender,
if any, before cancellation or change in the coverage or amount of any policy;
(d) require Tenant to deposit with Landlord before the commencement of the Term,
a certificate of all insurance policies required under this
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Lease and Tenant shall also deliver certificates of renewal at least thirty (30)
days before the term of each policy expires; (e) name Landlord and Landlord's
Lender as additional insureds; (f) provide for severability of interests and
that an act or omission of one of the parties insured under the policy shall not
reduce or avoid coverage to the other parties insured under the policy; (g)
contain an endorsement deleting any employee exclusion on personal injury
covered, endorsement including employees as additional insureds, endorsement
deleting any liquor liability exclusion and endorsement providing for coverage
of employer's automobile liability; and (h) be subject to increase, not more
frequently than every two (2) years, if in Landlord's broker's opinion, the
amount of insurance coverage maintained by Tenant at that time is not adequate.
In such case, Tenant shall increase the insurance coverage as required by
Landlord's insurance broker.
11.5 Waiver of Subrogation. Notwithstanding anything to the contrary in
the Lease, the parties release each other from any Claims for loss or damage
that are caused by risks covered under any insurance policies required by this
Lease and/or maintained in effect by the parties at the time of such damage.
Each party shall cause its insurer(s) to waive all right of recovery by way of
subrogation against either party for any loss or damage covered by such party's
insurance policy. Each party shall provide written notice to the other party if
such waiver is not obtained and shall indemnify, defend and hold the other
harmless from all Claims arising from the indemnifying party's failure to obtain
such a waiver from its insurance company unless such a waiver is not customarily
available.
11.6 Exculpation of Landlord. Neither Landlord nor Landlord's Authorized
Representatives shall be liable to Tenant for any damage to Tenant or Tenant's
property, including, but not limited to, lost profits and consequential damages
from any cause, except to the extent it is determined that the gross negligence
or wilful misconduct of Landlord or its Authorized Representatives acting within
the scope of their authority caused such damage.
11.7 Indemnification. Tenant shall indemnify, defend and hold Landlord
and Landlord's Authorized Representatives harmless from all Claims arising from
any cause in, on or about the Premises during the Term, or resulting from the
acts or omissions of Tenant or its Authorized Representatives (including,
without limitation, the Use of any Hazardous Substances or breach of Section
6.3), except to the extent it is determined that the gross negligence or wilful
misconduct of Landlord or its Authorized Representatives acting within the scope
of their authority caused such Claims.
12. DAMAGE AND DESTRUCTION
12.1 Repair of Damage. If during the Term the Premises are totally or
partially damaged ("Damage"), subject to Section 13.2, Landlord shall restore
the Premises (but excluding any of Tenant's Personal Property, equipment or
fixtures) to substantially the same condition as they were in immediately before
such damage, except for modifications required by zoning and building codes and
other Laws or by the Lender. If Landlord restores the Premises, Tenant shall be
required to restore Tenant's Alterations, Tenant Improvement Work, Tenant's
Trade Fixtures, and Tenant's Personal Property. Notwithstanding the foregoing,
Landlord may require Tenant to assign to Landlord all insurance proceeds payable
to Tenant under Tenant's insurance required under this Lease with respect to the
Alterations (including Tenant's payment of any deductible
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amounts there under), and Landlord shall repair any damage to the Alterations.
Such items shall be the sole responsibility of Tenant to restore and Landlord
shall have no responsibility for such restoration.
12.2 Termination Rights. Landlord may terminate this Lease by written
notice to Tenant if: (a) Landlord's restoration costs exceed the amount of
Landlord's insurance proceeds released by Lender for restoration purposes plus
any deductible maintained by Landlord in connection therewith by more than Fifty
Thousand Dollars ($50,000); (b) restoration by Landlord will take longer than
two hundred and ten (210) days (in the opinion of a licensed architect,
contractor or engineer appointed by Landlord), or actually takes longer than two
hundred and ten (210) days; or (c) the damage results from a risk not covered by
insurance required to be carried by Landlord in Section 12.3. In addition,
either party may terminate this Lease by written notice to the other party if:
(x) existing Laws do not permit the restoration, (y) the Damage to the Building
exceeds fifty percent (50%) of the then replacement value of that Building or
(z) the Premises are materially damaged during the last twelve (12) months of
the Term. Such notice must be given within fifteen (15) days after determining
that the restoration cost will exceed such insurance proceeds or that
restoration will take longer than the above-specified period (as the case may
be) or, in the case of (c) or (z) above, within thirty (30) days of the
casualty, in which case this Lease shall terminate on the date as specified in
the notice given by the terminating party.
12.3 Tenant's Remedies; Rent Abatement. Tenant shall have no claim
against Landlord for any damage suffered by Tenant by reason of any such damage,
destruction, repair or restoration, and Landlord shall not be liable for any
inconvenience or annoyance to Tenant, or injury to Tenant's business resulting
therefrom. Notwithstanding the foregoing, unless the acts or omissions of Tenant
or its Authorized Representatives resulted in the Damage, Monthly Base Rent and
the Increased Operating Costs payable under this Lease shall be abated in
proportion to the degree to which Tenant's use of the Premises is impaired from
the date of the damage to the date repairs are completed.
12.4 Lease to Control Rights. This Lease will exclusively govern the
parties' obligations with respect to any damage or destruction of the Premises
or the Building. Accordingly, Landlord and Tenant waive any Law, including
(without limitation) California Civil Code Sections 1932(2) and 1933(4), or any
successor statutes, with respect to any damage or destruction of the Premises.
13. CONDEMNATION
13.1 Partial Condemnation. If any portion of the Premises is taken for
public or quasi-public use by right of eminent domain (with or without
litigation), or transferred by agreement in connection with public or
quasi-public use ("Condemnation"), this Lease shall remain in effect, except
that either party can elect to terminate this Lease if twenty-five percent (25%)
or more of the total rentable square footage in the Premises is taken. To
terminate this Lease, effective as of the date the condemnor has the right to
possession ("Date of Taking"), Landlord or Tenant must give written notice to
the other party within thirty (30) days after the nature and the extent of the
Condemnation have been finally determined. All Rent shall be apportioned as of
the date of such termination, or the Date of Taking, whichever occurs first.
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13.2 Temporary Taking. Notwithstanding anything to the contrary, in the
event of a temporary taking of all or any portion of the Premises for a period
of one hundred and eighty (180) days or less, then this Lease shall not
terminate but the Rent shall be abated for the period of such taking in
proportion to the ratio that the amount of rentable square feet of the Premises
taken bears to the total rentable square feet of the Premises. Landlord shall be
entitled to receive the entire award made in connection with any such temporary
taking.
13.3 Total Taking. A total taking of the Building shall automatically
terminate this Lease.
13.4 Restoration of Premises. If there is a partial Condemnation of the
Premises and this Lease remains in effect, Landlord shall restore the Premises
to an architectural whole, except that Tenant shall be solely responsible for
Tenant Improvement Work, Tenant's Personal Property, Tenant's Trade Fixtures and
Alterations made to the Premises by Tenant.
13.5 Award-Distribution. Landlord shall receive the entire award for any
Condemnation, except that Tenant may receive any sum specifically awarded on
account of Tenant's Personal Property, Tenant's Trade Fixtures, or for moving
expenses.
14. ASSIGNMENT AND SUBLEASE
14.1 Landlord's Consent Required. Except with respect to Permitted
Transferees, Tenant shall not assign, mortgage, pledge, hypothecate, encumber or
otherwise transfer this Lease or any interest in this Lease, and shall not
sublet the Premises ("Transfer"), or suffer or permit the Premises to be
occupied by any third person other than Tenant's Authorized Representatives,
without Landlord's prior written consent. Subject to the terms and conditions of
this Section, Landlord shall not unreasonably withhold its consent to a Transfer
so long as the Transfer does not involve any change in the use of the Premises
authorized under Section 6.1.
14.2 Tenant's Application. Tenant shall submit in writing to Landlord,
at least fifteen (15) business days before the proposed effective date of the
Transfer ("Proposed Effective Date") the following information ("Tenant's
Application"): (a) the Proposed Effective Date; (b) the name, use and business
of the proposed transferee of the Transfer ("Transferee"); (c) the terms of the
proposed Transfer; (d) such certified financial information or other information
as Landlord may reasonably request; and (e) evidence satisfactory to Landlord
that the proposed Transferee will immediately occupy and thereafter use the
affected portion of the Premises for the entire term of the Transfer agreement.
If Landlord approves the proposed Transfer, it shall notify Tenant in writing
thereof. No purported Transfer shall be deemed effective and no proposed
Transferee shall take occupancy until Landlord has received a copy of the
executed Transfer document(s) and executed Landlord's consent thereto. If
Landlord disapproves the proposed Transfer, it shall notify Tenant in writing
thereof, specifying the reason(s) therefor. However, if Landlord and Tenant
dispute the reasonableness of Landlord's disapproval of the proposed Transfer,
Landlord shall not be limited to the reason(s) specified in its notice.
14.3 Landlord's Recapture Right. Notwithstanding anything to the
contrary, Landlord shall have the right, to be exercised in writing within
fifteen (15) days after receiving the completed Tenant's Application, to
terminate this Lease in the case of an assignment of the Lease
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or to recapture the portion of the Premises subject to the proposed Transfer.
Such termination or recapture shall be effective as of the date specified in
Landlord's notice exercising such option, which effective date of termination or
recapture shall not be less than thirty (30) nor more than ninety (90) days
following the receipt of such notice. Notwithstanding the foregoing, Landlord's
recapture right shall not apply to subleases of the Premises (a) during the
first three (3) years of the Initial Term, provided no more than fifty percent
(50%) of the rentable area of the Premises is subleased at any one time during
such period (or, if Tenant leases the entire Brannan Building from Landlord, no
more than two (2) floors of the Premises are subleased at any one time during
such period) and (b) at any time thereafter, provided no more than one-third
(1/3) of the rentable area of the Premises is subleased at any one time
thereafter. If the area subleased exceeds those areas specified in clauses (a)
or (b) of the immediately preceding sentence, Landlord may, at any time,
terminate or recapture any and all spaces sublet. If Landlord exercises any
cancellation or recapture rights hereunder, Tenant and any subtenants shall
surrender possession of the Premises on the date specified in such notice and in
accordance with the provisions of this Lease relating to surrender of the
Premises at the expiration of the Term.
14.4 No Release of Tenant. Landlord's consent to any Transfer shall not
relieve Tenant of its obligations under this Lease. Landlord's consent to any
Transfer shall not relieve Tenant from the obligation to obtain Landlord's prior
written consent to any other Transfer. Landlord's acceptance of payment from any
other person shall not be deemed a waiver by Landlord of any provision of this
Lease, or a consent to any Transfer, or a release of Tenant from any obligation
under this Lease. If this Lease is Transferred, or if the Premises are occupied
by any person other than Tenant, Landlord may, after default by Tenant, collect
the Rent from any such Transferee or occupant and apply the net amount collected
to the Rent payable under this Lease, and no such action by Landlord shall be
deemed a consent to such Transfer or occupancy.
14.5 Assumption of Obligations. Each Transferee shall assume Tenant's
obligations under this Lease and shall be liable, jointly and severally, with
Tenant under this Lease. Each Transferee shall observe and perform the
provisions of this Lease so far as applicable under the Transfer document. All
Transfer agreements shall be expressly subject and subordinate to this Lease and
shall not change this Lease in any way. No Transfer shall be binding on Landlord
unless the Transferee or Tenant delivers to Landlord a counterpart of the
Transfer document in a form approved by Landlord, duly executed by all parties.
Landlord shall have no obligation to perform any duty to or respond to any
request from any subtenant, it being the obligation of Tenant to administer the
terms of its subleases.
14.6 Deemed Transfers. If Tenant is a privately held corporation, or an
unincorporated association or partnership, the Transfer of any stock or interest
in such corporation, association or partnership in the aggregate from the date
of execution of this Lease in excess of fifty percent (50%) shall be deemed a
Transfer.
14.7 Assignment of Sublease Rents. Tenant immediately and irrevocably
assigns to Landlord all rent from any subletting of the Premises, and Landlord,
as assignee and as attorney-in-fact for Tenant for purposes hereof, or a
receiver for Tenant appointed on Landlord's application, may collect such rents
and apply same toward Tenant's obligations under this Lease; provided, however,
that Tenant shall have the right to collect such rents so long as an Event of
Default does not exist under this Lease.
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14.8 Excess Rent. Landlord shall receive fifty percent (50%) of all
Excess Rent payable in connection with any Transfer. "Excess Rent" means the
excess of (a) all consideration received by Tenant from a Transfer over (b) Rent
payable under this Lease after deducting reasonable leasing commissions,
amortized cost of any improvement and any other reasonable out-of-pocket costs
paid by Tenant as a result of the Transfer. If Tenant has the license to collect
the rents from the Transferee under Section 15.6 above, within fifteen (15) days
after written request by Landlord, Tenant shall provide and certify to Landlord
all financial information required for the calculation of Excess Rent.
14.9 Fee for Review. Tenant shall pay, within thirty (30) days of
request, Landlord's legal fees and costs reasonably incurred in processing,
approving and documenting any Transfer.
14.10 Permitted Transfers. Notwithstanding anything to the contrary,
Tenant may, without Landlord's prior written consent, but upon at least thirty
(30) days' prior written notice to Landlord, and without being subject to
Sections 15.3 and 15.8 above, Transfer the Lease to the following parties
("Permitted Transferees"): (a) a corporation controlling, controlled by or under
common control with Tenant, (b) a successor corporation related to Tenant by
merger, consolidation, non-bankruptcy reorganization or government action, or
(c) a purchaser of substantially all of Tenant's assets, provided that in each
of the foregoing Transfers, the net worth of the surviving entity is equal to or
greater than that of Tenant immediately before the Transfer, and provided
further that, Tenant shall not be released from any liability hereunder.
Additionally, any sale or transfer of Tenant's capital stock in connection with
any public or private securities offering or any sale of Tenant's capital stock
over any nationally recognized public exchange (as opposed to a so-called "penny
stock" exchange) shall not be deemed a Transfer hereunder.
15. TENANT'S DEFAULT
15.1 Curable Defaults. An "Event of Default" shall be deemed to have
occurred if Tenant: (a) fails to pay Rent within three (3) days after notice to
Tenant; (b) fails to perform any obligation described in Sections 12, 20 and 24
of this Lease within three (3) days after notice to Tenant; or (c) fails to
perform any other obligation of this Lease (other than those obligations
described in Section 16.2 as incurable) within thirty (30) days after notice to
Tenant (except that if the failure to perform cannot reasonably be cured within
thirty (30) days, Tenant shall not be in default of this Lease if Tenant
commences to cure within five (5) days after Landlord's notice and diligently
pursues the cure to completion). The notice periods under this Section are in
lieu of and not in addition to any notice required under California Code of
Civil Procedure Sections 1161 and 1162.
15.2 Incurable Defaults. The following constitute a incurable Event of
Default by Tenant: (a) any default identified as an incurable Event of Default
in this Lease or which is not capable of being cured, (b) if Tenant breaches its
obligations under Sections 4.5 or 15.1, (c) Tenant admits in writing its
inability to pay its debts as they mature; (d) Tenant makes an assignment or
takes other action for the benefit of creditors; (e) any action is taken or
suffered by Tenant under any insolvency, bankruptcy, reorganization or other
debtor relief law; (f) a trustee or receiver is appointed to take possession of
substantially all of Tenant's assets or Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days, or (g)
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substantially all of Tenant's assets or Tenant's interest is attached, executed
upon or judicially seized, where such seizure is not discharged within thirty
(30) days.
15.3 Landlord's Remedies. Landlord shall have the following remedies if
Tenant commits a default. These remedies are not exclusive and are cumulative
and in addition to any remedies now or later allowed by law.
(a) Landlord can continue this Lease in effect and enforce all
its rights and remedies under this Lease, including the right to recover Rent
when due, for so long as Landlord does not terminate Tenant's right to
possession, as provided in California Civil Code Section 1951.4. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect Landlord's interests shall not constitute a termination
of Tenant's right to possession. No act by Landlord shall terminate this Lease
unless Landlord notifies Tenant in writing that Landlord elects to terminate
this Lease.
(b) Landlord can terminate this Lease and recover the worth at
the time of award of the amount by which the unpaid Rent for the balance of the
Term after the time of award exceeds the amount of Rent loss for the same period
that Tenant proves could reasonably be avoided, as computed under California
Civil Code Section 1951.2.
(c) Landlord can cure Tenant's default at Tenant's cost. Any sum
paid by Landlord shall bear interest at the Interest Rate from the date the sum
is paid by Landlord until Landlord is reimbursed by Tenant. The sum, together
with interest on it, shall be additional Rent.
(d) All third party costs and expenses (including attorneys'
fees) incurred by Landlord in collecting Rent or enforcing Tenant's obligations
under the Lease shall be paid by Tenant to Landlord upon demand.
16. LANDLORD'S DEFAULT
16.1 Cure Periods. Landlord shall have ten (10) days after written
notice from Tenant to cure a monetary default, and thirty (30) days after
written notice from Tenant to cure a nonmonetary default. However, if the
non-monetary default cannot be cured within thirty (30) days, Landlord shall
have such additional time as reasonably necessary to complete its performance so
long as Landlord diligently seeks to cure such default.
16.2 Notice to Landlord's Lender. Tenant shall deliver a copy of any
written notice of Landlord's default at the same time to any Lender (as defined
in Section 20), provided Landlord has delivered to Tenant prior notice of the
identity and address of Lender. Any such Lender shall have the same time periods
within which to cure Landlord's defaults as Landlord has to cure such defaults;
provided, however, such periods for the Lender shall commence ten (10) days
after Landlord's cure period commences and the Lender shall have such additional
time as may be needed to obtain control or ownership of the Building. In this
connection, any representative of Landlord's Lender shall have the right to
enter upon the Premises for the purpose of curing Landlord's default.
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16.3 Limitation on Landlord's Liability. Notwithstanding anything to the
contrary in this Lease, if Tenant recovers any judgment against Landlord for a
default by Landlord under this Lease, the judgment shall be satisfied only out
of the interest of Landlord in the Building; the partners, including the general
partner, officers, employees and agents of Landlord shall not be personally
liable for any such default or for any deficiency. The foregoing limitation on
liability shall not apply to Landlord's obligation to return the Security
Deposit or if Landlord draws on the Letter of Credit without the right to do so.
17. SIGNAGE
17.1 Landlord's Consent. Tenant shall not place (or permit to be placed)
in or upon the Premises where visible from outside the Premises or any part of
the Building, any signs, notices, drapes, shutters, blinds or window coatings,
or displays of any type without Landlord's prior written consent (which shall
not unreasonably be denied or delayed). Landlord shall consent to one exterior
sign on the west side of the northwest corner of the Building ("Exterior Sign"),
on the terms and conditions of Section 18.2. The right to the Exterior Sign
shall be personal to the Tenant originally named in the Lease (and its Permitted
Transferees) and shall not be transferable to any party.
17.2 Tenant's Obligations. Tenant shall comply with the following terms
and conditions with respect to all signage, including the Exterior Sign: (a)
Tenant shall obtain, at its cost, all necessary governmental approvals (Landlord
makes no representation with respect to Tenant's ability to obtain such
approvals); (b) the signage shall be in accordance with detailed signage
specifications which Tenant shall submit to Landlord for its prior approval; (c)
Tenant shall be responsible, at its cost, for installing and maintaining the
signage strictly in accordance with all Laws; (d) Tenant shall be responsible,
at its sole cost, for installing, maintaining and repairing the signage and
removing it at the termination or expiration of the Lease and repairing any
damage resulting from such removal; (e) the location of the Exterior Sign shall
be determined on or before the Commencement Date of this Lease by Tenant, with
Landlord's reasonable approval; (f) Landlord shall have the right, at its cost,
to relocate the Exterior Sign from time to time, with Tenant's reasonable
approval over the new location of the Exterior Sign; (g) if any signage affects
the structural integrity of the Building, the signage shall be relocated, or if
needed, removed, at Tenant's sole cost and expense. Tenant shall indemnify,
defend, and hold Landlord harmless from and against any and all Claims arising
from or in connection with the signage, unless solely caused by the gross
negligence or wilful misconduct of Landlord or its Authorized Representatives
(it being agreed that Tenant's indemnity obligation shall cover the negligence
of Landlord, its agents, contractors or employees).
17.3 Landlord's Rights. Landlord reserves the right in Landlord's sole
discretion to place and locate on the roof and exterior of the Building and in
any area of the Building not leased to Tenant, such signs, notices, displays and
similar items as Landlord deems appropriate in the proper operation of the
Building.
18. LANDLORD'S ENTRY ON PREMISES
Landlord and its Authorized Representatives shall have the right to enter the
Premises at all reasonable times (with reasonable prior notice except in an
emergency when no notice is
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required) for any reasonable purpose, including, without limitation, the
following: (a) to inspect the Premises; (b) to alter, improve or maintain the
Premises and the Building; (c) to show the Premises to prospective brokers,
agents, buyers, tenants or lenders; and (d) to post notices of
nonresponsibility, all without reduction or abatement of Rent. Landlord shall
have at all times a key to unlock all the doors in and about the Premises,
excluding Tenant's vaults and safes and other secure areas identified by Tenant
in a written notice to Landlord. Landlord shall have the right to use any means
which Landlord deems in good-faith to be proper to open the doors in an
emergency. Any such entry by Landlord and Landlord's Representatives shall
comply with all reasonable security measures of Tenant of which Landlord has
been given prior written notice and shall not impair Tenant's operations more
than reasonably necessary. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance, or other damage arising
out of such entry on the Premises as provided in this Section, except damage
resulting from the gross negligence or wilful misconduct of Landlord or its
Authorized Representatives acting within the scope of their authority, and
Tenant waives any Claims arising thereunder.
19. SUBORDINATION AND NONDISTURBANCE
"Lender" means the holder of any ground or underlying lease or loan
(including all extensions and modifications of, and any additional advances
under, such loan) affecting the Building or Landlord's interest therein, now or
later entered into by Landlord, and any deed of trust, mortgage or other device
securing such lease or loan ("Loan"). This Lease is and subordinate to any Loan.
Within ten (10) business days of Landlord's written request, Tenant shall from
time to time execute and deliver an agreement in Lender's customary form to
effectuate such subordination, which agreement shall contain commercially common
protections for Lender's benefit. Landlord agrees to obtain from Lender a
nondisturbance agreement in such Lender's customary form providing that Lender
shall not disturb Tenant's possession of the Premises or terminate the Lease,
provided Tenant is not in default under this Lease and Tenant recognizes or
"attorns" to Lender (or the buyer of the Building at a foreclosure or as a
result of a transfer in lieu of foreclosure) as the new Landlord.
20. NONWAIVER
No delay, waiver or omission in either party's exercise of any right or
remedy on a default of any provision by the other party shall be construed as a
waiver of such provision. Landlord's receipt and acceptance shall not constitute
a waiver of any other default. No act or conduct of Landlord, including, without
limitation, the acceptance of the keys to the Premises, shall constitute an
acceptance of Tenant's surrender of the Premises before the Term expires. Any
waiver by Landlord or Tenant of any default must be in writing and shall not be
a waiver of any other default concerning the same or any other provision of this
Lease.
21. SALE OR TRANSFER OF PREMISES
If Landlord sells or transfers all or any portion of the Premises or the
Building, on consummation of the sale or transfer, Landlord shall be released
from any liability thereafter accruing under this Lease if Landlord's successor
has assumed in writing Landlord's obligations under this Lease and Landlord has
transferred the Security Deposit to Landlord's successor.
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22. SURRENDER OF PREMISES
22.1 Condition. At the end of the Term, Tenant shall surrender to
Landlord the Premises and all Alterations and the Tenant Improvement Work in
good condition and repair (except for ordinary wear and tear and damage and
destruction to the Premises) except for Alterations that Tenant is obligated to
remove under Section 11.4, with all of Tenant's Personal Property and Tenant's
Trade Fixtures removed. Before the end of the Term, Tenant shall repair any
damage caused by the removal of any Alterations, Tenant's Personal Property or
Tenant's Trade Fixtures.
22.2 Removal of Tenant's Property. If, within ten (10) days after
written notice from Landlord to Tenant, Tenant fails to remove at the end of the
Term all Alterations that Tenant is obligated to remove at such time and all
Tenant's Personal Property and Tenant's Trade Fixtures from the Premises,
Landlord can elect to retain or dispose of such Alterations, Tenant's Personal
Property or Tenant's Trade Fixtures. Tenant waives all Claims against Landlord
for any damage resulting from Landlord's retention or disposition of any such
Alterations, Tenant's Personal Property or Tenant's Trade Fixtures. Tenant shall
be liable to Landlord for Landlord's costs for storing, removing, and disposing
of any such Alterations, Tenant's Personal Property or Tenant's Trade Fixtures.
23. ESTOPPEL CERTIFICATE, FINANCIALS
23.1 Estoppel Certificate. Tenant shall, within ten (10) business days
of Landlord's written request, execute and deliver to Landlord a statement in
writing (i) certifying that this Lease (including any modifications) is in full
force and effect, the Rent is as stated in this Lease, and the dates to which
the Rent is paid in advance, any, (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults by Landlord under this Lease, or
specifying such defaults if any are claimed, and (iii) covering such other
matters as may be reasonably requested by Landlord or by any present or
prospective Lender. Any such statement may be relied upon by any prospective
purchaser, ground lessor or encumbrancer of the Premises or of all or any
portion of the real property of which the Premises are a part.
23.2 Failure to Deliver. Tenant's failure to deliver such statement
within such time shall constitute an incurable Event of Default and shall be
conclusive upon Tenant (i) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) that there are no
uncured defaults in Landlord's performance, (iii) that not more than one month's
Monthly Base Rent has been paid in advance, and (iv) as to such other matters as
may be specified in the requested statement.
23.3 Tenant's Financial Data. Within fifteen (15) days after Landlord's
written request, Tenant shall furnish Landlord with accurate financial
statements and other documentation (such as organizational documents) reasonably
required by Landlord, Lender or a prospective buyer of the Building. Landlord
shall keep such statements confidential except from those with a reasonable
business need to know, provided, however, that Landlord shall not be liable for
the inadvertent disclosure of any information or the disclosure of any
information that is publicly available or is required by Laws to be disclosed.
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24. RIGHT OF FIRST OFFER
24.1 Grant of Right. Landlord grants to Tenant a one-time right of first
offer ("First Offer Right") during the Term with respect to that certain
building adjacent to the Building, to be known as 840 Brannan Street ("Brannan
Building") on the terms and conditions of Section 25. The First Offer Right
shall be with respect to the entire Brannan Building and not any portion
thereof. Notwithstanding anything to the contrary in this Lease, the First Offer
Right shall be personal to the Tenant originally named in the Lease (or its
Permitted Transferee) and shall be exercisable only if the Tenant originally
named in the Lease (or its Permitted Transferee) occupies two full floors in the
Building as of the date of Landlord's Notice and as of the Projected Delivery
Date (as those terms are defined in Section 25.2).
24.2 Procedure.
(a) If Landlord desires to lease the Brannan Building, Landlord
shall notify Tenant of the availability of the Brannan Building for leasing
("Landlord's Notice"). Landlord's Notice shall state the approximate square
footage of the Brannan Building, the projected delivery date for the Brannan
Building in its then "as is" condition ("Projected Delivery Date") and the rent
and other economic and major terms acceptable to Landlord. If Tenant wishes to
exercise the First Offer Right, Tenant shall so notify Landlord in writing
immediately and Landlord and Tenant shall negotiate for a period of ten (10)
business days after delivery of Landlord's Notice to Tenant ("Negotiation
Period").
(b) If Landlord and Tenant fail to execute in writing within the
Negotiation Period an agreement regarding the rent and other economic and major
terms acceptable to both parties in their sole discretion ("Basic Agreement"),
the First Offer Right shall terminate and Landlord shall be free to lease the
Brannan Building to any party on any terms whatsoever. If Landlord and Tenant
execute a Basic Agreement within the Negotiation Period, the parties shall
promptly execute a new lease for the Brannan Building using the terms and
conditions of this Lease except for the terms contained in the Basic Agreement
and that Landlord shall grant to Tenant the right to use all available parking
on the property of which the Brannan Building is a part.
24.3 Limitations on Tenant's Rights. At Landlord's option, Tenant shall
not have the right to exercise the First Offer Right or the First Parking Offer
Right (and any First Offer Right and First Parking Offer Right exercised by
Tenant will be voided) if (a) Landlord has given Tenant written notice, on or
before the date of Landlord's Notice or the Project Delivery Date, that a
default has occurred and Tenant has not yet cured such default, or (b) Landlord
has given Tenant written notice from Landlord, on more than two (2) occasions in
the preceding twelve (12) month period, that a default in the payment of Rent or
any other material default has occurred (regardless of whether such defaults
subsequently are cured). Notwithstanding anything to the contrary in this Lease,
in no event shall Tenant be allowed to exercise the First Offer Right if fewer
than twelve (12) months remain in the Term after Landlord's Notice.
25. DEFINITIONS. Unless otherwise provided, definitions of capitalized words
and phrases are as follows:
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25.1 "Alterations" means any addition, change, improvement, alteration
or modification to the Premises by Tenant, including, without limitation,
fixtures, but excluding Tenant's Trade Fixtures as defined below and the Tenant
Improvement Work as defined in the Work Letter.
25.2 "Authorized Representatives" means any director, officer, agent,
partner, employee, or independent contractor of the specified party, including
Landlord's Property Manager.
25.3 "Base Building Facilities" means the primary heating, ventilation
and air-conditioning equipment for the Building, the utility closets, the life
safety systems (including the sprinkler systems), the main telephone terminal
panels, the conduit for the fiber optic line (but not the actual extension or
connection thereof), the passenger elevators, and other improvements customarily
considered to be part of "Base Building" but only to the extent any of the
foregoing is installed as part of Landlord's Work".
25.4 "Claims" means losses, judgments, liabilities, demands, claims,
causes of action, costs and expenses (including the reasonable fees and costs of
attorneys and other consultants).
25.5 "Force Majeure" shall mean any prevention, delay or stoppage due to
strikes, lockouts, labor disputes, acts of God, inability to obtain labor or
materials or reasonable substitutes therefor, governmental restrictions,
governmental regulations, governmental controls, judicial orders, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes (except financial) beyond the reasonable control of the party obligated
to perform.
25.6 "Hazardous Substance" means any substance, material, waste,
pollutant or contaminant which is regulated by law as being hazardous, toxic,
flammable, carcinogenic, explosive or radioactive, or is potentially injurious
to the public health, safety or welfare or the environment.
25.7 "Interest Rate" means the lesser of (a) four per cent (4%) per
annum over the prime rate of interest announced from time to time by Bank of
America, San Francisco, California (or its successor), or (b) the maximum lawful
rate.
25.8 "Law(s)" means all laws, statutes, ordinances (including zoning
ordinances), judicial decisions, or other governmental rules, regulations,
orders or requirements (including those of a quasi-official entity or body such
as the board of fire examiners or public utilities or those imposed in
connection with conditional use permits or other governmental actions), now or
hereafter in force.
25.9 "Operating Costs" means all expenses, costs and disbursements of
every kind and nature which Landlord shall pay or become obligated to pay
because of or in connection with the ownership, management, operation,
maintenance and repair of the Building, except those items which are expressly
excluded below. Operating Costs shall include, without limitation, the
following:
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(a) Wages, salaries, taxes, insurance and related expenses and
benefits of all onsite and offsite employees to the extent engaged in the
operation or maintenance of the Building.
(b) All supplies, tools, equipment and materials used in
operating and maintaining the Building, including any lease payments therefor.
(c) Cost of utilities for the Building to the extent not payable
by Tenant under Section 6.
(d) Cost of all maintenance, repair and replacement expenses,
janitorial, building engineering, landscaping, security, legal, other consulting
fees and service agreements for the Building and the equipment therein which are
not otherwise directly paid by Tenant, including without limitation window
cleaning and elevator maintenance.
(e) Cost of all insurance carried by Landlord in connection with
the Building and Landlord's personal property used in connection therewith,
including any deductible amounts paid by Landlord with respect to such
insurance.
(f) All Property Taxes (as defined below).
(g) Repairs, replacements and general maintenance (excluding sums
paid by insurance proceeds or by Tenant or other third parties).
(h) All maintenance and repair costs relating to the sidewalks,
landscaped areas and, to the extent Operating Costs therefor exceed the Parking
Fees received with respect to the same, the Parking Lot.
(i) Amortization over the useful life of the cost of capital
improvement items, including interest at the one per cent (1%) per annum over
the prime rate of interest announced from time to time by Bank of America, San
Francisco, California (or its successor), which may reasonably reduce Operating
Costs or enhance the Building's operational efficiency or which may be required
by governmental authority.
(j) Landlord's central accounting costs and audit fees
attributable to the Building.
(k) A fee for building management, provided such fee does not
exceed ten percent (10%) of Operating Costs.
Notwithstanding the foregoing to the contrary, Operating Costs shall exclude the
following: the cost of repairs or other work occasioned by fire or other
casualty or hazard to the extent that Landlord receives insurance proceeds;
charges and fees incurred on debt and ground leases, including fines and
penalties incurred thereunder; cost for which Landlord receives reimbursement
from insurance carriers or any other third party; cost for any service for which
Tenant pays (either Landlord or a third party provider) on a direct basis; any
costs incurred in connection with repairing the structural parts of the Building
under Section 11.1.
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25.10 "Property Taxes" means all taxes, assessments and government
charges levied against the real property and improvements in the Building and
the Lot, all personal property taxes levied on Landlord's personal property used
in managing, operating, maintaining and repairing the Building, all taxes,
assessments and reassessments of every kind and nature whatsoever levied or
assessed in lieu of or in substitution for existing or additional real or
personal property taxes and assessments on the Building, service payment in lieu
of taxes, excises, transit charges and fees, development and other assessments,
reassessments, levies, fees or charges, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind which are assessed,
levied, charged, confirmed, or imposed during the Term by any public authority
upon the Building, the Building's operations or the rent received from the
Building, or amounts required to be expended because of governmental orders for
public improvements, services, benefits, or other similar purposes. Property
Taxes shall also include all expenses reasonably incurred by Landlord in
contesting or otherwise seeking reduction of Property Taxes if Landlord realizes
tax savings equal or greater to such expenses. Notwithstanding anything to the
contrary, Property Taxes shall exclude any franchise, estate, inheritance or
succession transfer tax of Landlord, or any income, profits or revenue tax or
charge, upon Landlord's net income from all sources.
25.11 "Rent" means all amounts payable by Tenant to Landlord under this
Lease, including, but not limited to, Monthly Base Rent, Increased Operating
Costs, late charges, interest on late payments and reimbursements of costs.
Landlord shall have the same remedies against Tenant for the failure to pay any
Rent when and as due, as Landlord has for Tenant's failure to pay Monthly Base
Rent.
25.12 "Tenant's Personal Property" means Tenant's equipment, furniture,
merchandise, inventory, accounts receivable, insurance proceeds, contracts,
intangibles and movable property placed in the Premises by Tenant, including
Tenant's Trade Fixtures.
25.13 "Tenant's Trade Fixtures" means any property installed in or on
the Premises by Tenant for purpose of trade, manufacture, ornament or related
use, provided the same may be removed without material damage to the Premises.
26. MISCELLANEOUS
26.1 Rules and Regulations. Landlord shall have the right from time to
time to promulgate rules and regulations for the safety, care and cleanliness of
the Premises, the Building, and the Parking, or for the preservation of good
order ("Rules and Regulations"). Attached to this Lease as Exhibit D is a set of
the current Rules and Regulations. Tenant shall comply with the Rules and
Regulations, together with all modifications and additions thereto adopted by
Landlord from time to time of which Tenant has been given prior written notice.
If there is a conflict between the Rules and Regulations and the remainder of
this Lease, the remainder of this Lease shall prevail.
26.2 Keys and Locks. Landlord shall furnish Tenant with a reasonable
number of keys to the Premises. Additional keys shall be furnished at a charge
by Landlord on an order signed by Tenant. All such keys shall remain Landlord's
property. Tenant shall not install any additional locks without Landlord's prior
written consent, and Tenant shall not make or permit to
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be made any duplicate keys. Upon termination of this Lease, Tenant shall
surrender to Landlord all keys of the Premises.
26.3 Force Majeure. Force Majeure shall excuse the performance by that
party for a period equal to the prevention, delay or stoppage, except the
obligations imposed with regard to Rent to be paid by Tenant pursuant to this
Lease; provided the party prevented, delayed or stopped shall have given the
other party written notice thereof within thirty (30) days of such event causing
the prevention, delay or stoppage. Notwithstanding anything to the contrary
contained in this Section 27.2, if any work performed by Tenant or Tenant's
contractor results in a strike, lockout and/or labor dispute, the strike,
lockout and/or labor dispute shall not excuse the performance by Tenant of this
Lease.
26.4 Time of Essence. Except as to performance of the Tenant Improvement
Work and delivery to Tenant of possession of the Premises, time is of the
essence of each provision of this Lease in which time is an element.
26.5 Construction. The definitions contained in this Lease shall be used
to interpret the Lease. All rights and remedies of Landlord and Tenant, except
as otherwise expressly provided, are cumulative and non-exclusive of any other
remedy at law or in equity. Tenant acknowledges that it has been represented by
counsel and the terms of this Lease have been fully negotiated; accordingly,
neither Landlord nor Tenant shall be deemed the drafter of the Lease in
interpreting any ambiguities in the provisions of this Lease.
26.6 Corporate Authority. If Tenant is a corporation, Tenant shall
deliver to Landlord on execution of this Lease a certified copy of a resolution
of Tenant's board of directors authorizing the execution of this Lease and
naming the officers that are authorized to execute this Lease on behalf of
Tenant.
26.7 Successors. Subject to Section 15 and except as otherwise specified
in this Lease, this Lease shall be binding on and inure to the benefit of the
parties and their successors and assigns.
26.8 Governing Law. This Lease shall be construed and interpreted in
accordance with the Laws of the State of California.
26.9 Joint and Several Obligations. If more than one person or entity is
Landlord or Tenant, the obligations imposed on that party shall be joint and
several.
26.10 Severability. The unenforceability, invalidity or illegality of
any provision of this Lease shall not render the other provisions unenforceable,
invalid, or illegal.
26.11 Entire Agreement; Amendments. This Lease contains the entire
agreement of the parties with respect to the subject matter contained herein and
supersedes any previous negotiations or agreements. This Lease cannot be amended
or modified except by a written agreement signed by the parties.
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26.12 Attorneys' Fees. If either party commences an action against the
other party arising out of or in connection with this Lease, the prevailing
party shall be entitled to have and recover from the losing party reasonable
attorney's fees and costs of suit.
26.13 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 given personally, by overnight
courier, by facsimile transmission during regular business hours (in which case
a copy thereof shall also be sent by prepaid, certified or registered mail) or
by prepaid, certified or registered mail, addressed to the other party at the
address set forth in the Basic Lease Information. Either party may change its
address by notifying the other party of the change of address in writing. Notice
shall be deemed communicated on the date of delivery except that, with respect
to notices sent by certified or registered mail, notice shall be deemed received
within forty-eight (48) hours from the time of mailing.
26.14 Brokers. Landlord and Tenant each represents and warrants that it
has had no dealings with any real estate broker or agent in connection with this
Lease other than the brokers identified in the Basic Lease Information, whose
commissions shall be paid by Landlord. Landlord and Tenant shall indemnify,
defend and hold Landlord harmless from and against all Claims arising from any
breach of the warranty specified in this Section.
26.15 Recording. Tenant shall not record this Lease or a memorandum
hereof without Landlord's prior written consent which may be withheld in
Landlord's sole discretion. Tenant agrees to execute and acknowledge a short
form lease in recordable form at Landlord's request, which may be recorded by
Landlord.
26.16 Survival of Tenant's Obligations. All of Tenant's indemnities,
waivers, assumptions of liability, duties and obligations under this Lease shall
survive the termination of this Lease to the extent required for the full
observance and performance thereof.
26.17 Execution by Landlord. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises. This document becomes effective and
binding only upon execution and delivery hereof by Tenant and by Landlord. No
act or omission of any employee or agent of Landlord or of Landlord's broker
shall alter, change or modify any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the Execution Date.
Landlord: Tenant:
Bryant Springs LLC, Pets.com,
a California limited liability company a California corporation
By: /s/ Paul D. Menzies By: /s/ Julie Wainwright
----------------------------------- ---------------------------------
Name: Paul D. Menzies Name: Julie Wainwright
--------------------------------- -------------------------------
Title: Manager Title: CEO
-------------------------------- ------------------------------
By: /s/ D. Michael Kelly By: /s/ Chris Deyo
----------------------------------- ---------------------------------
Name: D. Michael Kelly Name: Chris Deyo
--------------------------------- -------------------------------
Title: Manager Title: President
-------------------------------- ------------------------------
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EXHIBIT 10.28
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
September 27, 1999, is made by and between Rosenberg SOMA Investments IV, LLC, a
Delaware Limited Liability Co. ("LESSOR") and Pets.com, Inc., a California
Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 150-160 King Street, a portion of the
ground floor, located in the City of San Francisco, County of San Francisco,
State of California, with zip code 94107, as outlined on Exhibit A attached
hereto ("PREMISES"). The "BUILDING" is that certain building containing the
Premises and generally described as (describe briefly the nature of the
Building): 150-160 King Street / 151-165 Townsend Street. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also
see Paragraph 2.)
1.2(b) PARKING: 0 unreserved vehicle parking spaces ("UNRESERVED PARKING
SPACES"); and 0 reserved vehicle parking spaces ("RESERVED PARKING SPACES").
(Also see Paragraph 2.6.)
1.3 TERM: 0 years and 3 months ("ORIGINAL TERM") commencing 0ctober 1,
1999 ("COMMENCEMENT DATE") and ending December 31, 1999 ("EXPIRATION DATE").
(Also see Paragraph 3.) Month-to-month thereafter with 30 (thirty) days prior
written notice by either Landlord or Tenant.
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: [*] per month ("BASE RENT"), payable on the _______ day
of each month commencing _______. (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be adjusted
per Addendum _____, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: [*] as Base Rent for the period
October 1, 1999 - October 31, 1999.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: N/A percent
(_____%) ("Lessee's Share") as determined by [ ] prorata square footage of the
Premises as compared to the total square footage of the Building or [ ] other
criteria as described in Addendum ___.
1.7 SECURITY DEPOSIT: [*] ("SECURITY DEPOSIT"). (Also see Paragraph 5.)
1.8 PERMITTED USE: Warehouse/Storage/Light Industrial ("PERMITTED USE").
(Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph
8.)
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 2
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] _________________ represents Lessor exclusively ("LESSOR'S BROKER");
[X] ROK Properties, Inc. represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] ____________________ represents both Lessor and Lessee ("Dual Agency").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $900)
for brokerage services rendered by said Broker(s) in connection with this
transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs _____ through _____, and Exhibits A through _____, all
of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that is has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.3 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.4 COMMON AREAS--DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of
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the Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways
and landscaped areas.
2.5 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.6 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.7 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgement, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no
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Early Possession Date is specified, by the Commencement Date, Lessor shall not
be subject to any liability therefor, nor shall such failure affect the validity
of this Lease, or the obligations of Lessee hereunder, or extend the term
hereof, but in such case, Lessee shall not, except as otherwise provided herein,
be obligated to pay rent or perform any other obligation of Lessee under the
terms of this Lease until Lessor delivers possession of the Premises to Lessee.
If possession of the Premises is not delivered to Lessee within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing to
Lessor within ten (10) days after the end of said sixty (60) day period, 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.
Except as may be otherwise provided, and regardless of when the Original Term
actually commences, if possession is not tendered to Lessee when required by
this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to the period during which the Lessee would have otherwise
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain
all or any portion of said Security Deposits for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessors uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the Initial Security Deposit bears to the
Initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be
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considered to be held in trust, to bear interest or other increment for its use,
or to be prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessees shall use and occupy the Premises only for the
Permitted use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consents to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other Lessees, is not significantly more burdensome to the Premises
or the Building and the improvements thereon, and is otherwise permissible
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registrations or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to
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any Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including but
not limited to the installation (and, at Lessor's option, removal on or before
Lease expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing with copies of any documents involved) of any threatened or actual
claim, notice,
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citation, warning, complaint or report pertaining to or involving failure by
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERNATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (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, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph
7.1, Lessor may 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
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Lessee's behalf, and put the Premises in good order, condition and repair, in
accordance with Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the Improvements on the Premises which are provided by Lessor
under the terms of this Lease other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alternations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the Interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and
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workmanlike manner, with good and sufficient materials, and be in compliance
with all Applicable Requirements. Lessee shall promptly upon completion thereof
furnish Lessor with as-built plans and specifications therefor. Lessor may, (but
without obligation to do so) condition its consent to any requested Alteration
or Utility Installation that costs $2,500.00 or more upon Lessee's providing
Lessor with a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. 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 on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor as surety bond satisfactory to Lessor in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability of the same, as required by law
for the holding of 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.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the
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removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be moved by Lessee subject to its obligation to repair and restore the Premises
per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a) and 8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "INSURANCE COST INCREASE"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "INSURANCE COST INCREASE" shall
not, however, include any premium increases resulting from the nature of the
occupancy of any other lessee of the Building. If the parties insert a dollar
amount in Paragraph 1.9, such amount shall be considered the "BASE PREMIUM." If
a dollar amount has not been inserted in Paragraph 1.9 and if the Building has
been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the "BASE PREMIUM" shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of the
Commencement Date, assuming the most nominal use possible of the Building. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessees, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostel fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be
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primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any lenders), insuring against loss or damage
to the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessees-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender or included in the Base Premium),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or polices shall also
contain an agreed valuation provisioning in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
of the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the nature of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the rejected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
act, omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4. LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such Insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case
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of claims made against Lessor) litigated and/or reduced to judgment. In case any
action or proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim in
order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
Lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws and without deduction for depreciation.
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(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE-INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefore. If Lessor receives said funds or adequate assurance thereof
within said (10) day period, Lessor shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within such ten (10)
day period, and if Lessor does not so elect to restore and repair, then this
Lease shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect). Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority),
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this Lease shall terminate sixty (60) days following the date of such Premises
Total Destruction, whether or not the damage or destruction is an Insured Loss
or was caused by a negligent or willful act of Lessee. In the event, however,
that the damage or destruction was caused by Lessee, Lessor shall have the right
to recover Lessor's damages from Lessee except as released and waived in
Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following 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. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor' expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
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9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent
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or other income therefrom, and/or Lessor's business of leasing the Premises. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be
the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, 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 said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of
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Lessee's interest in this Lease or in the Premises without Lessor's prior
written consent given under and subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buyout or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installments(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor
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(iii) alter the primary liability of Lessee for the payment of Base Rent and
other sums due Lessor hereunder or for the performance of any other obligations
to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment of subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
monthly Base Rent applicable to the portion of the Premises which is the subject
of the proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule of
the rent payable under this Lease by adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
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12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such Sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence
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of any one or more of the following Defaults, and, where a grace period for cure
after notice is specified herein, the failure by Lessee to cure such Default
prior to the expiration of the applicable grace period, and shall entitle Lessor
to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surely bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
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(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, 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 attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a
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notice and grace period required under Subparagraph 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such
case, the applicable grace period under the unlawful detainer statute shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal
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to six percent (6%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three(3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
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15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined
in Paragraph 39.1) granted under this Lease or any Option subsequently granted,
or (b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within
ten (10) days after written notice after written notice from the other Party
(the "REQUESTING PART") execute, acknowledge and deliver to the Requesting Party
a statement in writing in a form similar to the then most current "TENANCY
STATEMENT" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
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assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile
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transmission or similar means, the same shall be deemed served or delivered upon
telephone or facsimile confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Saturday or a Sunday or a legal holiday, it shall be deemed received on the
next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Subject to the provisions of Paragraph 1.3 above,
Lessee has no right to retain possession of the Premises or any part thereof
beyond the expiration or earlier termination of this Lease. In the event that
Lessee holds over in violation to this Paragraph 26 then the Base Rent payable
from and after the time of the expiration or earlier termination of this Lease
shall be increased to two hundred percent (200%) of the Base Rent applicable
during the month immediately preceding such expiration or earlier termination.
Nothing contained herein shall be construed as a consent by Lessor to any
holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of
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Lessor's default with respect to any such obligation, Lessee will give any
Lender whose name and address have been furnished Lessee in writing for such
purpose notice of Lessor's default pursuant to Paragraph 13.5. If any Lender
shall elect to have this Lease and/or any Option granted hereby superior to the
lien of its Security Device and shall give written notice thereof to Lessee,
this Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing or Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any
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ordinary "For Lease" signs. All such activities of Lessor shall be without
abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one of all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or
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other conditions as are then reasonable with reference to the particular matter
for which consent is being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
40. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
41. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part
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<PAGE> 31
thereof, said Party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.
43. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
44. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
45. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
46. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
47. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS,
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN
A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
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The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at:
San Francisco, California San Francisco, California
on: on:
-------------------------------- ---------------------------------
BY LESSOR: BY LESSEE:
Rosenberg SOMA Investments IV, LLC, Pets.Com, Inc.,
A Delaware Limited Liability Co. A California corporation
By: /s/ Douglas Rosenberg By: /s/ J.L. Wainwright
Name Printed: Douglas Rosenberg Name Printed: J.L. Wainwright
Title: Manager Title: CEO
Telephone: (415) 835-9808 Telephone: (415) 222-9999
Facsimile: (415) 835-9896 Facsimile: (415) 222-9998
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NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form:
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa St., M-1, Los
Angeles, CA 90071. (213) 687-8777.
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EXHIBIT 10.29
STANDARD INDUSTRIAL LEASE - MULTI-TENANT, FULL NET
THIS LEASE, dated November 5, 1999 , for purposes of reference only, is
made and entered into by and between Whipple Properties 1001, LLC, A Delaware
Limited Liability Company ("Landlord") and Pets.com Inc., a California
Corporation ("Tenant").
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord the Premises described in paragraph 1(c) below for the term and subject
to matters of record and to the terms, covenants, agreements and conditions
hereinafter set forth, to each and all of which Landlord and Tenant hereby
mutually agree.
1. Definitions. Unless the context otherwise specifies or requires, the
following terms shall have the meanings herein specified:
(a) The term "Industrial Center" shall mean the parcel and
other real property described with precision in Exhibit A, as well as any
Property interest in the area of the streets bounding the parcel described in
Exhibit A, and all other improvements on or appurtenances to said parcel or said
streets.
(b) The term "Building" shall mean the building(s) in which
the Premises are located.
(c) The term "Premises" sha1l mean the portion of the Building
which is crosshatched on the plan(s) included as part of Exhibit A.
(d) The term "Operating Expenses" shall mean all of the
following costs, if any, incurred by Landlord with respect to the Industrial
Center and allocable to the Building for:
(i) the operation, repair, and maintenance, in neat,
clean, and good order and condition, of the Industrial Center, including without
limitation: (A) all buildings and improvements located thereon, (B) all parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, lighting
facilities, fences, and gates; (C) trash disposal services; (D) tenant
directories; (E) fire detection systems, including sprinkler system maintenance
and repair; (F) security services; and (G) any other services to be provided by
Landlord described elsewhere in this Lease as an Operating Expense;
(ii) any deductible portion of an insured loss
concerning any of the items or matters described in this subparagraph (d);
(iii) the cost of the premiums for the insurance
policies to be maintained by Landlord under this Lease;
<PAGE> 2
(iv) the cost of heat, water, sewer, gas,
electricity, and any other utilities and services furnished to the Industrial
Center, including without limitation the Common Areas (as defined in paragraph 9
below) (collectively, "Utilities"); and
(v) such other items as are now or hereafter
customarily included in the costs of managing, operating, maintaining,
overhauling, and repairing comparable multi-tenant industrial centers in
accordance with now or hereafter accepted accounting or management principles or
practices, including without limitation reasonable reserves for replacements.
Actual Operating Expenses for each year shall be adjusted to equal Landlord's
reasonable estimate of Operating Expenses had the total rentable area of the
Industrial Center been occupied. Landlord and Tenant acknowledge that certain of
the costs of management, operation and maintenance of the Industrial Center may
be allocated by Landlord exclusively to a single component of the Industrial
Center (e.g. to the, Building, another building located in the Industrial Center
or a parking facility) and certain of such costs may be allocated by Landlord
among such components. The determination of such costs and their allocation
shall not be inconsistent with generally accepted accounting principles applied
on a consistent basis.
(e) The term "Property Taxes" shall mean any form of real
property tax or assessment and any license fee, commercial rental tax,
improvement bond or bonds, levy, or other tax (other than inheritance, personal
income, or estate taxes), general and special, ordinary and extraordinary,
foreseen as well as unforeseen, and of any kind or nature whatsoever, imposed
(i) on the Industrial Center or applicable tax assessor's parcel by any
authority having the direct or indirect power to tax (including any city, state,
or federal government, or any school, agricultural, sanitary, water, fire,
street, drainage, or other improvement district thereof) (ii) against any legal
or equitable interest of Landlord in the Industrial Center, the Building, or the
Premises, (iii) against Landlord's right to rent or other income therefrom, or
(iv) against Landlord's business of leasing the Industrial Center, the Building,
or the Premises. The term "real property tax(es)" shall also include any tax,
fee, levy, assessment, or charge: (i) in substitution of, partially or totally,
any tax, fee, levy, assessment, or charge: included above within the definition
of "real property tax(es)," (ii) that is imposed, added, or increased as a
result of a transfer, either partial or total, of Landlord's interest in the
Industrial Center, the Building, or the Premises, or (iii) that is imposed by
reason of this transaction, any modifications or changes hereto, or any
transfers hereof.
(f) The term "Tenant's percentage share" shall mean the
percentage figure specified in the Basic Lease Information. Tenant acknowledges
that the Basic Lease Information may set forth different percentage shares of
Operating Expenses and Property Taxes or a single percentage share applicable to
both.
(g) The term "Laws" shall mean any federal, state, local and
other laws, codes, orders, ordinances, rules, regulations and statutes.
2. Term. The term of this Lease shall commence on the Commencement Date
and, unless sooner terminated as hereinafter provided, shall end on the
Expiration Date, as specified in the Basic Lease Information. Unless otherwise
agreed by Landlord and Tenant in this Lease,
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<PAGE> 3
Tenant agrees to accept the Premises in its "as is" condition on the
Commencement Date. If Landlord, for any reason whatsoever, cannot deliver the
Premises to Tenant on the Commencement Date, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, but in that event rental shall be waived for the period
between the Commencement Date and the time when Landlord delivers the Premises
to Tenant. No delay in delivery of the Premises shall operate to extend the term
of this Lease.
3. Rental.
(a) Tenant shall pay to Landlord throughout the term of this
Lease as rental for the Premises the sum specified in the Basic Lease
Information as the Base Rent, together with all charges and other amounts
required under this Lease as additional rent ("Additional Charges"), including,
without limitation, Tenant's percentage share of the total amount of Operating
Expenses paid or incurred by Landlord in each year and Tenants percentage share
of the total dollar amount of Property Taxes paid by Landlord in each year.
(b) Notwithstanding the provisions of subparagraph (a) above,
Tenant shall not be responsible for paying any portion of any increase in real
property tax that is specified in the tax assessor's records and worksheets as
being caused by additional improvements placed upon the Industrial Center by
tenants of other premises in the Industrial Center or by Landlord for the
exclusive enjoyment of such other tenants. Tenant shall, however, pay to
Landlord at the time payments on account of Tenant's Percentage share of
Property Taxes are payable under paragraph 4 below the entirety of any increase
in real property tax if assessed solely by reason of additional improvements
placed upon the Premises by Tenant or at Tenant's request.
(c) Rental shall be paid to Landlord on or before the
Commencement Date and on or before the first day of each and every successive
calendar month thereafter during the term of this Lease. In the event the term
of this Lease commences on a day other than the first day of a calendar month or
ends on a day other than the last day of a calendar month, the monthly rental
for the first and last fractional months of the term hereof shall be
appropriately prorated.
(d) All sums of money due from Tenant hereunder not
specifically characterized as rental shall constitute additional rent, and if
any such sum is not paid when due it shall nonetheless be collectible as
additional rent with the next installment of rental thereafter falling due, but
nothing contained herein shall be deemed to suspend or delay the payment of any
sum of money at the time it becomes due and payable hereunder, or to limit any
other remedy of Landlord.
(e) The term "rent" as used in this Lease shall refer
collectively to the Base Rent and to all additional rent, Additional Charges and
other sums payable hereunder. Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent and other sums due hereunder after the expiration of
any applicable grace period will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Landlord by the terms of any trust deed
covering the Premises. Accordingly, if any installment of rent or any other sums
due from Tenant shall not be received by Landlord
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<PAGE> 4
when due, Tenant shall pay to Landlord a late charge equal to 5% of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant based upon the circumstances existing as of the date of this Lease.
4. Additional Charges for Operating Expenses and Property Taxes.
(a) This Leases is intended to be a completely net lease. The
Base Rent owing hereunder is to be paid by Tenant absolutely net of all costs
and expenses relating to Landlord's ownership and operation of the Building. The
provisions of this paragraph 4 for the payment of Tenant's percentage share of
Property Taxes and Tenant's Percentage share of Operating Expenses are intended
to pass on to Tenant its share of all such costs and expenses.
(b) With respect to each calendar year during the term of this
Lease, Tenant shall pay to Landlord as Additional Charges, at the times
hereinafter set forth, an amount equal to Tenant's percentage share of Operating
Expenses and Property Taxes. Prior to or anytime after the commencement of any
calendar year Landlord may, but shall not be required to, notify Tenant of
Landlord's estimate of the amount of Operating Expenses and Property Taxes for
such current calendar year ("Estimated Taxes and Expenses"). Tenant shall pay to
Landlord on the first day of each calendar month during such current calendar
year one-twelfth (1/12) of the amount of any such Estimated Taxes and Expenses
for such current calendar year. If at any time or times Landlord determines that
the amount of Tenant's percentage share of Operating Expenses or Property Taxes
payable by Tenant for the current year will vary from its estimate by more than
5%, Landlord may, by notice to Tenant, revise Landlord's estimate for such year,
and subsequent payments by Tenant for such year shall be based on such revised
estimate. Following the close of each calendar years, Landlord shall deliver to
Tenant a statement of the actual amount of Tenant's percentage share of
Operating Expenses and Property Taxes for the immediately Preceding year,
accompanied by a statement made by an accounting or auditing officer designated
by Landlord showing the Operating Expenses and Property Taxes for such year. The
statement of such accounting or auditing officer shall be final and binding upon
Landlord and Tenant. All amounts payable by Tenant as shown on such statement,
less any amounts theretofore paid by Tenant on account of Estimated Taxes and
Expenses for such calendar year made pursuant to this paragraph 4, shall be paid
by or, if Tenant theretofore shall have paid more than such amounts, reimbursed
to Tenant within ten (10) days after delivery of such statement to Tenant.
(b) If the Expiration Date of this Lease is a day other than
the last day of a calendar year, the amount of any Operating Expenses and
Property Taxes payable by Tenant for the calendar year in which the Expiration
Date occurs shall be prorated on the basis by which the number of days from the
commencement of such calendar year to and including the Expiration Date bears to
365 and shall be due and payable when rendered notwithstanding termination of
this Lease. Tenant's percentage share of Operating Expenses and Property Taxes
allocable to the calendar year in which the Expiration Date occurs shall be
deemed to have been incurred evenly over the entire twelve-month period of that
calendar year.
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<PAGE> 5
5. Use. The Premises shall be used and occupied only for the use
described in the Basic Lease Information and for no other use or purpose without
obtaining the prior written consent of Landlord which may be granted or denied
in Landlord's sole discretion.
6. Quiet Enjoyment. Provided Tenant performs its obligations hereunder,
Tenant shall lawfully and quietly occupy the Premises during the term of this
Lease without hindrance or molestation by Landlord, subject, however, to
applicable Laws, matters of record and the provisions of this Lease.
7. Personal Property Taxes. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment,
and all other personal property of Tenant contained in the Premises or
elsewhere.
8. Utilities. Tenant shall pay Landlord, within ten (10) days after
receipt of Landlord's statement therefor, the amount by which, in Landlord's
reasonable judgment, the Utilities used by Tenant at the Premises exceed normal
usage at the Industrial Center for the use described in the Basic Lease
Information.
9. Common Areas.
(a) The term "Common Areas" shall mean all areas and
facilities outside the Premises and within the exterior boundary line of the
Industrial Center that are provided and designated by Landlord from time to time
for the general non-exclusive use of Landlord, Tenant, and other tenants of the
Industrial Center and their respective employees, suppliers, shippers,
customers, and invitees, including parking areas, loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, driveways, and landscaped
areas.
(b) During the term of this Lease, Tenant and its employees,
agents, suppliers, shippers, customers, and invitees shall have the
non-exclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers, and
privileges reserved by Landlord under the terms hereof. Under no circumstances
shall Tenant's right to use the Common Areas be deemed to include the right to
store any property, temporarily or permanently, in the Common Areas. Any such
storage shall be permitted only by the prior written consent of Landlord or
Landlord's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur, Landlord shall have the right,
without notice, in addition to such other rights and remedies it may have, to
remove the property and charge the cost to Tenant, which cost shall be
immediately payable upon demand.
(c) Landlord, or such other persons as Landlord may appoint,
shall have the exclusive control and management of the Common Areas.
(d) Landlord shall have the right, in its sole discretion,
from time to time: (i) to make changes to the Common Areas, including without
limitation changes in the location, size, shape, and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, and walkways, (ii) to close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available, (iii) to designate other
land outside the boundaries of the
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<PAGE> 6
Industrial Center to be a part of the Common Areas, (iv) to add additional
buildings and improvements to the Common Areas, (v) to use the Common Areas
while engaged in making additional improvements, repairs, or alterations to the
Industrial Center, or any portion thereof, and (vi) to do and perform such acts
and make such other changes in, to, or with respect to the Common Areas and
Industrial Center as Landlord may, in the exercise of sound business judgment,
deem to be appropriate.
10. Property Insurance. Landlord shall, at Tenant's sole cost and
expense, keep the Premises insured for the benefit of Landlord and Tenant in
such amounts and with such coverages as Landlord may reasonably determine to be
adequate.
11. Liability Insurance.
(a) Tenant agrees to procure and maintain in force during the
term hereof, at Tenant's sole cost and expense, Commercial General Liability
insurance in an amount not less than two million dollars ($2,000,000) combined
single limit for bodily injury and property damage for injuries to or death of
persons and property damage occurring in, on or about the Premises. Such policy
shall name Landlord, Landlord's managing agent and any other party designated by
Landlord as additional insureds, shall insure Landlord's and Landlord's managing
agent's contingent liability as respects acts or omissions of Tenant, shall be
issued by a company licensed to do business in the State of California and
otherwise reasonably acceptable to Landlord, and shall provide that the policy
may not be cancelled nor amended without thirty (30) days prior written notice
to Landlord. Tenant may carry said insurance under a blanket policy, provided
however, said insurance by Tenant shall include an endorsement confirming
application to and coverage of Landlord. Said insurance shall be primary
insurance to any other insurance that may be available to Landlord. Any other
insurance available to Landlord shall be non-contributing with and excess to
this insurance.
(b) A copy of such policy of insurance shall be delivered to
Landlord by Tenant prior to commencement of the term of this Lease and upon each
renewal of such insurance.
(c) Tenant shall, prior to and throughout the term of this
Lease, procure from each of its insurers under all policies of fire, theft,
public liability, pertaining in any way to the Premises or the Building or any
operation therein, a waiver, as set forth in paragraph 13 of this Lease, of all
rights of subrogation which the insurer might otherwise, if at all, have against
the Landlord or any officer, agent or employee of Landlord (including Landlord's
managing agent).
12. Loss Payable Requirements. All policies of insurance required
hereunder shall provide that the proceeds thereof shall be payable to Tenant and
Landlord, as their respective interests may appear, and, if Landlord so elects,
the policies referenced in paragraph 10 may be payable also to the holder of any
of Landlord's mortgages or deeds of trust on the Premises as the interest of
such holder may appear, Pursuant to a standard mortgagee clause or a loss
payable clause.
13. Waiver of Subrogation. Landlord and Tenant each hereby releases the
other from any and all claims, and waives its entire right of recovery against
the other, for loss or damage
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arising out of or incident to the perils insured against under paragraphs 10 and
11 above to the extent such loss or damage is insured against under such
policies, whether due to the negligence of Landlord or Tenant or the agents,
employees, contractors, or invitees of either of them.
14. Landlord's Right to Perform Tenant's Covenants. Tenant agrees that,
if Tenant shall at any time fail to make any payment or perform any other act to
be made or performed by it under this Lease, Landlord may, but shall not be
obligated to, make such payment or perform such other act to the extent Landlord
may deem desirable, with full right of offset, and without waiving or releasing
Tenant from any obligation under this Lease. All sums so paid by Landlord and
all expenses paid in connection therewith, including without limitation
attorneys' fees, together with interest thereon at the Default Interest Rate
(defined in paragraph 50) from the date of such payment, shall be paid by Tenant
to Landlord on demand.
15. Maintenance and Repair.
(a) Landlord's Obligations. Subject to the provisions of
subparagraph(b) and paragraphs 23 and 24 below, and except for damage caused by
any negligent or intentional act or omission of Tenant or any of Tenant's
employees, suppliers, shippers, customers, or invitees, in which event Tenant
shall repair the damage, Landlord, at Landlord's expense, subject to
reimbursement pursuant to paragraph 4 above, shall keep in good condition and
repair the foundations, exterior walls, structural condition of interior bearing
walls, and roof of the Premises, as well as the parking lots, walkways,
driveways, landscaping, fences, signs, and utility installations of the Common
Areas, and shall provide the services for which Operating Expenses are payable
pursuant to paragraph 3. Except for obligations specifically undertaken by
Landlord in this subparagraph (a), Landlord shall have no obligation, in any
manner whatsoever, to repair or maintain the Premises. Landlord shall have no
obligation to make repairs under this subparagraph (a) until a reasonable time
after receipt of written notice from Tenant of the need for such repairs. In no
event shall Landlord be liable for damages or loss of any kind or nature by
reason of Landlord's failure to furnish any Common Area services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of Landlord.
(b) Tenant's Obligations. Except for those areas that are
Landlord's responsibility pursuant to subparagraph (a) above, Tenant shall, at
Tenant's sole cost and expense, keep the entire Premises secure, clean and in
good order, condition, and repair, and shall make promptly all necessary
repairs, interior and exterior, ordinary as well as extraordinary, foreseen as
well as unforeseen. When used in this paragraph, the term "repair(s)" shall
include alterations, replacements, and renewals. All repairs shall be equal in
quality and class to the original work.
16. Surrender of Premises. Upon expiration or any sooner termination of
this Lease, Tenant shall surrender to Landlord the entire Premises, together
with all Alterations (defined in paragraph 24 below), in the same condition as
when received or installed, ordinary wear and tear excepted, and clean and free
of debris and free of any liens created or suffered to be created by Tenant.
Tenant may, and upon Landlord's request shall, remove any trade fixtures or
personal property belonging to Tenant, provided that Tenant shall perform prior
to the expiration of the term of this Lease all restoration made necessary by
such removal. Landlord may, at Tenant's
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expense, retain or dispose of in any manner any Trade Fixtures or personal
property of Tenant that Tenant does not remove from the Premises upon expiration
or termination of the Lease term, in which case title thereto shall vest in
Landlord. The term "Trade Fixtures" as used herein shall mean all fixtures,
equipment, and personal property owned by Tenant and used in connection with the
operation of any business on the Premises, whether or not affixed to the
Building.
17. Service Contracts. Tenant shall, at Tenant's sole cost and expense,
enter into a regularly scheduled preventive maintenance/service contract with a
maintenance contractor for servicing all hot water, heating, and air
conditioning systems, elevators (if there be any) and equipment within the
Premises. The maintenance contractor and the contract shall be subject to the
approval of Landlord. The contract shall include all services suggested by the
equipment manufacturers and shall become effective, and a copy thereof shall be
delivered to Landlord, within thirty (30) days of the date Tenant takes
possession of the Premises.
18. Waste. Tenant shall not do or suffer any waste or damage,
disfigurement, or injury to the Premises or permit or suffer any overloading of
the floors of the Building.
19. Options. Anything in this Lease or any of its addenda or amendments
to the contrary notwithstanding, if during any twelve (12) month-period of the
term of this Lease, three (3) or more events of default by Tenant (as defined in
paragraph 38 below) have occurred, all of Tenant's rights, if any, to expand or
increase the size of the Premises or to extend the term of this Lease, shall
cease, expire and be at an end.
20. Waiver of Repair and Deduct. Tenant hereby waives any and all
rights it may have to make repairs at Landlord's expense or in lieu thereof to
vacate the Premises as provided in California Civil Code Section 1942 or any
other law, statute, or ordinance now or hereafter in effect.
21. Compliance With Laws. Tenant shall, at Tenant's sole cost and
expense, comply promptly with all Laws and with the recommendations of any
insurer under any policies required under this Lease, that may be applicable to
the Premises or the use thereof.
22. Hazardous Materials. Except for Hazardous Materials (as defined
below) which were upon the Premises through no act or failure of Tenant and were
not known to Tenant to be upon the Premises before the date of this Lease,
Tenant agrees not to cause or permit the presence, use, generation, release,
discharge, storage, disposal, or transportation of any Hazardous Materials on,
under, in, above, to, or from the Premises other than presence, use, storage and
transportation which is both (i) required for and solely incidental to Tenant's
principal use and operation of the Premises, and (ii) in strict compliance with
all applicable Laws. Tenant's obligations under the preceding sentence shall not
be applicable to Hazardous Materials not generated, released, discharged,
stored, disposed of, or transported by Tenant (its employees, agents or
contractors), that migrate underground to the Premises from beyond the Premises
unless such migration is the result of the negligent or intentional acts or
omissions of Tenant, its agents, employees or contractors. For the purposes of
this Lease the term "Hazardous Materials" shall refer to any substances,
materials, and wastes that are or become regulated as hazardous or toxic
substances under any applicable Laws. Tenant shall indemnify, defend, and hold
Landlord harmless from and against and reimburse Landlord for any breach of the
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foregoing obligations and all of the following which may result from such a
breach: (a) any loss, cost, expense, claim, or liability arising out of any
investigation, reporting, monitoring, clean-up, containment, removal, storage,
or restoration work ("Remedial Work") required by any Law, governmental agency,
or political subdivision or prudent standards of real estate ownership and
management, and (b) any claims of third parties for loss, injury, expense, or
damage arising out of the presence, release, or discharge of any Hazardous
Materials on, under, in, above, to, or from the Premises during the term of this
Lease.
Tenant has completed and duly executed, and there is attached to this
Lease as Exhibit "B", a copy of a questionnaire pertaining to Tenant's use of
Hazardous Materials (the "Hazardous Materials Questionnaire"). Tenant represents
and warrants to Landlord that, to the best of Tenant's knowledge, all
information set forth in the Hazardous Materials Questionnaire is true and
correct as of the date of such Questionnaire. Tenant also agrees with Landlord
that neither Tenant, nor Tenant's employees or agents, will cause or permit the
use, generation, storage, disposal, transportation or release of any Hazardous
Materials on, under, in, above, to, or from the Industrial Center except that
which is (i) fully described in the Hazardous Materials Questionnaire, (ii)
incidental to Tenant's permitted use and operation of the Premises, and (iii) in
compliance with all applicable Laws. Tenant may not use at the Premises any
Hazardous Materials other than those specified in the Hazardous Materials
Questionnaire, or in quantities different from those specified in the Hazardous
Materials Questionnaire, unless Tenant obtains Landlord's prior written consent
to such new use and any such new quantity and Tenant submits to Landlord a new
duly executed Hazardous Materials Questionnaire that accurately describes the
new use and the new quantity.
23. Alterations. Except for non-structural alterations costing less
than $5,000 Tenant shall not alter the Premises without the prior written
consent of Landlord, which consent may be granted upon conditions.
24. Property of Landlord. All repairs, improvements, changes,
alterations, equipment, and machinery (other than trade fixtures) made or
installed by Tenant (collectively, "Alterations") shall immediately upon
completion or installation thereof be and become the property of Landlord
without payment therefor by Landlord.
25. Damage or Destruction. Subject to the other provisions of this
paragraph, if the Premises or any portion thereof becomes damaged or wholly or
partially untenantable because of fire, earthquake, act of God, the elements or
other casualty, Landlord shall repair such damage with and to the extent of the
insurance proceeds made available to Landlord for such purpose. However, if in
Landlord's opinion such repairs cannot be made within one hundred eighty (180)
days, Landlord shall so notify Tenant in writing within ninety (90) days of the
date of such damage. In such event, either Tenant or Landlord may terminate this
Lease within thirty (30) days after Landlord's notice. Termination shall be
effected by written notice delivered to the other party within said thirty (30)
day period. If this Lease is not so terminated, it shall remain in full force
and effect except that if such damage is not the result of the negligence or
willful misconduct of Tenant or Tenant's employees or invitees, an abatement of
Base Rent shall be allowed Tenant for such part of the Premises as shall be
rendered unusable by Tenant in the conduct of its business during the time such
part is so unusable.
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26. Waiver. Tenant hereby waives California Civil Code Sections 1932,
1933, 1941 and 1942 and the provisions of any other law now or hereafter in
effect that would relieve Tenant from any obligation to pay rent under this
Lease except to the extent expressly provided in this Lease.
27. Condemnation.
(a) If the Premises or any portion thereof are taken under the
power of eminent domain (hereinafter 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 50% of the floor
area of the Premises is taken by Condemnation, then at Tenant's option,
exercisable only in writing and within ten (10) days after Landlord shall have
given Tenant written notice of such taking (or, in the absence of such notice,
within ten (10) days after the condemning authority shall have taken
possession), and provided that Tenant is not in default under this Lease, Tenant
may terminate this Lease as of the date the condemning authority takes
possession. If Tenant does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion,
of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the portions of the Premises taken bears to
the total floor area of the Premises at the time of the taking. No reduction of
rent shall occur if no portion of the area taken contains any portion of the
Premises.
(b) In the event any portion of the Premises is taken by
Condemnation, Landlord shall be entitled to and shall receive the total award
made in such Condemnation, which award Tenant hereby assigns to Landlord, except
that Tenant shall be entitled to receive such portion of the award as may be
specifically allocated in such proceedings to compensation for Tenant's Trade
Fixtures and Tenant's relocation expenses.
(c) If less than the entire Premises shall be taken by
Condemnation, and this Lease is not terminated pursuant to subparagraph (a)
above, with the net amount of any award received by landlord in any proceeding
for physical damage to the Building after deducting all of Landlord's costs and
expenses of collection, including without limitation attorneys' fees, Landlord
shall promptly restore that portion of the Building not so taken to a complete
architectural unit.
28. Tenant's Work. All work done by Tenant in or about the Premises
(hereinafter called the "Work") shall be done in all cases subject to the
following conditions, each of which Tenant covenants to observe and perform:
(a) No Work involving any structural change and no Work
involving any alteration, restoration, or rebuilding costing more than $5,000
shall be undertaken until detailed plans and specifications have first been
submitted to and approved in writing by Landlord;
(b) No Work involving a cost, as reasonably estimated by
Tenant, of more than $5,000 shall be undertaken except under the supervision of
an architect or engineer approved in writing by Landlord (unless such
requirement is waived by Landlord in writing), which approval shall not be
unreasonably withheld; and
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(c) All Work shall be (i) commenced only after reasonable
notice to Landlord and only after all required local and other governmental
permits and authorizations have been obtained, (ii) done in a good and
workmanlike manner, (iii) performed in compliance with the building and zoning
laws and with all other applicable Laws and in accordance with the
recommendations of any insurer under any policies required by this Lease, and
(iv) completed promptly and free of liens.
29. Mechanic's Liens. Tenant shall not suffer or permit any mechanics'
or other liens (or claims thereof) to be filed against the Premises or Tenant's
leasehold interest therein or hereunder by reason of work, labor, services, or
materials supplied or claimed to have been supplied to Tenant or anyone holding
the Premises or any part thereof through or under Tenant. Landlord shall have
the right at all reasonable times to post and keep posted on the Premises any
notices that Landlord may deem necessary or advisable for the protection of
Landlord and the Premises from mechanics' liens. If any such liens (or claims
thereof) shall at any time be filed against the Premises, Tenant shall cause the
same to be discharged of record within forty-five (45) days after the date of
filing.
30. Financial Statements. Upon the request of Landlord, Tenant shall
provide to Landlord from time to time, at no expense to Landlord, copies of such
financial statements with respect to Tenant as may have been prepared by or for
Tenant.
31. Landlord's Entry. Tenant agrees to permit Landlord and any
authorized representatives of Landlord to enter the Premises with reasonable
frequency during usual business hours, or at any other time in case of
emergency, (a) to inspect the Premises and, if Landlord so desires, but without
implying any obligation of Landlord to do so, to make any repairs deemed
necessary or desirable by Landlord and to perform any work in the Premises
deemed necessary by Landlord to comply with any Laws or the recommendations of
any insurer, and (b) during the final year of the term of this Lease, for the
purpose of leasing the Premises, during which one-year period Landlord may
display on the Premises; in such manner as not to interfere unreasonably with
Tenant's business, usual "For Sale" or "To Let" signs.
32. Assignment and Subletting.
(a) Tenant shall not hypothecate or encumber this Lease or any
interest herein without the prior written consent of Landlord, which may be
granted or denied in Landlord's absolute discretion. Tenant shall not, without
the prior consent of Landlord, which consent shall not be unreasonably withheld
by Landlord, transfer or assign this Lease or any interest herein, sublet the
Premises or any part thereof, or permit the use of the Premises by any party
other than Tenant. This Lease shall not, nor shall any interest herein, be
assignable as to the interest of Tenant by operation of law without the consent
of Landlord, which consent shall not be unreasonably withheld. Any of the
foregoing acts without such consent shall be void and shall, at the option of
Landlord, terminate this Lease. In connection with each consent requested by
Tenant, Tenant shall submit to Landlord the terms of the proposed transaction,
the identity of the parties to the transaction, the proposed documentation for
the transaction, and all other information reasonably requested by Landlord
concerning the proposed transaction and the parties involved.
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(b) If the Tenant is a privately held corporation, is an
unincorporated association or partnership, the transfer (except pursuant to a
public offering), assignment, or hypothecation of any stock or interest in such
corporation, association, or partnership in excess of fifty percent (50%) in the
aggregate shall be deemed an assignment or transfer within the meaning and
provisions of this paragraph. If Tenant is a publicly held corporation, the
public offering or trading of stock in Tenant shall not be deemed an assignment
or transfer within the meaning of this paragraph.
(c) Without limiting the other instances in which it may be
reasonable for Landlord to withhold its consent to an assignment or subletting,
Landlord and Tenant acknowledge that it shall be reasonable for Landlord to
withhold its consent in the following instances:
(1) if at the time consent is requested or at any
time prior to the granting of consent, Tenant is in default under this Lease or
would be in default under this Lease but for the pendency of any grace or cure
period specified in this Lease;
(2) if the proposed assignee or sublessee is a
governmental agency;
(3) if, in Landlord's reasonable judgment, the use of
the Premises by the proposed assignee or sublessee would involve occupancy in
violation of this Lease; or
(4) if, in Landlord's reasonable judgment, the
financial worth of the proposed assignee or sublessee does not meet the current
credit standards applied by Landlord or its investment advisors for a new tenant
of the Premises.
(d) If at any time during the term of this Lease Tenant
desires to assign its interest in this Lease or sublet all or any part of the
Premises, Tenant shall give notice to Landlord setting forth the terms of the
proposed assignment or subletting ("Tenant's Notice"). Landlord shall have the
option, exercisable by notice given to Tenant within thirty (30) days after
Tenant's Notice is given ("Landlord's Option Period"), either (1) to consent to
the assignment in which event the provisions of subparagraph (g) shall be
applicable, or to consent to the subletting in which event the provisions of
subparagraph (h) shall be applicable; (2) to become the assignee or sublessee of
Tenant (instead of the entity specified in Tenant's Notice) upon the terms set
forth in Tenant's Notice; (3) in the event of (A) a proposed assignment, or (B)
a proposed subletting of the entire Premises, or a portion of the Premises for
all or substantially all of the remainder of the term, to terminate this Lease
with respect to, and to retake possession of, the space in question, together
with, if only a portion of the Premises is involved, such rights of access to
and from such portion as may be reasonably required for its use and enjoyment.
If Landlord does not exercise one of such options, Tenant shall be free for a
period of one hundred twenty (120) days after Landlord's Option Period, to
assign its entire interest in this Lease or to sublet such space to the entity
specified in Tenant's Notice upon the terms set forth therein or to any third
party upon the same terms set forth in Tenant's Notice, subject to obtaining
Landlord's prior consent as hereinabove provided.
(e) Notwithstanding the provisions of subparagraphs (a) and
(b) above, Tenant may assign this Lease or sublet the Premises or any portion
thereof, with prior notice to
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Landlord but without the necessity of Landlord's consent and without extending
any option to Landlord pursuant to subparagraph (d) above, to any corporation
which controls, is controlled by or is under common control with Tenant, or to
any corporation resulting from the merger or consolidation with Tenant.
(f) No sublessee (other than Landlord if it exercises its
option pursuant to subparagraph (d) above) shall have a right further to sublet
without Landlord's prior consent, which Tenant acknowledges may be withheld in
Landlord's absolute discretion, and any assignment by a sublessee of its
sublease shall be subject to Landlord's prior consent in the same manner as if
Tenant were entering into a new sublease. No sublease, once consented to by
Landlord, shall be modified or terminated by Tenant without Landlord's prior
consent, which consent shall not be unreasonably withheld.
(g) In the case of an assignment to an entity other than
Landlord, any sums or other economic consideration received by Tenant as a
result of such assignment shall be paid to Landlord after first deducting the
unamortized cost of leasehold improvements made to the Premises at Tenant's sole
cost, and the cost of any real estate commissions incurred by Tenant in
connection with such assignment.
(h) In the case of a subletting to an entity other than
Landlord, any sums or economic consideration received by Tenant as a result of
such subletting shall be paid to Landlord after first deducting (1) the rental
due hereunder, prorated to reflect only rental allocable to the sublet portion
of the Premises, (2) the cost of leasehold improvements made to the sublet
portion of the Premises at Tenant's sole cost, amortized over the term of this
Lease except for leasehold improvements made by Tenant for the specific benefit
of the sublessee, which shall be amortized over the term of the sublease, and
(3) the cost of any real estate commissions incurred by Tenant in connection
with such subletting, amortized over the term of the sublease.
(i) Regardless of Landlord's consent, no subletting or
assignment (except to Landlord pursuant to the provisions of subparagraph (d)
above) shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the rent and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such assignee or successor. Landlord may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Tenant, without notifying Tenant, or any successor of
Tenant, and without obtaining its or their consent thereto, and such action
shall not relieve Tenant of liability under this Lease.
(j) In the event Tenant shall assign this Lease or sublet the
Premises or request the consent of Landlord to any assignment, subletting,
hypothecation or other action requiring Landlord's consent hereunder, then
Tenant shall pay Landlord's then reasonable and
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standard processing fee and Landlord's reasonable attorneys' fees incurred in
connection therewith, which shall not exceed $500.
33. Subordination. At Landlord's option, this Lease shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Premises and to any
and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements, and extensions thereof.
Notwithstanding such subordination, Tenant's right to a quiet possession of the
Premises shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee, or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust, or ground lease, and shall give written
notice thereof to Tenant, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of such mortgage, deed of trust, or ground lease or the date of the
recording thereof.
34. Attornment. In the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under, any
mortgage or deed of trust now or hereafter on the Premises or any part thereof,
Tenant shall, if so requested by the purchaser upon such foreclosure or sale or
the grantee under a deed in lieu of foreclosure, attorn to such purchaser or
grantee and recognize such purchaser or grantee as the Landlord under this
Lease.
35. Indemnification. Tenant agrees to indemnify, defend, and save
Landlord harmless from and to reimburse Landlord for any and all claims arising
from (a) the conduct or management of, or any work or thing whatsoever done in
or about, the Premises during the term of this Lease, (b) any condition existing
during the term of this Lease of (i) the Premises, (ii) any street, curb, or
sidewalk adjoining the Premises, or (iii) any vaults, passageways, or spaces
therein or appurtenant thereto, (b) any breach or default on the part of Tenant
in the performance of any covenant or agreement on the part of Tenant to be
performed pursuant to the terms of this Lease, (c) any act or negligence of
Tenant or any of its agents, contractors, servants, employees, or licensees, (d)
any accident, injury, or damage whatsoever caused to any person, firm, or
corporation occurring during the term of this Lease in or about the Premises or
upon or under the sidewalks or the land adjacent thereto, and (e) any and all
costs, counsel fees, expenses, and liabilities incurred in connection with the
such claim or action or proceeding brought thereon, except to the extent that
any of the above-described claims arise out of any gross negligence or willful
misconduct of Landlord. In case any action or proceeding be brought against
Landlord by reason of any such claim, Tenant, upon notice from Landlord,
covenants to resist or defend such action or proceeding by counsel satisfactory
to Landlord.
36. Attorneys' Fees. If any action arising out of this Lease is brought
by either party hereto against the other, then and in that event the
unsuccessful party to such action shall pay to the prevailing party all costs
and expenses, including reasonable attorneys' fees, incurred by such prevailing
party, and if the prevailing party shall recover judgment in such action, such
costs, expenses and attorneys' fees shall be included in and as part of such
judgment.
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37. No Representations. Landlord has made no representations of any
nature whatsoever in connection with the condition of the Premises or any part
thereof, and Landlord shall not be liable for any defects therein, except as
herein expressly provided.
38. Events of Default. The following events shall be deemed to be
events of default by Tenant under this Lease:
(a) The failure of Tenant to pay any installments of Base Rent
or additional rent when due, or any other payment or reimbursement to Landlord
required herein when due, where such failure shall continue for a period of five
(5) days after written notice of such failure;
(b) (i) The application by Tenant for consent to the
appointment of a receiver, trustee, or liquidator of Tenant or of all or a
substantial part of Tenant's assets, (ii) Tenant's insolvency or admission in
writing of its inability to pay its debts as they come due, (iii) the making by
Tenant of any general arrangement or assignment for the benefit of creditors,
(iv) Tenant becomes a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days), (v) the appointment of a
trustee or receiver to take possession of all or substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease (unless
possession is restored to Tenant within thirty (30) days), (vi) the attachment,
execution, or other judicial seizure of all or substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease (unless
such seizure is discharged within thirty (30) days), or (vii) any transfer of
Tenant's assets in fraud of its creditors;
(c) Tenant shall have been served with three or more notices
of default hereunder, or under any applicable statute, within any twelve-month
period, whether or not the defaults in question were cured.
39. Landlord's Remedies. Upon the occurrence of any event of default by
Tenant, Landlord may, at its option and without any further notice or demand (in
addition to any other rights and remedies under this Lease, at law or in equity)
do any of the following:
(a) Landlord shall have the right, so long as such default
continues, to give notice of termination to Tenant. On the date specified in
such notice (which shall not be less than three (3) days after the giving of
such notice) this Lease shall terminate;
(b) In the event of any such termination of this Lease,
Landlord may then or at any time thereafter re-enter the Premises and remove
therefrom all persons and property and again repossess and enjoy the Premises,
without prejudice to any other remedies that Landlord may have by reason of
Tenant's default or of such termination;
(c) In the event of any such termination of this Lease,
Landlord may recover damages which shall include, without limitation: (1) the
amount at the time of award (computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percent) of (A) unpaid rent earned at the time of termination, (B) the amount by
which the unpaid rent that would have been earned during the period from
termination until the award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided, and (C) the amount by which the
unpaid rent for the balance of the
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term after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; (2) all legal expenses and other related
costs incurred by Landlord following Tenant's default; (3) all costs incurred by
Landlord in restoring the Premises to good order and condition, or, to the
extent reasonably necessary to accomplish such reletting, in remodeling,
renovating, or otherwise preparing the Premises for reletting; and (4) all other
costs (including without limitation any brokerage commissions) incurred by
Landlord in reletting the Premises;
(d) Following the termination of this Lease (or upon Tenant's
failure to remove its personal property from the Premises after the expiration
of the term of this Lease), Landlord may remove any and all personal property
located in the Premises and sell or place such property in a public or private
warehouse or elsewhere at the sole cost and expense of Tenant in accordance with
applicable Laws. Tenant waives all claims for damages that may be caused by
Landlord's removing, storing or selling the property as herein provided;
(e) Landlord shall have the right to cause a receiver to be
appointed in any action against Tenant to take possession of the Premises and to
collect the rents or profits derived therefrom. The appointment of such receiver
shall not constitute an election on the part of Landlord to terminate this Lease
unless notice of such intention is given to Tenant; or
(f) Landlord shall have the remedy described in California
Civil Code Section 1951.4 (i.e. Landlord may continue this Lease in effect after
Tenant's abandonment and recover rent as it becomes due, because Tenant has the
right to sublet or assign, subject only to reasonable limitations). Even though
Tenant has breached this Lease and abandoned the Premises, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant's right to
possession, and Landlord may enforce all its rights and remedies under this
Lease, including the right to recover rent in periodic actions as it becomes due
under this Lease. In such event, Landlord may re-enter the Premises and remove
all persons and property if the Premises have not been vacated, using any
available summary proceedings, without such re-entry or removal being deemed a
termination or acceptance of surrender of this Lease. Landlord may then elect to
relet the Premises for the account of Tenant for a period that may extend beyond
the term hereof, and upon such other terms as Landlord may reasonably deem
appropriate. Tenant shall reimburse Landlord upon demand for all costs incurred
by Landlord in connection with such reletting, including without limitation
necessary restoration, renovation, or improvement costs, attorneys' fees, and
brokerage commissions. The proceeds of such reletting shall be applied first to
any sums then due and payable to Landlord from Tenant, including the
reimbursement described above. The balance, if any, shall be applied to the
payment of future rent as it becomes due hereunder.
40. Cumulative Remedies. The specified remedies to which Landlord may
resort under the terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which Landlord may be
entitled, either at law or in equity, in case of any breach or threatened breach
by Tenant of any covenant, agreement, or condition of this Lease.
41. No Waivers. The failure of Landlord to insist in any one or more
instances upon the strict performance or observance of any of the covenants,
agreements, or conditions of this Lease or to exercise any option herein
contained shall not be construed as a waiver or a
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<PAGE> 17
relinquishment of future performance or observance of such covenant, agreement,
or condition or exercise of such option.
42. Application of Tenant Deposits. In the event of any default by
Tenant under this Lease, Landlord may, at its option, apply on account of such
default any monies (and the proceeds of any and all other security) deposited by
or for the account of Tenant under any provision of this Lease. Tenant shall not
be entitled to interest on any monies so deposited.
43. Holding Over. Tenant covenants that it will vacate the Premises
immediately upon the expiration or sooner termination of this Lease. If, with
Landlord's consent, Tenant retains possession of the Premises or any part
thereof after the expiration or termination hereof, Tenant shall pay Landlord
rent at 150% of the monthly rate specified in paragraph 3 for the time Tenant
thus remains in possession. The provisions of this paragraph do not exclude
Landlord's rights of re-entry or any other right hereunder, including without
limitation the right to refuse 150% of the monthly rent and instead to remove
Tenant through summary proceedings for holding over beyond the expiration of the
term of this Lease.
44. Notices. All notices, demands, and requests that may or are
required to be given by either party to the other shall be in writing and shall
be deemed given when sent by United States Certified Mail, postage prepaid, and
addressed as follows: (a) to Tenant at the address specified in the Basic Lease
Information, or at such other place as Tenant may from time to time designate by
written notice to Landlord, or (b) to Landlord at the address specified in the
Basic Lease Information, or at such other places as Landlord may from time to
time designate by written notice to Tenant.
45. Limitation of Landlord's Liability. In the event of a sale or
transfer by Landlord of its interest in the Premises or this Lease, such sale or
transfer shall operate to release the transferor from all liability for the
performance of the obligations of Landlord hereunder, expressed or implied, from
and after the date of such transfer, and Tenant agrees thereafter to look solely
to the successor in interest of Landlord in and to this Lease for the
performance thereafter of Landlord's obligations hereunder. Landlord may
transfer to its successor in interest the Security Deposit (and all other forms
of security) given by or for Tenant to Landlord and thereupon Landlord shall be
discharged from any further liability with respect thereto.
46. Estoppel Certificates. At any time and from time to time upon not
less than ten (10) days prior request by Landlord, Tenant agrees to execute,
acknowledge, and deliver to Landlord a statement in writing certifying that (a)
this Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and
identifying the modifications), (b) the dates to which Base Rent, additional
rent, and other charges have been paid, and (c) whether there is then existing
any claim by Tenant of default hereunder by Landlord and, if so, specifying the
nature thereof. It is intended that any such statement may be relied upon by any
person proposing to acquire Landlord's interest in this Lease or any prospective
mortgagee of, or assignee of any mortgage upon, such interest.
47. Brokerage. Tenant represents and warrants that it has dealt with no
broker, agent, or other person in connection with this transaction and that no
other broker, agent, or other person brought about this transaction, other than
the Brokers listed in the Basic Lease
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<PAGE> 18
Information, and Tenant agrees to indemnify and hold Landlord harmless from and
to reimburse Landlord for any and all claims by any other broker, agent, or
person claiming a commission or other form of compensation by virtue of having
dealt with Tenant with respect to this leasing transaction. The provisions of
this paragraph shall survive the termination of this Lease.
48. Security Deposit. Tenant shall, upon execution of this Lease,
deposit with Landlord the sum specified in the Basic Lease Information as
security for the full and faithful performance of every provision of this Lease
to be performed by Tenant (the "Security Deposit"). If Tenant defaults with
respect to any provision of this Lease, Landlord may use, apply, or retain all
or any part of the Security Deposit for the payment of Base Rent or any other
sum in default, for the payment of any other amount that Landlord may spend or
become obligated to spend by reason of Tenant's default, or to compensate
Landlord for any other loss, cost, or damage that 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. Landlord shall not be required to keep the
Security Deposit separate from its general funds and Tenant shall not be
entitled to interest on such deposit.
49. Signage. Tenant shall not place or permit on the outside of the
Premises any sign, advertisement, illumination, projection, or similar thing (a
"Sign"), unless (a) Landlord has given its prior written consent thereto, which
shall not be unreasonably withheld, and (b) such Sign complies with applicable
law.
50. Miscellaneous. This Lease cannot be changed orally, but only by
agreement in writing signed by the party against whom, or against whose
successors and assigns, enforcement of the change is sought. The voluntary or
other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall
not work a merger as to any existing subtenancies and shall, at the option of
Landlord, terminate any and all such existing subtenancies or, at Landlord's
option, operate as an assignment to it of any and all such subtenancies. The
words "Landlord" and "Tenant" as used herein shall include the plural as well as
the singular. If there is more than one tenant, the obligations hereunder
imposed upon the tenant shall be joint and several. Time is of the essence of
this Lease and each and all of its provisions. This Lease shall be construed and
enforced in accordance with the laws of the State in which the Premises are
situated. The term "Default Interest Rate" shall mean an annual rate equal to 4%
over the annual prime rate of interest announced publicly by Citibank, N.A. in
New York, New York from time to time or the maximum interest rate permitted by
law, whichever is less. Any amount due from Tenant, if not paid when first due,
shall bear interest at the Default Interest Rate from the date due until paid.
If any covenant, agreement, or condition of this Lease or the application
thereof to any person, firm, corporation, or circumstance is or becomes to any
extent invalid or unenforceable, the remainder of this Lease, or the application
of such covenant, agreement, or condition to persons, firms, corporations, or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and in lieu of each clause or provision of this Lease
that is illegal, invalid, or unenforceable, there shall be added as a part of
this Lease a clause or provision as similar in terms to such clause or provision
as is possible and as may be legal, valid, and enforceable. If any excavation or
other building operation shall be made, or about to be made, upon any adjoining
property or streets, upon the request of Landlord, Tenant shall permit the owner
or lessee of such adjoining property and their respective representatives to
enter the
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<PAGE> 19
Premises and shore the foundations and walls thereof, and to do any
other act or thing reasonably necessary, in Landlord's opinion, for the safety
or preservation of the Building and Premises. Landlord's acceptance of a partial
rent payment shall not constitute a waiver of any rights of Tenant and Landlord,
including, without limitation, any right Landlord may have to recover possession
of the Premises, in unlawful detainer, or otherwise. The parties agree that the
covenants and agreements herein contained shall bind and inure to the benefit of
Landlord and its successors and assigns, and shall bind and inure to the benefit
of Tenant and its successors and assigns, subject to the provisions of paragraph
32, and provided that any consent required to any assignment hereof shall be had
and obtained as specified in this Lease.
Exhibits A-C and Addendum A , consisting of 7 pages are attached hereto
and become part of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
TENANT LANDLORD
Pets.com Inc., a California Whipple Properties 1001,
Corporation a Delaware Limited Liability Company
435 Brannan Street, Suite 100 One Front Street, Suite 1100
San Francisco, CA 94107 San Francisco, CA 94111
By: /s/ Julie Wainwright By: /s/ Keith Fink
----------------------------- --------------------------------------
Julie Wainwright Keith Fink
Its CEO Its V.P.
------------------------- ---------------------------------
By: By:
----------------------------- --------------------------------------
Its Its
-------------------------- ----------------------------------
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<PAGE> 1
LEASE AGREEMENT
THIS LEASE is executed this 7th day of December, 1999, by and between
PRECEDENT INDUSTRIAL GROUP, LLC, an Indiana limited liability company
("Landlord"), and pets.com, inc., a California corporation ("Tenant").
WITNESSETH:
ARTICLE 1 - LEASE OF PREMISES
Section 1.01. Basic Lease Provisions and Definitions.
A. Leased Premises (shown outlined on Exhibit A attached hereto)
Building No. 1 (the "Building"); located in Precedent South Business
Center (the "Park") in Greenwood, Indiana;
B. Rentable Area: 292,500 square feet which includes 7,400 square feet
of office space;
Landlord shall use commercially reasonable standards, consistently
applied, in determining the Rentable Area and the rentable area of the
Building. Landlord's determination of Rentable Area shall conclusively
be deemed correct for all purposes hereunder.
C. Tenant's Proportionate Share: 65%;
D. Minimum Annual Rent: [*]
E. Monthly Rental Installments: [*]
F. Lease Term: Five (5) years;
G. Target Commencement Date: January 1, 2000;
H. Security Deposit: None;
I. Guarantor(s): None;
J. Broker(s): Summit Realty Group representing Landlord and Trammell Crow
Company representing Tenant;
K. Permitted Use: General warehouse, related office and other related
purposes;
L. Address for notices:
Landlord: Precedent Industrial Group, LLC
Suite 120
9365 Counselors Row
Indianapolis, IN 46240
Attn: Randy Aikman
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 2
With a copy to:
Greenwalt Development
215 West New Road
Suite 200
Greenfield, IN 46140
Attn: Terry McCardwell
Tenant: pets.com, inc.
435 Brannan Street
San Francisco, California 94107
Attn: Mark Lemma
With a copy to:
Hopkins & Carley
P. O. Box 1469
San Jose, California 95109-1469
Attn: Julie Frambach, Esq.
Address for rental and other payments:
Precedent Industrial Group, LLC
Suite 120
9365 Counselors Row
Indianapolis, IN 46240
Section 1.02. Leased Premises. Landlord hereby leases to Tenant and
Tenant leases from Landlord, under the terms and conditions herein, the Leased
Premises.
ARTICLE 2 - TERM AND POSSESSION
Section 2.01. Term. The term of this Lease ("Lease Term") shall be for
the period of time set forth in the Basic Lease Provisions and shall commence on
the Commencement Date, as defined in Section 2.02, below. Upon delivery of
possession of the Leased Premises to Tenant, Tenant shall execute a letter of
understanding acknowledging (i) the Commencement Date of this Lease, and (ii)
that Tenant has accepted the Leased Premises. If Tenant takes possession of and
occupies the Leased Premises, Tenant shall be deemed to have accepted the Leased
Premises and that the condition of the Leased Premises and the Building was at
the time satisfactory and in conformity with the provisions of this Lease in all
respects.
Section 2.02. Construction of Tenant Improvements and Commencement Date.
Tenant has personally inspected the Leased Premises and accepts the same "AS IS"
without representation or warranty by Landlord of any kind and with the
understanding that Landlord shall have no responsibility with respect thereto
except to construct in a good and workmanlike manner the improvements designated
as Landlord's obligations in the attached Exhibit B, which shall be in
accordance with and at the expense of the party indicated on Exhibit B. Based
upon the scope of the work to be completed by Landlord (the "Landlord's Work")
which is described on Exhibit B, the Landlord anticipates that the Landlord's
Work will be completed by the Target Commencement Date identified in the Basic
Lease Provisions [Section 1.01(G)],
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<PAGE> 3
subject to force majeure, as described in Section 16.04. Notwithstanding
anything to the contrary contained herein, the Landlord represents and warrants
that, as of the Commencement Date: (i) the Building and the Leased Premises will
have been completed in material compliance with all building codes applicable
thereto, (ii) the mechanical, plumbing and electrical systems included in the
Building and the Leased Premises are in good operating condition, and (iii) the
roof of the Building and the Leased Premises is in place and weather tight.
The "Commencement Date" shall be the earlier of (i) the date on which
the Leased Premises are first used and occupied by Tenant's personnel for
carrying on the normal functions of its business, or (ii) the date ten (10) days
after Landlord gives written notice to Tenant that the Landlord's Work has been
substantially completed. The Commencement Date shall in no event be postponed by
reason of any delay caused by Tenant (for example, and without limitation,
Tenant's failure to timely approve or furnish plans or specifications, make
selections or decisions necessary for substantial completion of the Landlord's
Work, or complete any work required or permitted to be completed by Tenant in or
upon the Leased Premises). In this regard, the Landlord shall complete those
portions of Landlord's Work as will be necessary to reasonably accommodate
acceptance of delivery of the equipment and materials for the racking
system/fixtures which the Tenant intends to install in the Leased Premises by
December 15, 1999. Thereafter, the Landlord agrees that it will complete those
portions of Landlord's Work as will be necessary to reasonably accommodate the
commencement of work by Tenant and its independent contractors to fabricate,
construct and/or install such racking systems/fixtures in the Leased Premises by
December 27, 1999. The Tenant acknowledges and agrees that Landlord shall have
no liability or responsibility for the custody or protection of such equipment
and materials or such racking systems/fixtures, either before or after the
fabrication, construction and/or installation thereof and that Tenant and its
independent contractors shall have such equipment and materials delivered and
placed within the Leased Premises in such locations, and conduct its
fabrication, construction and/or installation activities in such a manner so as
to not unreasonably interfere with the performance and completion of the
Landlord's Work.
Section 2.03. Surrender of the Premises. Upon the expiration or earlier
termination of this Lease, Tenant shall immediately surrender the Leased
Premises to Landlord in broom-clean condition and in good order, condition and
repair. Tenant shall also remove its personal property, trade fixtures and any
alterations made by Tenant to the Leased Premises (which the Landlord has
designated are to be removed under Section 7.03), in writing, to the Tenant, and
the Tenant shall promptly repair any damage caused by such removal, and restore
the Leased Premises to the condition existing upon the Commencement Date,
reasonable wear and tear excepted . If Tenant fails to do so, Landlord may
restore the Leased Premises to such condition at Tenant's expense, Landlord may
cause all of said property to be removed at Tenant's expense, and Tenant hereby
agrees to pay all the costs and expenses thereby reasonably incurred, including,
without limitation, costs of removal and storage of Tenant's property. All
Tenant property which is not removed within twenty (20) days following
Landlord's written demand therefor shall be conclusively deemed to have been
abandoned by Tenant, and Landlord shall be entitled to dispose of such property
at Tenant's cost without thereby incurring any liability to Tenant. The
provisions of this section shall survive the expiration or other termination of
this Lease.
Section 2.04. Holding Over. If Tenant retains possession of the Leased
Premises after the expiration or earlier termination of this Lease, Tenant shall
become a tenant from month to month at one hundred fifty percent (150%) of the
Monthly Rental Installment in effect at the end of the Lease Term, and otherwise
upon the terms, covenants and conditions herein specified, so far as applicable.
Acceptance by Landlord of rent in such event shall not result in a renewal of
this Lease, and Tenant shall vacate and surrender the Leased Premises to
Landlord upon Tenant being given thirty (30) days prior written notice from
Landlord to vacate whether or not said notice is given on the rent paying date.
This Section 2.04 shall in no way constitute a consent by Landlord to any
holding over by Tenant upon the expiration or earlier
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<PAGE> 4
termination of this Lease, nor limit Landlord's remedies in such event.
ARTICLE 3 - RENT
Section 3.01. Base Rent. Tenant shall pay to Landlord the Minimum Annual
Rent in the Monthly Rental Installments, in advance, without deduction or
offset, beginning on the Commencement Date and on or before the first day of
each and every calendar month thereafter during the Lease Term. The Monthly
Rental Installment for partial calendar months shall be prorated. Monthly Rent
during the applicable lease year shall be an amount equal to one twelfth (1/12)
of the Minimum Annual Rent during such lease year. Tenant also agrees to pay
Landlord any excise, sales or privilege tax, if any, imposed by any governmental
authority on account of this Lease or the rent paid hereunder as part of
Operating Expenses under Section 3.02.
Section 3.02. Additional Rent. In addition to the Minimum Annual Rent
Tenant shall pay to Landlord for each calendar year during the Lease Term, as
"Additional Rent," Tenant's Proportionate Share of all costs and expenses
incurred by Landlord during the Lease Term for Real Estate Taxes and Operating
Expenses for the Building and common areas (collectively "Common Area Charges").
For purposes of this Lease, the term "Operating Expenses" shall mean all
of Landlord's expenses for operation, repair, replacement and maintenance to
keep the Building and common areas in good order, condition and repair
(including all additional direct costs and expenses of operation and maintenance
of the Building which Landlord reasonably determines it would have paid or
incurred during such year if the Building had been fully occupied), including,
but not limited to, management or administrative fees at market rates (not to
exceed four percent (4%) of gross rentals from the Building); utilities;
stormwater discharge fees; license, permit, inspection and other fees; fees and
assessments imposed by and/or payable to the owner's association or otherwise
under the Declaration of Covenants, Conditions, Restrictions and Easements for
Precedent South Business Center, as the same may be amended from time to time
(the "Covenants"); security services; insurance premiums and deductibles;
maintenance, repair and replacement of the driveways, parking areas (including
snow removal), exterior lighting, landscaped areas, walkways, curbs, drainage
strips, sewer lines, exterior walls, foundation, structural frame, roof and
gutters. The costs incurred by Landlord in connection with any capital
improvement (including, without limitation, replacements to existing
improvements which are, in Landlord's reasonable discretion, no longer
susceptible to repair by the Tenant under Section 7.01) shall be amortized over
the useful life of such improvement (in accordance with generally accepted
accounting principals, consistently applied), and only the amortized portion
shall be included in Operating Expenses.
"Real Estate Taxes" shall include any form of real estate tax or
assessment or service or other payments in lieu thereof, and any license fee,
commercial rental tax, improvement bond or other similar charge or tax (other
than income, inheritance or estate taxes) imposed upon the Building or common
areas (or against Landlord's business of leasing the Building) by any authority
having the power to so charge or tax, together with costs and expenses of
contesting the validity or amount of Real Estate Taxes which, at Landlord's
option, may be calculated as if such contesting work had been performed on a
contingent fee basis, whether charged by Landlord's counsel or representative;
provided, however, that said fees are reasonably comparable to the fees charged
for similar services by others not affiliated with Landlord. In no event shall
any such fee exceed the actual amount of the tax savings). Additionally, Tenant
shall pay, prior to delinquency, all taxes assessed against and levied upon
trade fixtures, furnishings, equipment and all personal property of Tenant
contained in the Leased Premises.
The Landlord has advised Tenant that the Building is located within an
economic revitalization area and, as such, has been afforded tax abatement. In
this regard, the assessed value of the property upon
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<PAGE> 5
which the Building is located, will increase and/or has increased as a result of
the construction of the Building. The impact of that increase in assessed value
will, as a result of the tax abatement and subject to the terms thereof, phase
in the increase in the Real Estate Taxes resulting from that increase in
assessed value over a ten (10) year period.
Maintaining the tax abatement that is available for the Building may
require that the Landlord report on the condition and utilization of the
Building to state and/or local taxing authorities. In this regard, the Landlord
may solicit information on the Tenant's utilization of the Leased Premises in
order to permit the Landlord to comply with any applicable state or local
reporting requirements. Tenant agrees that it will cooperate with any reasonable
request for such information.
The Landlord has advised Tenant that the benefits of the tax abatement
are "front-loaded" so as to provide the greatest benefit of the tax abatement in
the early years of the abatement period. In this regard, the parties acknowledge
that the original Lease Term does not cover the entire abatement period. As a
result the Landlord and Tenant have agreed that the Landlord will include, in
Real Estate Taxes, an amount which would be paid or incurred for such Real
Estate Taxes as if the benefits of the tax abatement were allocated equally over
the entire ten (10) year abatement period (the "Averaged Tax Amount"). As a
result, the Landlord will, during the first several years of the abatement
period, collect an amount in excess of the amount it is actually obligated to
pay for such Real Estate Taxes (the "Tax Abatement Reserve"). The Landlord shall
hold the Tax Abatement Reserve during the original Lease Term, but will not be
obligated to segregate, escrow or otherwise impound any funds in the Tax
Abatement Reserve. If the Tenant exercises its option to renew this Lease for
either one or both of the Option Periods (as provided in Section 16.11), the
Tenant will continue to pay the Averaged Tax Amount over the entire ten (10)
year abatement period and the Landlord will utilize funds from the Tax Abatement
Reserve to cover the shortfall in payments from Tenant on account of such Real
Estate Taxes (during that ten year abatement period) to pay the actual Real
Estate Taxes then due. If the Tenant fails to exercise its option to renew under
Section 16.11, below, the Landlord shall be entitled to apply the Tax Abatement
Reserve in any manner that it sees fit to facilitate re-letting the Leased
Premises to a third party or otherwise. In no event shall the Tenant have any
rights or claims as to any funds in the Tax Abatement Reserve, by way of
recoupment or otherwise, except to have those funds applied to pay Real Estate
Taxes due if Tenant re-lets the Leased Premises in the manner set forth above.
Notwithstanding the foregoing, the parties hereto acknowledge and agree
that the Averaged Tax Amount may need to be recalculated from time to time on
account of, inter. alia., (i) delays in the initial assessment of the Building,
(ii) increases in applicable tax rate(s), and (iii) reassessments of the
Building by the local assessor's office.
Section 3.03. Payment of Additional Rent. Landlord shall estimate the
total amount of Common Area Charges, and thereby the Additional Rent to be paid
by Tenant during each calendar year of the Lease Term, pro-rated for any partial
years. The Landlord currently estimates that the Common Area Charges during the
first year of the Lease Term will be [*] per square foot of Rentable Area in the
Building. Commencing on the Commencement Date, Tenant shall pay to Landlord each
month, at the same time the Monthly Rental Installment is due, an amount equal
to one-twelfth (1/12) of the estimated Additional Rent for such year. Within a
reasonable time after the end of each calendar year, Landlord shall submit to
Tenant a statement of the actual amount of such Additional Rent (the "Landlord's
Year End Statement") and within thirty (30) days after receipt of such
statement, Tenant shall pay any deficiency between the actual amount owed and
the estimates paid during such calendar year. In the event of overpayment,
Landlord shall credit the amount of such overpayment toward the next
installments of Minimum Rent.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 6
Section 3.04. Tenant Verification. Tenant shall have the right to inspect,
upon reasonable notice, at reasonable times and in a reasonable manner, during
the ninety (90) day period following the delivery of Landlord's Year End
Statement, such of Landlord's books of account and records as pertain to and
contain information concerning the Common Area Charges for such year in order to
verify the amounts thereof (herein referred to as a "Tenant Audit"). The Tenant
acknowledges and agrees that the calculation of the amounts due on the Year End
Statement require a certain threshold level of financial competence and,
consequently, if Tenant elects to engage a third party to conduct a Tenant
Audit, that third party shall be an independent certified public accountant. If
the Tenant Audit is conducted by such an independent certified public
accountant, and the fee arrangement between Tenant and such independent
certified public accountant is a contingency or similar fee arrangement pursuant
to which the Tenant's independent certified public accountant is paid a fee as a
percentage of the amount of any reduction that it obtains in the calculation of
the amount due from Tenant on account of such Common Area Charges (herein a
"Contingency Fee"), then the Tenant shall be obligated to pay a fee to the
Landlord in an amount equivalent to the greater of either (i) the amount of all
reasonable costs and expenses paid or incurred by Landlord in connection with
any such Tenant Audit, including, without limitation, an amount calculated by
Landlord to reimburse Landlord, on an hourly basis, for the costs associated
with utilizing its own internal accountants and/or property management personnel
to facilitate the completion of such a Tenant Audit (the "Landlord's Overhead
Fee"), or (ii) the amount of the Contingency Fee, in either case, to reimburse
Landlord for the time and expense associated with responding and furnishing
information for such Tenant Audit. If such independent certified public
accountant is not to be compensated by Tenant with a Contingency Fee, the Tenant
shall, nonetheless, be obligated to pay to Landlord the Landlord's Overhead Fee
in connection with any such Tenant Audit. The amounts due from Tenant to
Landlord on account of the Landlord's Overhead Fee or on account of any such
Contingency Fee shall not be due if the results of any such Tenant Audit or any
Final Determination, as specified below, result in a credit due to the Tenant in
an amount equal to five percent (5%) of the aggregate amount of such Common Area
Charges, or more, for the year in question.
If Tenant or any such independent certified public accountant fails to
specifically identify any errors or omissions in the Year End Statement within
such ninety (90) day period, the amounts due to Landlord or to be credited to
Tenant, as reflected on the Year End Statement, shall be conclusively due in the
manner set forth in such Year End Statement.
Upon completion of any such Tenant Audit, the Tenant shall furnish a
complete copy thereof to Landlord. Upon receipt of any such Tenant Audit, if the
Landlord agrees with the results of such Tenant Audit, the Landlord shall revise
its Year End Statement accordingly. Alternatively, if the Landlord disagrees
with the results of the Tenant Audit, the Landlord shall submit its Year End
Statement and supporting information, together with a copy of the Tenant Audit
to an independent certified public accountant (the "Accountant") to make a final
and conclusive determination as to the actual amount due from Tenant on account
of such Common Area Charges hereunder (herein a "Final Determination"). If and
to the extent that the actual amount of Common Area Charges due from the Tenant,
as determined by such Accountant, is five percent (5%) less then the amounts
indicated to be due from Tenant on the Landlord's Year End Statement, the
Landlord shall pay for the costs and expenses associated with obtaining the
Final Determination. In all other cases, the Tenant shall be responsible for the
cost of obtaining the Final Determination, which amounts shall constitute
Additional Rent hereunder and which amounts shall be immediately due and
payable.
Section 3.05. Late Charges. Tenant acknowledges that Landlord shall
incur certain additional unanticipated administrative and legal costs and
expenses if Tenant fails to timely deliver to Landlord any payment required
hereunder. Therefore, in addition to the other remedies available to Landlord
hereunder, if any payment required to be paid by Tenant to Landlord hereunder
shall not have been paid within five
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(5) business days following the due date therefore, the Tenant will be obligated
to pay to Landlord, in addition to the amount due, a late fee in an amount equal
to five percent (5%) of the amount overdue.
ARTICLE 4 - SECURITY DEPOSIT
INTENTIONALLY OMITTED
ARTICLE 5 - USE
Section 5.01. Use of Leased Premises. The Leased Premises are to be used
by Tenant solely for the Permitted Use and for no other purposes without the
prior written consent of Landlord.
Section 5.02. Covenants of Tenant Regarding Use. Tenant shall (i) use
and maintain the Leased Premises and conduct its business thereon in a safe,
careful, reputable and lawful manner, (ii) comply with all laws, rules,
regulations, orders, ordinances, directions and requirements of any governmental
authority or agency, now in force or which may hereafter be in force, including
without limitation those which shall impose upon Landlord or Tenant any duty
with respect to or triggered by a change in the use or occupation of, or any
improvement or alteration to, the Leased Premises, and (iii) comply with and
obey all reasonable directions of the Landlord, including any rules and
regulations that may be adopted by Landlord from time to time. Tenant shall not
do or permit anything to be done in or about the Leased Premises or common areas
which constitutes a nuisance or which interferes with the rights of other
tenants or injures or annoys them. Landlord shall not be responsible to Tenant
for the nonperformance by any other tenant or occupant of the Building of its
lease or of any rules and regulations. Tenant shall not overload the floors of
the Leased Premises. All damage to the floor structure or foundation of the
Building due to improper positioning or storage of items or materials shall be
repaired by Landlord at the sole expense of Tenant, who shall reimburse Landlord
immediately therefor upon demand. Tenant shall not use the Leased Premises, or
allow the Leased Premises to be used, for any purpose or in any manner which
would invalidate any policy of insurance now or hereafter carried on the
Building or increase the rate of premiums payable on any such insurance policy
unless Tenant reimburses Landlord as Additional Rent for any increase in
premiums charged.
Section 5.03. Landlord's Rights Regarding Use. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Leased Premises or the common areas, each of which may
be exercised without notice or liability to Tenant, (a) Landlord may install
such signs, advertisements, notices or tenant identification information as it
shall deem necessary or proper; (b) Landlord shall have the right at any time to
control, change or otherwise alter the common areas as it shall deem necessary
or proper; and (c) Landlord or Landlord's agent shall be permitted to inspect or
examine the Leased Premises at any reasonable time upon giving at least 24 hours
advance verbal notice to any Tenant designated representative (except in an
emergency when no notice shall be required), and Landlord shall have the right
to make any repairs to the Leased Premises which are necessary for its
preservation; provided, however, that any repairs made by Landlord shall be at
Tenant's expense, except as provided in Section 7.02 hereof. Landlord shall
incur no liability to Tenant for such entry, nor shall such entry constitute an
eviction of Tenant or a termination of this Lease, or entitle Tenant to any
abatement of rent therefor.
ARTICLE 6 - UTILITIES AND UTILITY SERVICES
Tenant shall obtain in its own name and pay directly to the appropriate
supplier the cost of all utilities and utility services serving the Leased
Premises. Notwithstanding the foregoing, if any such utilities or utility
services are jointly metered with other property, Landlord shall make a
reasonable
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<PAGE> 8
determination of Tenant's proportionate share of the cost of such utilities and
utility services (at rates that would have been payable if such utilities and
utility services had been directly billed by the utilities or utility service
providers to Tenant) and Tenant shall pay such share to Landlord within thirty
(30) days after receipt of Landlord's written statement. To the extent that any
such utility or other building service fails or is otherwise interrupted, the
Landlord agrees to exercise commercially reasonable efforts, in cooperation with
the applicable service provider, to expeditiously restore any such utility or
other building service. Landlord shall not, however, be liable in damages or
otherwise for any failure or interruption of any utility or other building
service and no such failure or interruption shall entitle Tenant to terminate
this Lease or withhold or abate any sums due hereunder. In the event that any
such utilities or utility services are available from more than one (1) utility
service provider, Landlord shall be entitled to choose the utility service
provider.
ARTICLE 7 - MAINTENANCE AND REPAIRS
Section 7.01. Tenant's Responsibility. During the Lease Term, Tenant
shall, at its own cost and expense, maintain the Leased Premises in good
condition, regularly servicing and promptly making all repairs thereto,
including but not limited to the electrical systems, heating and air
conditioning systems, plate glass, floors, windows and doors, sprinkler and
plumbing systems, and shall obtain a preventive maintenance contract on the
heating, ventilating and air-conditioning systems, and provide Landlord with a
copy thereof. In connection with the foregoing, the Landlord agrees to make
available to the Tenant copies of all warranties which relate to the Leased
Premises and/or Landlord's Work and shall assist the Tenant to the extent
reasonably necessary in any effort by the Tenant to enforce any rights under any
such warranty. The preventive maintenance contract shall meet or exceed
Landlord's standard maintenance criteria (which criteria are more specifically
delineated in Exhibit C), and shall provide for the inspection and maintenance
of the heating, ventilating and air conditioning system on not less than a
semi-annual basis.
Section 7.02. Landlord's Responsibility. During the Lease Term, Landlord
shall maintain in good condition and repair, and replace as necessary, the roof,
exterior walls, foundation and structural frame of the Building and the parking
and landscaped areas, the costs of which shall be included in Operating
Expenses; provided, however, that to the extent any of the foregoing items
require repair because of the negligence, misuse, or default of Tenant, its
employees, agents, customers or invitees, Landlord shall make such repairs
solely at Tenant's expense.
Section 7.03. Alterations. Tenant shall not permit alterations in or to
the Leased Premises unless and until the plans have been approved by Landlord in
writing. Landlord agrees to not unreasonably withhold any such approval to the
extent that the alterations do not affect the structural and/or mechanical
systems in the Building. In connection with any such approval, Landlord shall
advise Tenant as to whether or not the Landlord will require the Tenant to
remove the alterations and restore the Leased Premises upon termination of this
Lease. In this regard, the Landlord acknowledges that the Tenant will have no
obligation to remove any of the improvements included in the Landlord's Work
which is identified on Exhibit B. To the extent that the Landlord fails to
advise Tenant that it will require the removal of any alterations, such
alterations shall become a part of the realty and the property of Landlord upon
expiration or earlier termination of this Lease, and shall not be removed by
Tenant. Tenant shall ensure that all alterations shall be made in accordance
with all applicable laws, regulations and building codes, in a good and
workmanlike manner and of quality equal to or better than the original
construction of the Building. No person shall be entitled to any lien derived
through or under Tenant for any labor or material furnished to the Leased
Premises, and nothing in this Lease shall be construed to constitute a consent
by Landlord to the creation of any lien. If any lien is filed against the Leased
Premises for work claimed to have been done for or material claimed to have been
furnished to Tenant, Tenant shall cause such lien to be
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<PAGE> 9
discharged of record within thirty (30) days after filing. Tenant shall
indemnify Landlord from all costs, losses, expenses and attorneys' fees in
connection with any construction or alteration and any related lien.
ARTICLE 8 - CASUALTY
Section 8.01. Casualty. In the event of total or partial destruction of
the Building or the Leased Premises by fire or other casualty, Landlord agrees
to promptly restore and repair same; provided, however, Landlord's obligation
hereunder shall be limited to the reconstruction of such of improvements as were
originally required to be made by Landlord, if any. Notwithstanding the
foregoing, if the Leased Premises are (i) so destroyed that they cannot be
repaired or rebuilt within one hundred eighty (180) days from the casualty date;
or (ii) destroyed by a casualty which is not covered by the insurance required
hereunder or, if covered, such insurance proceeds are not released by any
mortgagee entitled thereto or are insufficient to rebuild the Building and the
Leased Premises; then, in case of a clause (i) casualty, either Landlord or
Tenant may, or, in the case of a clause (ii) casualty, then Landlord may, upon
thirty (30) days written notice to the other party, terminate this Lease with
respect to matters thereafter accruing.
Section 8.02. Landlord's Insurance. During the Lease Term, Landlord
shall maintain all risk coverage insurance on the Building, rental interruption
insurance covering the rents due under this Lease and under any and all other
leases affecting the Building (for a period of no more than twelve (12) months),
and the cost of all such insurance shall be included as an Operating Expense
under Section 3.02. Such insurance shall not protect Tenant's property on the
Leased Premises; and, notwithstanding the provisions of Section 9.01, Landlord
shall not be liable for any damage to Tenant's property, regardless of cause,
including the negligence of Landlord and its employees, agents and invitees.
Tenant hereby expressly waives any right of recovery against Landlord for damage
to any property of Tenant located in or about the Leased Premises, however
caused, including the negligence of Landlord and its employees, agents and
invitees.
Section 8.03. Waiver. Notwithstanding the provisions of Section 9.01
below, Landlord hereby expressly waives any rights of recovery against Tenant
for damage to the Leased Premises or the Building which is insured against under
Landlord's all risk coverage insurance. All insurance policies maintained by
Landlord or Tenant as provided in this Lease shall contain an agreement by the
insurer waiving the insurer's right of subrogation against the other party to
this Lease. Notwithstanding anything contained herein to the contrary, Landlord
and Tenant hereby release each other and each other's employees, agents,
customers and invitees from any and all liability for any loss of or damage or
injury to person or property occurring in, on, or about or to the Leased
Premises, Building or related property by reason of fire or other casualty
customarily insured against under a standard fire and extended coverage
insurance policy, regardless of cause, including the negligence of Landlord or
Tenant and their respective employees, agents, customers and invitees, and agree
that such insurance carried by either of them shall contain a clause whereby the
insurer waives its right of subrogation to recover against the other party.
Because the provisions of this Section are intended to preclude the assignment
of any claim mentioned herein by way of subrogation or otherwise to an insurer
or any other person, each party to this Lease shall give to each insurance
company, which has issued to it one or more policies of fire and extended
coverage insurance, notice of the provisions of this Section and have such
insurance policies properly endorsed, if necessary, to prevent the invalidation
of such insurance by reason of the provision of this Section.
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<PAGE> 10
ARTICLE 9 - LIABILITY INSURANCE
Section 9.01. Tenant's Responsibility. Landlord shall not be liable to
Tenant or to any other person for (i) damage to property or injury or death to
persons due to the condition of the Leased Premises, the Building or the common
areas, or (ii) the occurrence of any accident in or about the Leased Premises or
the common areas, or (iii) any act or neglect of Tenant or any other tenant or
occupant of the Building or of any other person, unless such damage, injury or
death is the result of Landlord's negligence; and Tenant hereby releases
Landlord from any and all liability for the same. Tenant shall be liable for,
and shall indemnify and defend Landlord from, any and all liability for (i) any
act or neglect of Tenant and any person coming on the Leased Premises or common
areas by the license of Tenant, express or implied, (ii) any damage to the
Leased Premises, and (iii) any loss of or damage or injury to any person
(including death resulting therefrom) or property occurring in, on or about the
Leased Premises, regardless of cause, except for any loss or damage covered by
Landlord's all risk coverage insurance as provided in Section 8.02 and except
for that caused by Landlord's negligence. This provision shall survive the
expiration or earlier termination of this Lease.
Section 9.02. Tenant's Insurance. Tenant shall carry general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Commercial General Liability Insurance, including blanket, contractual
liability, broad form property damage, personal injury, completed
operations, products liability, and fire damage: Not less than
$3,000,000 Combined Single Limit for both bodily injury and property
damage.
C. All Risk Coverage, Vandalism and Malicious Mischief, and Sprinkler
Leakage insurance, if applicable, for the full cost of replacement of
Tenant's property.
D. Business interruption insurance.
The insurance policies shall protect Tenant and Landlord as their interests may
appear, naming Landlord and Landlord's managing agent and mortgagee as
additional insureds, and shall provide that they may not be canceled on less
than thirty (30) days prior written notice to Landlord. Tenant shall furnish
Landlord with Certificates of Insurance evidencing all required coverages on or
before the Commencement Date. If Tenant fails to carry such insurance and
furnish Landlord with such Certificates of Insurance after a request to do so,
Landlord may obtain such insurance and collect the cost thereof from Tenant.
ARTICLE 10 - EMINENT DOMAIN
If all or any substantial part of the Building or common areas shall be
acquired by the exercise of eminent domain, Landlord may terminate this Lease by
giving written notice to Tenant on or before the date that actual possession
thereof is so taken. If all or any part of the Leased Premises shall be acquired
by the exercise of eminent domain so that the Leased Premises shall become
unusable by Tenant for the Permitted Use, Tenant may terminate this Lease as of
the date that actual possession thereof is so taken by giving written notice to
Landlord. All damages awarded shall belong to Landlord; provided, however, that
Tenant may claim dislocation damages if such amount is not subtracted from
Landlord's award.
ARTICLE 11 - ASSIGNMENT AND SUBLEASE
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<PAGE> 11
Tenant shall not assign this Lease or sublet the Leased Premises in
whole or in part without Landlord's prior written consent, which consent shall
not be unreasonably withheld. In the event of any assignment or subletting,
Tenant shall remain primarily liable hereunder, and any extension, expansion,
rights of first offer, rights of first refusal or other options granted to
Tenant under this Lease shall be rendered void and of no further force or
effect. The acceptance of rent from any other person shall not be deemed to be a
waiver of any of the provisions of this Lease or to be a consent to the
assignment of this Lease or the subletting of the Leased Premises. Without in
any way limiting Landlord's right to refuse to consent to any assignment or
subletting of this Lease, Landlord reserves the right to refuse to give such
consent if, in Landlord's opinion: (i) the Leased Premises are or may be in any
way adversely affected; (ii) the business reputation of the proposed assignee or
subtenant is unacceptable; or (iii) the financial worth of the proposed assignee
or subtenant is insufficient to meet the obligations hereunder. Landlord further
expressly reserves the right to refuse to give its consent to any subletting if
the proposed rent is to be less than the then current rent for similar premises
in the Park or the proposed assignee or subtenant is already a tenant in the
Building or the Park. Notwithstanding the foregoing, the restrictions described
in the immediately preceding sentence shall not apply to any subletting by the
Tenant for a period of two (2) years or less so long as the rental rate charged
by the Tenant to any such subtenant is no less than seventy-five percent (75%)
of the then current market rent for similar premises in the Park. Tenant agrees
to reimburse Landlord for reasonable accounting and attorneys' fees incurred in
conjunction with the processing and documentation of any such requested
assignment, subletting or any other hypothecation of this Lease or Tenant's
interest in and to the Leased Premises.
Notwithstanding anything to the contrary contained herein, the Tenant may,
upon thirty (30) days advance written notice to Landlord, assign this Lease or
sublet the Leased Premises to a Permitted Transferee or to a Conditional
Permitted Transferee (as such terms are herein defined) without the Landlord's
prior written consent. Any such notice (herein a "Transfer Notice") shall
identify the nature of the transfer as either an assignment or a subletting and
shall identify the Permitted Transferee or Conditional Permitted Transferee. The
Transfer Notice shall include a copy of the documentation purporting to effect
the assignment or subletting and an insurance certificate from the proposed
subtenant or assignee's insurance carrier confirming that the Permitted
Transferee or Conditional Permitted Transferee has procured the insurance
otherwise required of the Tenant under this Lease. In the case of a Conditional
Permitted Transferee, the Transfer Notice shall also include such financial
statements as may be reasonably necessary to confirm that such transferee is, in
fact, a Conditional Permitted Transferee.
As used herein, the term "Permitted Transferee" shall mean and refer to
any subsidiary, affiliate, division or corporation controlling, controlled by or
under common control with the Tenant. In the case of any assignment or
subletting to any Permitted Transferee, the Tenant originally identified herein
shall remain primarily liable for the performance and observance of all of the
terms, covenants and conditions of this Lease. Alternatively, the term
"Conditional Permitted Transferee" shall mean and refer to a successor
corporation that (a) is related to Lessee by merger, consolidation,
non-bankruptcy reorganization or governmental action, or a purchaser of all or
substantially all of the Tenant's assets and (b) has a net worth, as
demonstrated by financial statements prepared in accordance with generally
accepted accounting principals, equal to or greater than the greater of either
(i) the net worth of the Tenant originally identified herein, or (ii) the net
worth of the then current Tenant (if this Lease has theretofore been assigned or
the Leased Premises theretofore sublet), determined in each case, in accordance
with generally accepted accounting principles, consistently applied, as of the
date immediately preceding the date of the proposed assignment or subletting. In
the case of any assignment or subletting to any Conditional Permitted
Transferee, the Tenant originally identified herein (to the extent still
existing as a legal entity) shall remain primarily liable for the performance
and observance of all of the terms, covenants and conditions of this
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<PAGE> 12
Lease.
For purposes of this Lease, the sale of the Tenant's capital stock through
any public exchange or issuance of Tenant's capital stock for purposes of
documenting equity investment in the Tenant shall not be deemed an assignment,
subletting or other transfer of the Lease or the Leased Premises.
ARTICLE 12 - TRANSFERS BY LANDLORD
Section 12.01. Sale of the Building. Landlord shall have the right to
sell the Building at any time during the Lease Term, subject only to the rights
of Tenant hereunder; and such sale shall operate to release Landlord from
liability hereunder after the date of such conveyance.
Section 12.02. Subordination and Estoppel Certificate. Landlord shall
have the right to subordinate this Lease to any mortgage presently existing or
hereafter placed upon the Building by so declaring in such mortgage. Within ten
(10) business days following receipt of a written request from Landlord, Tenant
shall execute and deliver to Landlord, without cost, any instrument which
Landlord deems necessary or desirable to confirm the subordination of this Lease
and an estoppel certificate in such form as Landlord may reasonably request
certifying (i) that this Lease is in full force and effect and unmodified or
stating the nature of any modification, (ii) the date to which rent has been
paid, (iii) that there are not, to Tenant's knowledge, any uncured defaults or
specifying such defaults if any are claimed, and (iv) any other matters or state
of facts reasonably required respecting the Lease. Such estoppel may be relied
upon by Landlord and by any purchaser or mortgagee of the Building.
Notwithstanding the foregoing, if the mortgagee shall take title to the Leased
Premises through foreclosure or deed in lieu of foreclosure, Tenant shall be
allowed to continue in possession of the Leased Premises as provided for in this
Lease so long as Tenant shall not be in default.
ARTICLE 13 - DEFAULT AND REMEDY
Section 13.01. Default. The occurrence of any of the following shall be
a "Default":
(a) Tenant fails to pay any Monthly Rental Installment or Additional
Rent within five (5) days after the same is due, or Tenant fails to pay any
other amounts due Landlord from Tenant within ten (10) days after written notice
that the same is due. Notwithstanding the foregoing, the Landlord agrees that it
will provide the Tenant with written notice that the Landlord has not received
any payment due hereunder (a "Payment Default Notice") and the Tenant shall have
five (5) days following its receipt of any such Payment Default Notice in which
to cure such Default; provided, however, the Landlord shall only not be
obligated to furnish such a Payment Default Notice two (2) times in any given
calendar year of the Lease Term.
(b) Tenant fails to perform or observe any other term, condition,
covenant or obligation required under this Lease for a period of thirty (30)
days after notice thereof from Landlord; provided, however, that if the nature
of Tenant's default is such that more than thirty days are reasonably required
to cure, then such default shall be deemed to have been cured if Tenant
commences such performance within said thirty-day period and thereafter
diligently completes the required action within a reasonable time.
(c) Tenant shall assign or sublet all or a portion of the Leased
Premises in contravention of the provisions of Article 11 of this Lease.
(d) All or substantially all of Tenant's assets in the Leased Premises
or Tenant's interest in this Lease are attached or levied under execution (and
Tenant does not discharge the same within sixty (60)
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<PAGE> 13
days thereafter); a petition in bankruptcy, insolvency or for reorganization or
arrangement is filed by or against Tenant (and Tenant fails to secure a stay or
discharge thereof within sixty (60) days thereafter); Tenant is insolvent and
unable to pay its debts as they become due; Tenant makes a general assignment
for the benefit of creditors; Tenant takes the benefit of any insolvency action
or law; the appointment of a receiver or trustee in bankruptcy for Tenant or its
assets if such receivership has not been vacated or set aside within thirty (30)
days thereafter; or, dissolution or other termination of Tenant's existence as a
legally formed and validly existing entity.
Section 13.02. Remedies. Upon the occurrence of any Default, Landlord
shall have the following rights and remedies, in addition to those allowed by
law or in equity, any one or more of which may be exercised without further
notice to Tenant:
(a) Landlord may apply the Security Deposit or re-enter the Leased
Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as
additional rent for any costs and expenses which Landlord thereby incurs; and
Landlord shall not be liable to Tenant for any loss or damage which Tenant may
sustain by reason of Landlord's action.
(b) Landlord may terminate this Lease or, without terminating this
Lease, terminate Tenant's right to possession of the Leased Premises as of the
date of such Default, and thereafter (i) neither Tenant nor any person claiming
under or through Tenant shall be entitled to possession of the Leased Premises,
and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any lawful means and may remove their
effects, without prejudice to any other remedy which Landlord may have. Upon the
termination of this Lease, Landlord may declare the present value (discounted at
the Prime Rate) of all rent which would have been due under this Lease for the
balance of the Lease Term to be immediately due and payable, whereupon Tenant
shall be obligated to pay the same to Landlord, together with all loss or damage
which Landlord may sustain by reason of Tenant's default ("Default Damages"),
which shall include without limitation expenses of preparing the Leased Premises
for re-letting, demolition, repairs, tenant finish improvements, brokers'
commissions and attorneys' fees, it being expressly understood and agreed that
the liabilities and remedies specified in this subsection (b) shall survive the
termination of this Lease.
(c) Landlord may, without terminating this Lease, re-enter the Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent and
on terms and conditions different from those contained herein, whereupon Tenant
shall be immediately obligated to pay to Landlord as liquidated damages the
present value (discounted at the Prime Rate) of the difference between the rent
provided for herein and that provided for in any lease covering a subsequent
re-letting of the Leased Premises, for the period which would otherwise have
constituted the balance of the Lease Term, together with all of Landlord's
Default Damages.
(d) Landlord may sue for injunctive relief or to recover damages for any
loss resulting from the Default.
Section 13.03. Landlord's Default and Tenant's Remedies. Landlord shall
be in default if it fails to perform any term, condition, covenant or obligation
required under this Lease for a period of thirty (30) days after written notice
thereof from Tenant to Landlord; provided, however, that if the term, condition,
covenant or obligation to be performed by Landlord is such that it cannot
reasonably be performed within thirty (30) days, such default shall be deemed to
have been cured if Landlord commences such performance within said thirty-day
period and thereafter diligently undertakes to complete the same. Upon the
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<PAGE> 14
occurrence of any such default, Tenant may sue for injunctive relief or to
recover damages for any loss directly resulting from the breach, but Tenant
shall not be entitled to terminate this Lease or withhold, offset or abate any
sums due hereunder.
Section 13.04. Limitation of Landlord's Liability. If Landlord shall
fail to perform any term, condition, covenant or obligation required to be
performed by it under this Lease and if Tenant shall, as a consequence thereof,
recover a money judgment against Landlord, Tenant agrees that it shall look
solely to Landlord's right, title and interest in and to the Building for the
collection of such judgment; and Tenant further agrees that no other assets of
Landlord shall be subject to levy, execution or other process for the
satisfaction of Tenant's judgment.
Section 13.05. Nonwaiver of Defaults. Neither party's failure or delay
in exercising any of its rights or remedies or other provisions of this Lease
shall constitute a waiver thereof or affect its right thereafter to exercise or
enforce such right or remedy or other provision. No waiver of any default shall
be deemed to be a waiver of any other default. Landlord's receipt of less than
the full rent due shall not be construed to be other than a payment on account
of rent then due, nor shall any statement on Tenant's check or any letter
accompanying Tenant's check be deemed an accord and satisfaction. No act or
omission by Landlord or its employees or agents during the Lease Term shall be
deemed an acceptance of a surrender of the Leased Premises, and no agreement to
accept such a surrender shall be valid unless in writing and signed by Landlord.
Section 13.06. Attorneys' Fees. If either party defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and the non-defaulting party obtains a
judgment against the defaulting party, then the defaulting party agrees to
reimburse the non-defaulting party for reasonable attorneys' fees incurred in
connection therewith.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT
INTENTIONALLY OMITTED
ARTICLE 15 - TENANT?S RESPONSIBILITY REGARDING
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES
Section 15.01. Definitions.
a. "Environmental Laws" - All present or future federal, state and
municipal laws, ordinances, rules and regulations applicable to the
environmental and ecological condition of the Leased Premises, the rules and
regulations of the Federal Environmental Protection Agency or any other federal,
state or municipal agency or governmental board or entity having jurisdiction
over the Leased Premises.
b. "Hazardous Substances" - Those substances included within the
definitions of "hazardous substances," "hazardous materials," "toxic substances"
"solid waste" or "infectious waste" under Environmental Laws.
Section 15.02. Compliance. Tenant, at its sole cost and expense, shall
promptly comply with the Environmental Laws including any notice from any source
issued pursuant to the Environmental Laws or issued by any insurance company
which shall impose any duty upon Tenant with respect to the use, occupancy,
maintenance or alteration of the Leased Premises whether such notice shall be
served upon Landlord or Tenant.
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<PAGE> 15
Section 15.03. Restrictions on Tenant. Tenant shall operate its business
and maintain the Leased Premises in compliance with all Environmental Laws.
Tenant shall not cause or permit the use, generation, release, manufacture,
refining, production, processing, storage or disposal of any Hazardous
Substances on, under or about the Leased Premises, or the transportation to or
from the Leased Premises of any Hazardous Substances, except as necessary and
appropriate for its Permitted Use in which case the use, storage or disposal of
such Hazardous Substances shall be performed in compliance with the
Environmental Laws and the highest standards prevailing in the industry.
Section 15.04. Notices, Affidavits, Etc. Tenant shall immediately notify
Landlord of (i) any violation by Tenant, its employees, agents, representatives,
customers, invitees or contractors of the Environmental Laws on, under or about
the Leased Premises, or (ii) the presence or suspected presence of any Hazardous
Substances on, under or about the Leased Premises and shall immediately deliver
to Landlord any notice received by Tenant relating to (i) and (ii) above from
any source. Tenant shall execute affidavits, representations and the like within
five (5) days of Landlord's request therefor concerning Tenant's best knowledge
and belief regarding the presence of any Hazardous Substances on, under or about
the Leased Premises.
Section 15.05. Landlord's Rights. Landlord and its agents shall have the
right, but not the duty, upon advance notice (except in the case of emergency
when no notice shall be required) to inspect the Leased Premises and conduct
tests thereon to determine whether or the extent to which there has been a
violation of Environmental Laws by Tenant or whether there are Hazardous
Substances on, under or about the Leased Premises. In exercising its rights
herein, Landlord shall use reasonable efforts to minimize interference with
Tenant's business but such entry shall not constitute an eviction of Tenant, in
whole or in part, and Landlord shall not be liable for any interference, loss,
or damage to Tenant's property or business caused thereby.
Section 15.06. Indemnification. Tenant shall indemnify Landlord and
Landlord's managing agent from any and all claims, losses, liabilities, costs,
expenses and damages, including attorneys' fees, costs of testing and
remediation costs, incurred by Landlord in connection with any breach by Tenant
of its obligations under this Article 15. Likewise, the Landlord agrees to
indemnify Tenant from any and all claims, losses, liabilities, costs, expenses
and damages, including attorneys' fees, costs of testing and remediation costs,
incurred by Tenant as a result of any material violation, by Landlord, of any
applicable Environmental Laws. In this regard, the Landlord shall have no
obligation to indemnify the Tenant or hold the Tenant harmless from and against
the acts of any other tenant of the Building or any other third party. The
covenants and obligations under this Article 15 shall survive the expiration or
earlier termination of this Lease.
Section 15.07. Landlord's Representation. Notwithstanding anything
contained in this Article 15 to the contrary, Tenant shall not have any
liability to Landlord under this Article 15 resulting from any conditions
existing, or events occurring, or any Hazardous Substances existing or
generated, at, in, on, under or in connection with the Leased Premises prior to
the Commencement Date of this Lease, except to the extent Tenant exacerbates the
same, and then only to the extent of the damage resulting from Tenant's actions.
ARTICLE 16 - MISCELLANEOUS
-15-
<PAGE> 16
Section 16.01. Benefit of Landlord and Tenant. This Lease shall inure to
the benefit of and be binding upon Landlord and Tenant and their respective
successors and assigns.
Section 16.02. Governing Law. This Lease shall be governed in accordance
with the laws of the State of Indiana.
Section 16.03. Guaranty. In consideration of Landlord's leasing the
Leased Premises to Tenant, Tenant shall provide Landlord with a Guaranty of
Lease executed by the guarantor(s) described in the Basic Lease Provisions, if
any.
Section 16.04. Force Majeure. Landlord and Tenant (except with respect
to the payment of any monetary obligation) shall be excused for the period of
any delay in the performance of any obligation hereunder when such delay is
occasioned by causes beyond its control, including but not limited to work
stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment,
labor or energy; unusual weather conditions; or acts or omissions of
governmental or political bodies.
Section 16.05. Examination of Lease. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
Section 16.06. Indemnification for Leasing Commissions. The parties
hereby represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are the Brokers. Each party shall
indemnify the other from any and all liability for the breach of this
representation and warranty on its part and shall pay any compensation to any
other broker or person who may be entitled thereto.
Section 16.07. Notices. Any notice required or permitted to be given
under this Lease or by law shall be deemed to have been given if it is written
and delivered in person or by overnight courier or mailed by certified mail,
postage prepaid, to the party who is to receive such notice at the address
specified in Article 1. If delivered in person, notice shall be deemed given as
of the delivery date. If sent by overnight courier, notice shall be deemed given
as of the first business day after sending. If mailed, the notice shall be
deemed to have been given on the date which is three business days after
mailing. Either party may change its address by giving written notice thereof to
the other party.
Section 16.08. Partial Invalidity; Complete Agreement. If any provision
of this Lease shall be held to be invalid, void or unenforceable, the remaining
provisions shall remain in full force and effect. This Lease represents the
entire agreement between Landlord and Tenant covering everything agreed upon or
understood in this transaction. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof or in effect between the
parties. No change or addition shall be made to this Lease except by a written
agreement executed by Landlord and Tenant.
Section 16.09. Financial Statements. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's
most recent audited financial statements prepared as of the end of Tenant's
fiscal year. Such audited financial statements shall be certified by Tenant and
by Tenant's independent certified public accountant who shall attest to the
truth and accuracy of the information set forth in such statements in accordance
with applicable FASB standards. All financial statements provided by Tenant to
Landlord hereunder shall be prepared in conformity with generally accepted
accounting principles, consistently applied.
-16-
<PAGE> 17
Section 16.10. Representations and Warranties. The undersigned represent
and warrant that (i) such party is duly organized, validly existing and in good
standing (if applicable) in accordance with the laws of the state under which it
was organized; and (ii) the individual executing and delivering this Lease has
been properly authorized to do so, and such execution and delivery shall bind
such party.
Section 16.11. Option to Extend Term of Lease. So long as there is no
existing, material, uncured default on the part of the Tenant hereunder, Tenant
shall have the option to renew the Term of this Lease for two (2) additional
terms of three (3) years each ("Option Period" or "Option Periods"). Such
renewal(s) shall be upon the same terms and conditions contained in the Lease
for the original Term except for this provision giving the renewal option and
subject to an adjustment of the rent as provided in Article III hereof. Such
option(s) shall be exercised by the Tenant's giving written notice to Landlord
of its intention to renew the Term of this Lease no later than nine (9) months
prior to the expiration of the original Term or the Option Period then in
effect, whichever is applicable. Tenant's failure to exercise any option to
renew shall extinguish its right and option for any subsequent renewal option.
To the extent that the Tenant has elected to exercise any right of first refusal
under Section 16.12, below, the Tenant shall have no right to renew the term of
this Lease as to the original Leased Premises without also renewing the Term of
this Lease as to any Refusal Space leased by the Tenant pursuant to Section
16.12, below.
In the event Tenant elects to exercise its option(s) to extend the term of
the Lease, the Minimum Annual Rent for the first such Option Period shall be an
amount equal to Eight Hundred Ninety Four Thousand Three Hundred Forty Eight
Dollars ($894,348.00), payable in Monthly Rental Installments of Seventy Four
Thousand Five Hundred Twenty Nine Dollars ($74,529.00) and the Minimum Annual
Rent for the second such Option Period shall be an amount equal to Nine Hundred
Seventy Four Thousand Eight Hundred Forty Four Dollars ($974,844.00), payable in
Monthly Rental Installments of Eighty One Thousand Two Hundred Thirty Seven
Dollars ($81,237.00). Additional Rent shall continue to be due and payable
during any such Option Period in the manner provided under Section 3.02 and
3.03, above.
Section 16.12. Right of First Refusal. So long as there is no existing,
material, uncured default on the part of the Tenant hereunder, and subject to
the rights of any tenant currently, or at the time, leasing the Refusal Space
(as hereinafter defined) during the original Lease Term, including any Option
Period, Landlord agrees that prior to leasing all or any part of the space in
the Building which is identified on the attached Exhibit D (the "Refusal
Space"), it will first offer to lease all of the Refusal Space to Tenant for the
balance of the Term of this Lease, or Option Period then in effect, at the
current market rate for space of similar size and quality in the Building as
reasonably determined by Landlord, but not less than the rate then being charged
for each square foot of the existing Leased Premises. Notwithstanding the
foregoing, the Tenant shall have no right to exercise any such right of first
refusal unless, at the time thereof, there remains a minimum of three (3) years
in the Term of this Lease [taking into account the original Lease Term and any
Option Period(s), but only to the extent that the Tenant has actually exercised
its right to extend the Term of this Lease for such Option Period(s)]. In the
event Landlord intends to lease all or any part of the Refusal Space, Landlord
will give Tenant written notice of such intent, specifying such market rate; and
Tenant shall have five (5) days after receipt of such notice to notify Landlord,
in writing, of its agreement to lease the Refusal Space. Such leasing shall be
on the same terms and conditions as in this Lease for the Leased Premises,
except for the adjustment of rent provided above as it relates to the Refusal
Space and except for the granting of any monetary allowances or concessions. To
the extent that the Tenant exercises any such right of first refusal during the
original Lease Term, the Minimum Annual Rent and Monthly Rental Installments for
the Refusal Space during the first Option Period shall be an amount equal the
Minimum Annual Rent and Monthly Rental Installments during the original Lease
Term plus twelve percent (12%)(to match the rent escalation set forth in Section
16.11). Likewise, the Minimum Annual Rent and Monthly
-17-
<PAGE> 18
Rental Installments for the Refusal Space during the second Option Period shall
be an amount equal the Minimum Annual Rent and Monthly Rental Installments
during the first Option Period plus nine percent (9%)(to match the rent
escalation set forth in Section 16.11).
Section 16.13. Job Recruiting Allowance. The Landlord agrees to reimburse
Tenant, in an amount up to One Hundred Fifty Thousand Dollars ($150,000.00) (the
"Recruiting Allowance"), for costs and expenses actually paid to third parties
in connection with the recruiting employees for its operations at the Leased
Premises. An initial portion of the Recruiting Allowance, in an amount equal to
Sixty Six Thousand Five Hundred Forty Three Dollars and Seventy Five Cents
($66,543.75) will be paid to the Tenant as a credit against the first
installment of the Minimum Monthly Rent due hereunder (the "First Installment")
to fund costs actually paid or incurred in connection with recruiting employees
for its operations at the Leased Premises (herein referred to as "Recruiting
Costs"). The remainder of the Recruiting Allowance, in the amount of Eighty
Three Thousand Four Hundred Fifty Six Dollars and Twenty Five Cents (the "Second
Installment") shall be due if the Tenant, acting in good faith and with
commercially reasonable diligence, fails to achieve either the First Recruiting
Milestone or Second Recruiting Milestone (as each such term is defined herein)
within the time periods established below for the satisfaction of each such
milestone. As used herein, the term "First Recruiting Milestone" shall mean and
refer to the hiring of a number of employees equal to Seventy-five percent (75%)
or more of the Tenant's Required Workforce (as defined herein). As used herein,
the term "Second Recruiting Milestone" shall mean and refer to the hiring of a
number of employees equal to One Hundred percent (100%) of the Tenant's Required
Workforce. The "Required Workforce" for purposes of this Lease shall be a number
of employees equal to 236 employees. Consequently, the First Recruiting
Milestone shall be deemed to have been achieved at the point in time when the
Tenant has hired 167 employees and the Second Recruiting Milestone shall be
deemed to have been achieved at the point in time when the Tenant has hired 236
employees.
The time (within which the Tenant's performance in achieving the
milestones described herein is to be measured) depends on the timing of certain
"job fairs" which economic development agencies of the City of Greenwood and/or
Johnson County, Indiana are or will be hosting together with Tenant to
facilitate the Tenant's recruiting efforts (the "Job Fair" or "Job Fairs"). The
Tenant will schedule the first such Job Fair for some time in January of 2000
(the "First Job Fair"). Following the First Job Fair, if the Tenant has not
hired a sufficient number of employees to fill its Required Workforce, the
Tenant will, within three (3) to five (5) weeks following the First Job Fair,
exercise commercially reasonable efforts to schedule a second Job Fair (the
"Second Job Fair").
If the Tenant fails to meet the First Recruiting Milestone within five (5)
business days following the date of the First Job Fair, the Tenant shall be
entitled to receive the Second Installment of the Recruiting Allowance. If the
Tenant does meet the First Recruiting Milestone within such five (5) day period,
the Tenant will not be entitled to receive the Second Installment of the
Recruiting Allowance unless and until it hosts a Second Job Fair. If the Tenant
fails to meet the Second Recruiting Milestone within five (5) business days
following the date of the Second Job Fair, the Tenant shall be entitled to
receive the Second Installment of the Recruiting Allowance. Alternatively, if
the Tenant does meet the Second Recruiting Milestone within such five (5) day
period, the Tenant will, nonetheless, be entitled to receive one half ( 1/2) of
the Second Installment of the Recruiting Allowance as an incentive to promote
the Tenant's use of the Job Fairs to recruit its employees (the "Incentive
Amount").
Within sixty (60) days following the Landlord's disbursement of either the
First Installment or the Second Installment, the Tenant shall furnish to
Landlord reasonable evidence that it has paid or incurred Recruiting Costs equal
to or greater than the amount of such First Installment or Second Installment,
as applicable, including, without limitation, copies of receipts, paid invoices,
cancelled checks or other
-18-
<PAGE> 19
reasonable evidence of the Tenant's payment of costs and/or expenses directly
related to recruitment of employees for Tenant's operations at the Leased
Premises. No such documentation will be required with respect to the Tenant's
use of the Incentive Amount. On or prior to the expiration of that sixty (60)
day period, the Tenant agrees to reimburse Landlord for the amount, if any, of
the Recruiting Allowance actually paid to Tenant (other than the Incentive
Amount) which is not used by Tenant to pay bona-fide Recruiting Costs hereunder.
In addition to the foregoing, the Landlord agrees to exercise commercially
reasonable efforts to assist the Tenant in obtaining job training incentive
payments or credits in an amount of up to One Hundred Fifty Thousand Dollars
($150,000.00) from the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
LANDLORD:
PRECEDENT INDUSTRIAL GROUP, LLC
By Precedent Group, LLC, Mgr.
By The Precedent Companies, Inc.
By: /s/ J. Randall Ackina
-----------------------------------------
Printed: J. Randall Ackina
------------------------------------
Title: President
--------------------------------------
TENANT:
PETS.COM, INC.
By: /s/ Chris Deyo
-----------------------------------------
Printed: Chris Deyo
------------------------------------
Title: President
--------------------------------------
-19-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF PETS.COM, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
<S> <C>
Pets.com Distribution Services Corporation Delaware
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 6, 1999, in the Registration Statement
(Form S-1) and related Prospectus of Pets.com, Inc. for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
San Francisco, California
December 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> FEB-17-1999
<PERIOD-END> SEP-30-1999
<CASH> 36,231
<SECURITIES> 150
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,872
<CURRENT-ASSETS> 40,728
<PP&E> 7,568
<DEPRECIATION> (319)
<TOTAL-ASSETS> 48,399
<CURRENT-LIABILITIES> 5,815
<BONDS> 0
0
14
<COMMON> 5
<OTHER-SE> 42,565
<TOTAL-LIABILITY-AND-EQUITY> 48,399
<SALES> 619
<TOTAL-REVENUES> 619
<CGS> 1,842
<TOTAL-COSTS> 1,842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,355)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,355)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,355)
<EPS-BASIC> (10.84)
<EPS-DILUTED> (10.84)
</TABLE>
