<PAGE>
As filed with the Securities and Exchange Commission on February 1, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
DIGITALWORK.COM, INC.
(Exact name of Registrant as specified in its charter)
--------------
Delaware 7389 52-2089673
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification or Code Number) Identification Number)
incorporation or
organization)
230 West Monroe Street, Suite 1950
Chicago, Illinois 60606
(312) 261-4000
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's principal executive offices)
--------------
Robert A. Schultz
Craig A. Terrill
DigitalWork.com, Inc.
230 West Monroe Street, Suite 1950
Chicago, Illinois 60606
(312) 261-4000
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
--------------
Copies To:
Craig C. Bradley, Esq. Stephen P. Farrell, Esq.
Gordon P. Paulson, Esq. Stephanie M. Gulkin, Esq.
Freeborn & Peters Morgan, Lewis & Bockius LLP
311 South Wacker Drive, Suite 3000 101 Park Avenue
Chicago, IL 60606 New York, NY 10178
(312) 360-6000 (212) 309-6000
(312) 360-6570 (fax) (212) 309-6273 (fax)
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed maximum Amount of
Title of each class of aggregate registration
securities to be registered offering price fee
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.005 per share(1)..... $90,000,000.00(2) $23,760.00
- -------------------------------------------------------------------------------
</TABLE>
(1) Includes certain associated preferred stock purchase rights issued
pursuant to a rights agreement.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities in any state where such an offer or sale is not permitted or +
+legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated February 1, 2000
PROSPECTUS
[Digital Work.com Logo]
Shares
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering shares. No public market currently exists for our shares
of common stock.
We propose to list the shares on the Nasdaq National Market under the symbol
"DWRK." We estimate that the initial public offering price will be between
$ and $ per share.
Investing in the shares involves risks. Risk Factors begin on page 5.
<TABLE>
<CAPTION>
Per Share Total
--------- ----------
<S> <C> <C>
Initial public offering price.................. $ $
Underwriting discounts and commissions......... $ $
Proceeds, before expenses, to us............... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of our common stock on the same terms and conditions set
forth above, solely to cover over-allotments, if any. The underwriters are
severally underwriting the shares being offered on a firm commitment basis.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about , 2000.
- --------------------------------------------------------------------------------
Lehman Brothers
U.S. Bancorp Piper Jaffray
Prudential Volpe Technology
a unit of Prudential Securities
, 2000
<PAGE>
DESCRIPTION OF ARTWORK ON THE INSIDE FRONT COVER
Inside Cover
The artwork at the top of the page is the DigitalWork.com logo. There are a
series of faded concentric ovals in white surrounding the logo. Text
accompanying the logo reads: "A Whole New Way to Work. Our e-services are
designed to help small businesses grow by simplifying the execution of over 30
critical business functions online."
Artwork below the logo and corresponding text is a graphic depicting the
steps of a hypothetical DigitalWork.com user executing our press release
service. Highlighted are the steps and actions within the process as listed
below.
Text accompanying this case study:
"Monday, 9:45am: Learns about Service.
Paul reads about the press release service at DigitalWork.com. He gets a
pricing list, reviews testimonials from past users and checks out the media
outlets he can use to send his release."
"Monday, 10:00am: Composes Release.
Paul decides to use the press release service. He simply copies his pre-
written story into DigitalWork.com's template and chooses when it will cross
the wire (8:00am CST the next day)."
"Monday, 10:05am: Selects the Distribution Options.
Paul chooses to distribute his release via media outlets in his home state--
Louisiana--and his industry category--real estate."
"Monday, 10:10am: Proofs/Edits Order.
Paul reviews the information he entered for the press release and approves
it without being changed."
"Monday, 10:15am: Executes Payment for Order.
Paul enters his credit card number and pays $90 for his release. He
immediately receives an email from DigitalWork.com confirming his order
placement."
"Monday, 6:00pm: Distribution of Release.
Paul receives an email from DigitalWork.com confirming that his release will
be sent across the wire at 8:00am CST on Tuesday. He also receives links he can
click to see his release posted on the web."
Across the bottom of the page are six partner logos in a white box with
rounded corners and a red border. Text across bottom of page accompanying six
partner logos: "Some of our visionary partners" Logos are: AT&T logo, Citibank
logo, IBM logo, Mail Boxes Etc. logo, Office Depot logo, Purchase Pro.com logo.
Foldout.
The artwork consists of the DigitalWork.com logo on a white background.
There are a series of faded concentric ovals surrounding the DigitalWork.com
logo. A black bar with rounded ends runs across the top of the page. Placed on
top of the concentric ovals are several logos of our distribution partners.
These logos and partners are: "Dell Computer Corporation, International
Business Machines Corporation, Office.com, Mail Boxes Etc. USA, Inc., AT&T
Business Networking, BellSouth, Citibank, Bank of America, America Online,
Inc., Lycos, Inc., Prodigy Communications Corporation, iVillage, Inc.,
Bloomberg L.P., PurchasePro.com, Inc., How2.com."
Copy contained within the black bar at the top of the page reads: "We have
created a pervasive distribution network targeted at the small business
market." At the bottom of the page there is additional text that reads:
". . .and many other business portals and growing."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Special Note Regarding Forward-
Looking Statements................. 13
Use of Proceeds..................... 13
Dividend Policy..................... 13
Capitalization...................... 14
Dilution............................ 15
Selected Financial Data............. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 23
Management....................... 33
Certain Transactions............. 40
Principal Stockholders........... 42
Description of Capital Stock..... 45
Shares Eligible for Future Sale.. 51
Underwriting..................... 53
Legal Matters.................... 55
Experts.......................... 55
Where You Can Find More
Information..................... 55
Financial Statements............. F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell and seeking offers to buy
shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
See the section of this prospectus entitled "Risk Factors" beginning on page
5 for a discussion of certain factors that you should consider before investing
in the common stock offered in this prospectus. All trademarks and trade names
appearing in this prospectus are the property of their respective holders.
Until , 2000, all dealers selling shares of our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and the financial statements and notes to those statements appearing
elsewhere in this prospectus. Except as otherwise indicated, all information in
this prospectus assumes that the underwriters do not exercise the option
granted by us to purchase additional shares in this offering and assumes the
conversion of all of our currently outstanding preferred stock into common
stock that will occur upon the completion of this offering. In addition, the
share information reflects a 4-for-1 stock split that occurred in October 1999.
Our Company
We are a leading provider of Web-based business services to the small
business market. We have developed a business-to-business services platform
that connects a network of service suppliers, business portals and small
business buyers. Our e-services help small businesses grow by simplifying the
execution of over 30 critical business functions online, such as launching an
integrated marketing campaign, recruiting new employees and generating sales
leads. We enable business service suppliers to efficiently reach the under-
served small business market and offer business portals the ability to enhance
their product offerings with a customized suite of business services. We power
the business services offerings for over 55 business portals, including AT&T,
Citibank, IBM, Mail Boxes Etc. and PurchasePro.com. We also recently signed
agreements to provide our e-services platform to AOL, Bloomberg and Dell. As of
December 31, 1999, over 100,000 small businesses have registered to use our e-
services platform, either through one of our business portal partners or
directly at our Web site.
Our Market Opportunity
The widespread adoption and interactive nature of the Internet have created
new opportunities for conducting business online. As the number of Internet
users has grown, businesses have increasingly recognized the power of the
Internet to streamline complex processes, lower costs and improve efficiency.
Given the resource and time constraints of most small businesses, which we
define as businesses with less than 100 employees, managers in this environment
are constantly seeking ways to complete critical business functions more
efficiently. In most cases, these functions span all aspects of a business. To
effectively compete in today's markets, small businesses need access to the
same breadth and depth of business services that have traditionally been
accessible only to larger business organizations. Likewise, business service
suppliers have not been able to reach and serve the large, highly fragmented
small business market efficiently. We believe a significant opportunity exists
to connect small business buyers with quality business service providers using
the Internet.
According to International Data Corporation, or IDC, small businesses will
increase their spending on e-commerce transactions from $6.2 billion in 1998 to
$106.8 billion in 2002, representing a compound annual growth rate of 104%.
Furthermore, IDC estimates that the number of small businesses today, 29.6
million, will grow to 38.5 million by 2002.
The DigitalWork.com Solution
We believe we have created a new way for small businesses to execute
critical business functions. Through our e-services network, we facilitate
business-to-business e-commerce transactions among small businesses, service
suppliers and business portals.
Small Businesses. Our e-services platform provides small businesses with
online access to business services that have not previously been readily
available to them. Our integrated Web-based solution allows
1
<PAGE>
time- and resource-constrained small businesses to complete over 30 critical
business functions more efficiently than with traditional offline methods.
Furthermore, our platform enables small businesses to learn about and execute
each business function in an efficient step-by-step manner. Our small business
customers benefit from using our platform since our e-services have a
consistent look and feel, unified payment process and single customer service
center.
Business Service Suppliers. We carefully select each of the business service
providers within our e-services network and act as the electronic channel for
them to effectively reach the small business market. We customize and enhance
the offerings of service suppliers specifically for the small business market
and rapidly integrate the offerings into our e-services platform.
Business Portals. There are thousands of companies with existing small
business customers that have created or will create Internet portals to better
reach and serve their small business customers. We syndicate our e-services
platform to these portals, providing them the benefits of increased customer
traffic, improved customer retention and new revenue streams. Our services are
co-branded with each portal's logo and Web design and are hosted by our servers
in order to maintain a consistent work environment for our users.
Our Services
We provide our customers with over 30 business services that we categorize
into the following eleven primary workshops:
Public Relations Sales Training
Online Advertising Market Research Business Software
Direct Mail Tech Support Travel
Recruiting Credit
Our Growth Strategy
Our goal is to become the dominant provider of Web-based business services
to the small business market. The key elements of our strategy are to:
. Capitalize on the broad reach of our existing global distribution
network;
. Grow our customer base by adding new business portals as our distribution
partners;
. Expand the depth and breadth of the e-services we offer;
. Tailor our e-services to meet the industry-specific needs of targeted
vertical markets;
. Leverage our network to generate new revenue streams;
. Strengthen our relationships with our small business users by continuing
to provide high quality customer service and promoting specific services
based on their requirements and usage; and
. Pursue strategic relationships and acquisitions.
Recent Developments
We recently entered into an agreement with America Online, Inc. to provide
sales and marketing services on a customized co-branded site which is
accessible from certain of America Online's properties, including AOL,
CompuServe and Netscape. In addition, we entered into an agreement with
Bloomberg L.P. to integrate our e-services network into its portal. Further, we
signed an agreement with Dell Computer Corporation, under which Dell will offer
a majority of our business services through its small business portal.
Additional Information About Our Company
Our principal executive offices are located at 230 West Monroe Street, Suite
1950, Chicago, Illinois 60606, and our telephone number is (312) 261-4000. Our
Web site is located at www.digitalwork.com. The information contained at our
Web site is not a part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by us........ shares
Common stock to be outstanding shares, excluding the shares
after this offering.............. that may be issued after this offering upon
the exercise of warrants and options as
described below.
Use of proceeds................... For general corporate purposes, including
working capital to fund operating losses
and capital expenditures. See "Use of
Proceeds" on page 13.
Risk factors ..................... For a discussion of certain risks you
should consider before investing in our
common stock, see "Risk Factors" beginning
on page 5.
Proposed Nasdaq National Market DWRK
symbol...........................
</TABLE>
Shares that May Be Issued After this Offering Upon the Exercise of Options and
Warrants
You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to the common stock to be outstanding
immediately after this offering. If and when we issue these shares, the
percentage of common stock you own will be diluted. The following is a summary
of additional shares of common stock that we have currently approved for
issuance upon the exercise of options and warrants after this offering:
. 2,375,425 shares of common stock that may be issued upon exercise of
outstanding options as of December 31, 1999, at a weighted average
exercise price of $0.44 per share;
. 3,212,335 shares of common stock reserved for future awards under our
stock option plan;
. 750,000 shares of common stock reserved for future purchase under our
stock purchase plan;
. 235,192 shares of our common stock issuable upon exercise of warrants
outstanding as of December 31, 1999, at a weighted average exercise price
of $1.09 per share;
. a number of shares equal to 10% of the shares of common stock we are
selling in this offering issuable upon exercise of warrants outstanding
as of December 31, 1999, at the initial public offering price; and
. 618,261 shares of our common stock issuable upon exercise of warrants
outstanding as of December 31, 1999, at an exercise price of $8.36 per
share.
3
<PAGE>
Summary Financial Data
The following table summarizes financial and other information for our
business. You should read this information together with our financial
statements and the notes to those statements beginning on page F-1 and the
information under "Selected Financial Data" beginning on page 16 and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" beginning on page 18.
<TABLE>
<CAPTION>
March 18,
1998
(inception) Three Months Ended
through ----------------------------------------------- Year Ended
December 31, March 31, June 30, September 30, December 31, December 31,
1998 1999 1999 1999 1999 1999
------------ --------- -------- ------------- ------------ ------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenues ............... $ 33 $ 112 $ 166 $ 561 $ 1,078 $ 1,917
Gross (loss) profit..... (28) (28) (64) 64 358 330
Operating expenses...... 1,455 1,097 1,853 3,815 9,210 15,975
-------- -------- -------- -------- ---------- -----------
Operating loss.......... (1,483) (1,125) (1,917) (3,751) (8,852) (15,645)
Interest income, net.... 16 12 62 114 140 328
-------- -------- -------- -------- ---------- -----------
Net loss................ $ (1,467) $ (1,113) $ (1,855) $ (3,637) $ (8,712) $ (15,317)
======== ======== ======== ======== ========== ===========
Basic and diluted net
loss per share......... $ (6.13) $ (2.36) $ (3.14) $ (4.01) $ (4.41) $ (15.54)
Weighted average shares
of common stock--basic
and diluted............ 239,370 471,282 590,032 906,608 1,975,564 985,871
Pro forma basic and
diluted net loss per
share.................. $ (1.21)
Pro forma weighted
average shares of
common stock-- basic
and diluted............ 12,659,847
</TABLE>
The pro forma basic and diluted net loss per share is computed by dividing
the net loss by the sum of the weighted average number of shares of common
stock outstanding plus the number of shares of common stock that will be
outstanding upon the automatic conversion of all shares of preferred stock
actually outstanding as of December 31, 1999 and after giving effect to a 4-
for-1 stock split that occurred in October 1999. The assumed conversion of the
preferred stock has an antidilutive effect on the pro forma basic and diluted
net loss per share.
The following table is a summary of our balance sheet data:
. on an actual basis; and
. on an unaudited as adjusted basis to reflect the sale of shares
of common stock in this offering at the initial public offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and offering expenses. For more information, refer to "Use of
Proceeds" on page 13 and "Capitalization" on page 14.
<TABLE>
<CAPTION>
As of December 31,
1999
-------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents............................... $33,751
Working capital......................................... 32,788
Total assets............................................ 38,918
Total stockholders' equity ............................. 33,182
</TABLE>
4
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors before purchasing
our common stock. Investing in our common stock involves a high degree of risk.
Additional risks and uncertainties that we have not yet identified or that we
currently think are immaterial may also materially adversely affect our
business and financial condition in the future. If any of the following risks
occur, our business, operating results and financial condition could be harmed.
In such case, the trading price of our common stock could decline and you could
lose all or part of your investment. You should also refer to the other
information set forth in this prospectus, including our financial statements.
Risks Related to Our Business
The limited operating history of our company and our industry makes financial
forecasting and evaluation of our business difficult.
We began operating our company in March 1998. We have entered into the
majority of our contracts and significant relationships within the last 12
months. Our limited operating history and the absence of other established
companies in our industry make it difficult to evaluate our business and
forecast our future performance. Our business is subject to risks and
uncertainties frequently encountered by companies in new and rapidly evolving
markets such as the business-to-business e-services market. Our failure to
identify and meet the challenges and risks inherent in a new business and a new
industry could cause our business to fail.
We have a history of losses, anticipate losses for the foreseeable future and
may never achieve profitability.
We have incurred net losses in each accounting period since our organization
in March 1998, and expect to continue to incur operating losses on both a
quarterly and annual basis for at least the foreseeable future. We may never
achieve profitability. As of December 31, 1999, we had an accumulated deficit
of approximately $16.8 million. We expect to continue to make significant
expenditures for sales and marketing, customer acquisition, development and
general and administrative functions. Specifically, in 2000 we intend to
increase our workforce, expand our facilities and increase the amounts we spend
on marketing programs. In each case, we will be making very significant
expenditures well before our revenues increase to cover these additional costs.
As a result, we will continue to incur significant losses for the foreseeable
future. We cannot assure you that our revenue will grow in the future or that
we will ever achieve profitability.
Because we depend heavily on relationships with business portals for our
growth, if these relationships do not contribute to increased use of our e-
services or help us add new customers, our revenue may not increase.
We have entered into agreements, and intend to enter into additional
agreements, with business portals as our primary means to sell our services to
small business customers. For the three months ended December 31, 1999, we
received approximately 75% of our registered users from our relationships with
business portals. We expect this percentage to increase in the future. This
distribution strategy subjects us to a number of risks:
. We depend on these business portals to attract registered users for us.
We cannot assure you that these business portals will be able to attract
significant numbers of small business users or that their customers will
use our e-services.
. We have recently entered into significant agreements with AOL, Bloomberg
and Dell and the co-branded sites related to these agreements are
currently being developed. As a result, we cannot assure you that these
companies will successfully integrate our services into their offerings
or that these relationships will significantly enhance our business.
. We have agreed to pay significant fees to a few of these business portals
to include our e-services platform in their offerings. We cannot assure
you that we will be able to recover our costs associated with these
agreements.
5
<PAGE>
. Our agreements with business portals typically have terms that range
between one and two years and in some cases have termination provisions
that allow the parties to terminate for reasons beyond our control. In
addition, most of these agreements do not restrict the business portals
from offering services that compete with ours.
. If our distribution partners fail to maintain their sites or do not meet
their obligations with respect to displaying our services and service
marks, we could lose customers.
We depend on agreements with business service providers to fulfill the e-
services we offer and if they fail to provide our customers quality service we
may lose customers.
We have agreements with business service providers to fulfill the e-services
we offer to our customers. If these business service providers do not perform
consistently well, we may lose customers and relationships with our
distribution partners. In addition, if we lose one or more of these service
providers, even for a short period of time, we may not be able to offer our
customers and distribution partners the e-services they expect.
Our strategy of providing e-services over the Internet is novel and may not be
successful.
Our business strategy is to sell e-services to small businesses over the
Internet. As of December 31, 1999, approximately 4,200 of our registered users
have purchased services from us. If this business strategy proves to be flawed,
or if we are unable to execute our strategy effectively, our business,
operating results and financial condition will materially suffer. Sales of our
e-services could be adversely affected by a number of factors including the
following:
. Small business may be unfamiliar with some of the services we offer,
since these services have not been readily accessible by them in the
past; and
. Electronic commerce, particularly business-to-business e-services, is
still at an early stage of development and small businesses may not be
willing to shift their purchasing from traditional vendors to online
vendors.
We expect to face intense competition in the small business e-services market
for small business customers and strategic partners and, as a result, our
market share and financial performance may suffer.
The small business e-services market is new, rapidly evolving and intensely
competitive, and we expect this competition to intensify in the future.
Barriers to entry are minimal, and competitors may develop and offer similar
services in the future. Although we believe that there may be opportunities for
several providers of services similar to ours, a single provider may dominate
the market. Our business, financial condition and operating results could be
severely harmed if we are not able to compete successfully against current or
future competitors.
In addition to the competition for small business customers, we face
competition in entering into strategic alliances with business portals and
business service providers. This competition may decrease the amount of revenue
we receive from our strategic relationships with business portals and service
providers. Also, most of the agreements with our distribution partners and our
business service providers do not have exclusivity provisions that would
preclude them from partnering with our competitors or offering their own
services in competition with us.
Some of our current and potential competitors have longer operating
histories, larger customer bases and greater brand recognition in business and
Internet markets and significantly greater financial, marketing, technical and
other resources. Our competitors may be able to devote significantly greater
resources to marketing and promotional campaigns, may adopt more aggressive
pricing polices or may try to attract users by offering products or services
for free or below their cost, and may devote substantially more resources to
develop new services.
6
<PAGE>
Our quarterly results are subject to significant fluctuations, and our stock
price may decline if we do not meet expectations of investors and analysts.
Our quarterly operating results may fluctuate significantly for a variety of
potential reasons including:
. uncertain demand for and market acceptance of our e-services;
. inconsistent growth, if any, of our customer base;
. loss of a substantial number of distribution partners or business service
providers;
. intense and increased competition;
. introductions of new services or enhancements, or changes in pricing
policies, by us or our competitors;
. increases in operating costs due to the growth of our company; and
. system or Internet disruptions.
We believe that quarterly revenues, expenses and operating results are
likely to vary significantly in the future, therefore period-to-period
comparisons of results of operations are not necessarily meaningful and those
comparisons should not be relied upon as indications of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Operating Results" beginning on page 18. Due to these and
other factors, it is possible that our operating results will be below
securities analysts' expectations in some future quarters, which could cause
the market price of our stock to decline.
If we cannot continuously enhance our e-services, we may not be able to meet
customer demands and our business will suffer.
Our future success will depend in part on our ability to continue to develop
and introduce new services that keep pace with competitive introductions and
technological developments, satisfy diverse and evolving small business
customer requirements and otherwise achieve market acceptance. If we fail to
anticipate or respond adequately to changes in technology and customer
preferences, or there are any significant delays in our development efforts,
our services may become unmarketable or obsolete and our business will be
harmed.
If we fail to effectively manage our expected growth, our management and
resources could be strained and our business could be negatively impacted.
Successful implementation of our business plan requires an effective
planning and management process. Our business could be negatively impacted if
we do not effectively manage our expected growth. We expect that we will need
to continue to improve our financial and managerial controls and reporting
systems and procedures. We continue to increase the scope of our operations
domestically and plan to expand internationally. This growth and integration,
even if successful, may take a significant period of time and expense, and may
place a significant strain on our resources.
The loss of our key personnel, including our senior management team, or any
inability to attract and retain additional personnel, could greatly increase
our operating costs and affect our ability to grow our business.
We believe that our success will depend on the continued employment of our
senior management team and other key personnel. If any of these individuals are
unable or unwilling to continue in their present positions, we could face
difficulties in growing our business.
We have grown from four full-time employees in March 1998 to 68 full-time
employees as of December 31, 1999 and we intend to continue to rapidly increase
our workforce. The market for employees in technology businesses is very tight
and we may not be able to meet our hiring goals. To meet our need to grow our
workforce, we may be forced to pay higher compensation than we would otherwise
desire.
7
<PAGE>
If our intellectual property protection is inadequate, competitors may
undermine our competitive position.
Our copyrights, service marks, trade secrets and similar intellectual
property are important to our success. We rely on trademark and copyright law,
trade secret protection and confidentiality or license agreements with our
employees, customers and business partners to protect our proprietary rights.
Despite our precautions, third parties may infringe or misappropriate our
copyrights, service marks and similar proprietary rights.
If we infringe the intellectual property rights of others, we could be exposed
to substantial liabilities that would severely harm our business.
We cannot be certain that our services do not infringe patents, patent
applications or other intellectual property rights. As a result, other parties
may assert infringement claims against us. As patent applications are not
publicly disclosed until the patent license is issued, applications may have
been filed which relate to our services. We may be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of intellectual property rights. We cannot
assure you that we would be able to obtain licenses to continue offering such
services on commercially reasonable terms, or at all. Any claims against us
relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and in injunctions preventing us from distributing these
services. These claims could severely harm our business.
We may not be able to accurately predict the rate of increase in the usage of
our e-services, which may affect our timing and ability to expand and upgrade
our systems.
We may not be able to accurately predict the rate of increase in the usage
of our e-services. This may affect our timing and ability to expand and upgrade
our systems and hardware and software capabilities to accommodate increased use
of our network. If we do not upgrade our systems and hardware and software
appropriately, we may experience downgraded service, which could damage our
business reputation, relationship with customers and our operating results.
If we extend our international sales and marketing activities, our business
will be exposed to the numerous risks associated with international operations.
We intend to have operations in a number of international markets. To date,
we have limited experience in developing localized versions of our services and
in marketing, selling and distributing our solutions internationally.
International operations are subject to many risks, including:
. the impact of recessions in economies outside the United States;
. varying business practices as well as language and cultural barriers that
make doing business significantly different than in the United States;
. changes in regulatory requirements;
. reduced protection for intellectual property rights;
. potentially unfavorable tax rules;
. difficulties and costs of staffing and managing foreign operations;
. political and economic instability;
. fluctuations in currency exchange rates; and
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world.
In the event that one or more of these risks adversely affects us, we may
not be successful in our expected international expansion.
8
<PAGE>
We may pursue the acquisition of, or investment in, new and complementary
businesses, which may be costly and difficult to integrate.
We may acquire, or invest in, businesses that complement or augment our
existing businesses and services. If we are unable to integrate any newly
acquired entities effectively, our operating results, business and growth could
be harmed. Integrating any newly acquired businesses or services may be
expensive and time consuming. To finance any acquisitions, we may need to raise
additional funds. We may not be able to find additional financing, if required,
on favorable terms or at all and, in the case of equity financings, dilution to
our stockholders may result. We may not be able to conduct any acquired
business profitability.
Risks Related to the Internet and Electronic Commerce
Our success depends on the Internet's ability to accommodate growth in e-
services.
The use of the Internet for retrieving, sharing and transferring information
among businesses, buyers, suppliers and partners has only recently begun to
develop. If the Internet is not able to accommodate growth in electronic
commerce, particularly e-services, our business will suffer. The recent growth
in the use of the Internet has caused frequent periods of performance
degradation. Our ability to sustain and improve our services is limited, in
part, by the speed and reliability of the networks operated by third parties.
Consequently, the emergence and growth of the market for our services is
dependent on improvements being made to the Internet infrastructure to
alleviate overloading and congestion.
Because we are dependent upon the growth of the Internet as a means of
commerce, our business may be harmed if its growth is slower than expected.
If the e-services market does not grow or grows more slowly than expected,
our business will suffer. The possible slow adoption of the Internet as a means
of commerce by businesses may harm our prospects. A number of factors could
prevent the acceptance and growth of electronic commerce, including the
following:
. electronic commerce is at an early stage and buyers may be unwilling to
shift their traditional means of obtaining business services;
. increased government regulations or taxation may adversely affect the
viability of electronic commerce;
. insufficient availability of telecommunications services or changes in
telecommunication services may result in slower response times; and
. adverse publicity and consumer concern about the reliability, cost, ease
of access, quality of service, capacity, performance and security of
electronic commerce transactions could discourage its acceptance and
growth.
Security risks of electronic commerce may deter use of our products and
services.
A fundamental requirement to conduct business-to-business electronic
commerce is the secure transmission of information over public networks,
including credit card billing information. If our customers are not confident
in the security of electronic commerce, they may not effect transactions on our
platform, which would severely harm our business. We cannot be certain that
advances in computer capabilities, new discoveries in the field of
cryptography, or other developments will not result in the compromise or breach
of the algorithms we use to protect content and transactions on our Web sites
or proprietary information in our databases. Anyone who is able to circumvent
our security measures could misappropriate proprietary, confidential member
information, place false orders or cause interruptions in our operations. We
may be required to incur significant costs to rectify breaches. Further, a
well-publicized compromise of Internet security could deter people from using
the Internet to conduct transactions that involve transmitting confidential
information. Our failure to prevent security breaches, or well-publicized
security breaches affecting the Internet in general, could adversely affect our
business.
9
<PAGE>
If we encounter system failures, the e-services we provide to our customers
could be delayed or interrupted, which could severely harm our business and
result in a loss of customers.
Our ability to successfully maintain our platform and provide acceptable
levels of customer service largely depends on the efficient and uninterrupted
operations of our computer and our communications hardware and network systems.
Any interruptions could severely harm our business and result in a loss of
customers. Our systems and operations are vulnerable to damage or interruption
from human error, sabotage, fire, flood, earthquake, power loss,
telecommunications failure and similar events. Although we have taken certain
steps to prevent a system failure, we cannot assure you that our measures will
be successful and that we will not experience system failures in the future.
Furthermore, we do not have a formal disaster recovery plan and do not carry
sufficient business interruption insurance to compensate us for losses that may
occur as a result of any system failure. The occurrence of any system failure
or similar event could harm our business dramatically.
Governmental regulation, legal and tax uncertainties could impair the growth of
the Internet and decrease demand for our services and increase our costs of
doing business.
The laws governing Internet transactions remain largely unsettled, even in
areas where there has been some legislative action. The adoption or
modification of laws or regulations relating to the Internet could increase our
costs and administrative burdens. It may take years to determine whether and
how existing laws such as those governing intellectual property, privacy,
libel, consumer protection and taxation apply to the Internet.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. We must comply with new regulations
in the United States and other countries where we conduct business. The growth
and development of the business-to-business electronic commerce market may
prompt more stringent laws governing consumer protections and the taxation of
electronic commerce. Our non-compliance with any newly adopted laws and
regulations could expose us to significant liabilities.
Risks Related to this Offering
You will experience immediate dilution with respect to your shares.
You will incur immediate and substantial dilution of $ per share in the
net tangible book value of your shares as a result of this offering. See
"Dilution" on page 15. In addition, we expect to grant a large number of
options to purchase our common stock in order to attract new employees, which
may be dilutive and may affect per share calculations.
We may need additional capital, which may not be available and any financing
may dilute existing stockholders.
We believe that the net proceeds from this offering will enable us to
maintain our current and planned operations for at least the next 18 months.
However, we may need to raise additional capital in the future to meet our
requirements. If our requirements vary materially from those currently planned,
we may require additional financing sooner than anticipated. Such financing may
not be available in sufficient amounts or on favorable terms, or at all, and
may be dilutive to existing stockholders.
Our stock has not been publicly traded before this offering and our stock price
may be volatile.
Our stock has not been publicly traded, and an active trading market may not
develop or be sustained after this offering. Together with the representatives
of the underwriters, we have determined the initial public offering price. The
price at which our common stock will trade after this offering is likely to be
highly volatile and may fluctuate substantially due to factors such as:
. actual or anticipated fluctuations in our results of operations;
. changes in or failure by us to meet securities analysts' expectations;
10
<PAGE>
. announcements of technological innovations;
. introduction of new services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stock of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market price
of our common stock. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against that company. We may become involved in this
type of litigation in the future. Litigation is often expensive and diverts
management's attention and resources which is needed to successfully run our
business.
Shares eligible for future sale by our existing stockholders may adversely
affect our stock price.
The market price of our common stock could drop due to the sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, shares of common stock will be outstanding. Of
these shares, the shares sold in this offering will be freely tradable
without restrictions under the Securities Act of 1933, except for any shares
purchased by our "affiliates," as defined in Rule 144 under the Securities Act.
The number of shares of common stock outstanding would increase to and
the number of freely tradable shares would increase to if the
underwriters exercise their over-allotment option in full. Our officers and
directors and all stockholders who beneficially own more than one percent of
our capital stock have entered into lock-up agreements pursuant to which they
have agreed not to offer or sell any shares of common stock for a period of 180
days after the date of this prospectus without the prior written consent of
Lehman Brothers Inc., which it may grant in its discretion. Upon expiration of
this 180-day lock-up period, the shares owned by these persons prior to
completion of this offering may be sold into the public market without
registration under the Securities Act in compliance with the volume limitations
and other applicable restrictions of Rule 144 under the Securities Act. In
addition, some of our stockholders have the right to require us to register up
to 15.8 million shares of common stock for public resale beginning in
, 2000. After the date of this prospectus, we intend to register the
shares issuable upon the exercise of outstanding stock options and reserved for
issuance under our stock option plans. Once we register these shares, they can
be sold in the public market upon issuance. See "Shares Eligible for Future
Sale" on page 51.
Our management will have broad discretion over the net proceeds from this
offering and may not use the funds in a manner that is in your best interest.
We have no specific plans for the use of the net proceeds from this
offering. Generally, we intend to use the net proceeds from this offering to
expand our marketing activities, enter into new strategic alliances and fund
general corporate expenditures, including working capital and acquisitions. We
have not yet determined the actual expected expenditures and thus cannot
estimate the amounts to be used for each specified purpose. The actual amounts
and timing of these expenditures will vary significantly depending on a number
of factors, including, but not limited to, the amount of cash generated by our
operations and the market response to the introduction of any new service
offerings. Depending on future developments and circumstances, we may use some
of the proceeds for uses other than those described above. Our management will,
therefore, have significant flexibility in applying the net proceeds of this
offering. Our success and growth depends on the beneficial use of the net
proceeds. We cannot assure you that management will use these funds in a manner
of which you approve or that allocations will be in the best interest of
stockholders.
11
<PAGE>
Risks Related to Our Corporate Structure
Our charter documents and Delaware law contain provisions that may discourage
takeover attempts that could preclude our stockholders from receiving a change
of control premium.
Elements of our corporate structure contain anti-takeover mechanisms that
could have the effect of delaying or preventing changes in control that a
stockholder may consider favorable. These elements include the following:
. a stockholder rights plan;
. a classified board of directors with three-year staggered terms;
. the ability of our board, without stockholder approval, to issue
preferred stock with currently unrestricted terms and provisions;
. restriction of stockholder action to voting only at a special or regular
meetings;
. advance notice procedures for nominating candidates to our board of
directors;
. employment agreements that entitle our executives to severance payments
in the event of a change of control; and
. anti-takeover provisions of Delaware law.
The foregoing could have the effect of delaying, deferring or preventing a
change in control of our company, discourage bids for our common stock at a
premium over the market price, or harm the market price of, and the voting and
other rights of the holders of, our common stock. For more information refer to
"Description of Capital Stock--Delaware Anti-Takeover and Certain Certificate
of Incorporation and By-law Provisions" beginning on page 45.
Because our executive officers, directors and principal stockholders will
exercise significant voting control over our company, the market price of our
common stock may be adversely affected.
We anticipate that our executive officers, directors and principal
stockholders 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
will be able to exercise substantial influence over all matters requiring
approval of our stockholders, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of our company.
See "Principal Stockholders" beginning on page 42.
12
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus are forward-looking
statements. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," or "continue" or the negative of
such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, our affiliates do not assume
responsibility for the accuracy and completeness of such statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus.
USE OF PROCEEDS
We estimate that we will receive net proceeds of $ from the
sale of shares of common stock in this offering, after
deducting estimated offering expenses of $ and estimated
underwriting discounts and commissions at an assumed initial public offering
price of $ per share. If the underwriters exercise their over-
allotment option in full, we will receive net proceeds of $ , after
deducting estimated expenses of $ and estimated underwriting
discounts and commissions.
We have no specific plan for the application or use of the net proceeds of
this offering. Generally, we intend to use the net proceeds, over time, for
general corporate purposes, including working capital to fund operating losses
and capital expenditures. We may also use a portion of the net proceeds,
currently intended for general corporate purposes, to acquire or invest in
businesses, technologies, products or services, although no specific
acquisitions are planned and no portion of the net proceeds has been allocated
for any such acquisition. The amounts we actually expend for such purposes may
vary significantly and will depend on a number of factors, including the amount
of our future revenues. Pending such uses, we intend to invest the net proceeds
of this offering in investment-grade, interest-bearing securities.
Accordingly, we will have broad discretion in the application of the net
proceeds of this offering. For more information, please refer to "Risk
Factors--Our management will have broad discretion over the net proceeds from
this offering and may not use the funds in a manner that is in your best
interest" on page 11.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not intend nor expect to pay any cash dividends in the foreseeable future.
We intend to retain future earnings, if any, to finance the expansion of our
business.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on an unaudited pro forma basis to reflect the conversion of all of our
outstanding shares of preferred stock into common stock, which will occur
upon the completion of this offering; and
. on an unaudited pro forma as adjusted basis to reflect our receipt of the
estimated net proceeds from the sale of the shares of common stock in
this offering at an assumed initial public offering price of $ per
share after deducting the estimated offering expenses and underwriting
discounts and commissions.
This information is derived from, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" beginning on page 18, and our financial statements and related notes
appearing at the end of this prospectus beginning on page F-1.
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 33,751 $ 33,751
======== ========
Long-term portion of capital lease
obligations................................... $ 263 $ 263
Stockholders' equity:
Convertible preferred stock, $.005 par value
per share, 20,895,360 shares authorized,
20,071,253 shares issued and outstanding,
actual; 10,000,000 shares authorized, no
shares issued or outstanding, pro forma and
pro forma as adjusted....................... 100 0
Common stock, $.005 par value per share;
41,633,786 shares authorized, 4,020,040
shares issued and outstanding, actual;
41,633,786 shares authorized, 24,091,293
shares issued and outstanding, pro forma;
100,000,000 shares authorized,
shares issued and outstanding, pro forma as
adjusted.................................... 20 120
Additional paid-in capital................... 60,670 60,670
Stockholders' receivables.................... (5,960) (5,960)
Deferred stock compensation.................. (4,864) (4,864)
Accumulated deficit.......................... (16,784) (16,784)
-------- -------- ------
Total stockholders' equity................. 33,182 33,182
-------- -------- ------
Total capitalization....................... $ 33,445 $ 33,445
======== ======== ======
</TABLE>
The outstanding stock information above excludes:
. 2,375,425 shares of common stock that may be issued upon exercise of
outstanding options as of December 31, 1999, at a weighted average
exercise price of $0.44 per share;
. 3,212,335 shares of common stock reserved for future awards under our
stock option plan;
. 750,000 shares of common stock reserved for future purchase under our
stock purchase plan;
. 235,192 shares of our common stock issuable upon exercise of warrants
outstanding as of December 31, 1999, at a weighted average exercise price
of $1.09 per share;
. a number of shares equal to 10% of the number of shares of common stock
we are selling in this offering issuable upon exercise of warrants
outstanding as of December 31, 1999, at the initial public offering
price; and
. 618,261 shares of our common stock issuable upon exercise of warrants
outstanding as of December 31, 1999, at an exercise price of $8.36 per
share.
For further information, please refer to "Management--Stock-Based Plans" on
page 38 and "Description of Capital Stock--Warrants" on page 47 and note 5 to
our financial statements.
14
<PAGE>
DILUTION
Our net tangible book value as of , 2000 was approximately
$ , or $ per share. We determined net tangible book value per share by
dividing the number of outstanding shares of our common stock into our net
tangible book value (total tangible assets less total liabilities). Dilution in
net tangible book value per share represents the difference between the amount
per share paid by purchasers of shares of common stock in this offering and the
net tangible book value per share of common stock immediately after completion
of this offering. Assuming our sale of the shares of common stock being offered
hereby at an initial public offering price of $ per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses, the net tangible book value of our company as of
, 2000 would have been approximately $ , or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares at the initial public offering price. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................. $
Net tangible book value per share before this
offering............................................. $
Increase in net tangible book value attributable to
new investors........................................
-------
Net tangible book value per share after offering........
-------
Dilution in net tangible book value per share to new
investors.............................................. $
=======
</TABLE>
The following table summarizes as of December 31, 1999, on a pro forma
basis, the differences between the number of shares of capital stock purchased
from us, the total consideration paid to us and the average price per share
paid by existing stockholders and by investors purchasing shares of common
stock in this offering at an assumed initial public offering price of $
(before deducting the estimated underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration Average
-------------- ---------------------- Price
Number Percent Amount Percent Per Share
------ ------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... $
New investors...........
------ --- ----------- -------- -------
Total............... 100% 100%
====== === =========== ======== =======
</TABLE>
The information above does not reflect the following:
. 2,375,425 shares of common stock that may be issued upon exercise of
outstanding options as of December 31, 1999, at a weighted average
exercise price of $0.44 per share;
. 3,212,335 shares of common stock reserved for future awards under our
stock option plan;
. 750,000 shares of common stock reserved for future purchase under our
stock purchase plan;
. 235,192 shares of our common stock issuable upon exercise of warrants
outstanding as of December 31, 1999, at a weighted average exercise price
of $1.09 per share;
. a number of shares equal to 10% of the number of shares of common stock
we are selling in this offering issuable upon exercise of warrants
outstanding as of December 31, 1999, at the initial public offering
price; and
. 618,261 shares of our common stock issuable upon exercise of warrants
outstanding as of December 31, 1999, at an exercise price of $8.36 per
share.
For further information, please refer to "Management--Stock-Based Plans" on
page 38 and "Description of Capital Stock--Warrants" on page 47 and note 5 to
our financial statements.
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, the financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statement of operations
data for the period from March 18, 1998 (inception) through December 31, 1998
and the year ended December 31, 1999 and the balance sheet data at December 31,
1998 and 1999 are derived from our financial statements, which have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this prospectus. The statement of operations data for the three months ended
March 31, 1999, June 30, 1999, September 30, 1999, and December 31, 1999 are
derived from unaudited financial statements, and, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of the results of
operations for these periods. The historical results are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
March 18, 1998
(inception) Three Months Ended
through ------------------------------------------------- Year Ended
December 31, March 31, June 30, September 30, December 31, December 31,
1998 1999 1999 1999 1999 1999
-------------- --------- ---------- ------------- ------------ ------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenues................ $ 33 $ 112 $ 166 $ 561 $ 1,078 $ 1,917
Cost of revenues........ 61 140 230 497 720 1,587
--------- --------- ---------- ---------- ---------- ----------
Gross (loss) profit..... (28) (28) (64) 64 358 330
Operating expenses:
Marketing and
strategic alliances.. 504 502 822 2,455 3,253 7,032
Technical and product
development.......... 207 231 700 737 1,184 2,852
General and
administrative....... 661 364 275 602 1,201 2,442
Non-cash charges...... 83 0 56 21 3,572 3,649
--------- --------- ---------- ---------- ---------- ----------
Total operating
expenses........... 1,455 1,097 1,853 3,815 9,210 15,975
--------- --------- ---------- ---------- ---------- ----------
Operating loss.......... (1,483) (1,125) (1,917) (3,751) (8,852) (15,645)
Interest income, net.... 16 12 62 114 140 328
--------- --------- ---------- ---------- ---------- ----------
Net loss................ $ (1,467) $ (1,113) $ (1,855) $ (3,637) $ (8,712) $ (15,317)
========= ========= ========== ========== ========== ==========
Basic and diluted net
loss per share......... $ (6.13) $ (2.36) $ (3.14) $ (4.01) $ (4.41) $ (15.54)
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net loss per
share.................. 239,370 471,282 590,032 906,608 1,975,564 985,871
Pro forma basic and
diluted net loss per
share ................. $ (1.21)
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share..... 12,659,847
</TABLE>
16
<PAGE>
The pro forma basic and diluted net loss per share is computed by dividing
the net loss by the sum of the weighted average number of shares of common
stock outstanding plus the number of shares of common stock that will be
outstanding upon the automatic conversion of all shares of preferred stock
actually outstanding as of December 31, 1999 and after giving effect to a 4-
for-1 stock split that occurred in October 1999. The assumed conversion of the
preferred stock has an antidilutive effect on the pro forma basic and diluted
net loss per share.
The following table is a summary of our balance sheet data:
. on an actual basis;
. on an unaudited as adjusted basis to reflect the sale of shares
of common stock in this offering at the initial public offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and offering expenses. For more information, refer to "Use of
Proceeds" on page 13 and "Capitalization" on page 14.
<TABLE>
<CAPTION>
As of
December 31, 1999
-------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data
Cash and cash equivalents................................... $33,751
Working capital............................................. 32,788
Total assets................................................ 38,918
Total stockholders' equity.................................. 33,182
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the notes thereto beginning on page F-1 and the other financial
information appearing elsewhere in this prospectus. In addition to historical
information, the following discussion and other parts of this prospectus
contain forward-looking information that involves risks and uncertainties. Our
actual results could differ materially from those anticipated by such forward-
looking information due to factors discussed under "Risk Factors" beginning on
page 5, "Special Note Regarding Forward-Looking Statements" beginning on page
13 and elsewhere in this prospectus.
Overview
We are a leading provider of Web-based business services to the small
business market. We have developed a business-to-business services platform
that connects a network of service suppliers, business portals and small
business buyers. Our e-services help small businesses grow by simplifying the
execution of over 30 critical business functions online, such as launching an
integrated marketing campaign, recruiting new employees and generating sales
leads. We currently offer our services primarily in the United States, but we
plan to expand our international presence.
We were founded in March 1998 and devoted the balance of 1998 principally to
organizational activities, including the initial establishment of our e-
services network. While we began offering our business-to-business services in
1998, we did not generate significant revenue until 1999. As a result,
comparisons of our financial results between 1998 and 1999 are not meaningful
or indicative of our future growth or financial performance.
Quarterly Results of Operations
We are providing a discussion and analysis of our results of operations that
is focused on the seven quarters from our inception to December 31, 1999. You
should read this table along with our consolidated financial statements and
related notes. The information provided below has been derived from our
unaudited financial statements, and, in the opinion of management, it includes
all adjustments, consisting only of normal recurring adjustments, that we
consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You must consider our prospects
in light of the risks, expenses and difficulties encountered by companies in
new and rapidly evolving markets. We may not be successful in addressing these
risks and difficulties. Although we have experienced significant percentage
growth in revenues in recent periods, we may not be able to sustain our prior
growth rate. Our prior growth may not be indicative of future operating
results.
<TABLE>
<CAPTION>
Three Months Ended
Unaudited
------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenues................ $ 0 $ 5 $ 28 $ 112 $ 166 $ 561 $ 1,078
Cost of revenues........ 2 5 54 140 230 497 720
----- ----- ----- ------- ------- ------- -------
Gross (loss) profit..... (2) 0 (26) (28) (64) 64 358
Operating expenses:
Marketing and
strategic alliances... 31 122 351 502 822 2,455 3,253
Technical and product
development........... 1 55 151 231 700 737 1,184
General and
administrative........ 161 238 262 364 275 602 1,201
Non-cash charges....... 0 0 83 0 56 21 3,572
----- ----- ----- ------- ------- ------- -------
Total operating
expenses............ 193 415 847 1,097 1,853 3,815 9,210
----- ----- ----- ------- ------- ------- -------
Net operating loss...... (195) (415) (873) (1,125) (1,917) (3,751) (8,852)
Interest income, net ... 1 3 12 12 62 114 140
----- ----- ----- ------- ------- ------- -------
Net loss................ $(194) $(412) $(861) $(1,113) $(1,855) $(3,637) $(8,712)
===== ===== ===== ======= ======= ======= =======
</TABLE>
18
<PAGE>
Results of Operations
Revenues
We generate revenue from two sources: e-services transactions and network
fees earned from business portals and service suppliers. The increases in
revenues since our inception are attributable to increases in both the number
of e-services purchased as well as increases in network fees. For the twelve
months ended December 31, 1999, e-services transactions represented
approximately 81% of our total revenues, while network fees represented
approximately 19% of total revenues.
E-services Transactions. Small businesses utilize our Web-based e-services
platform to access and execute essential business services. We then work with
our business service suppliers in completing the transaction and delivering the
service to the customer. Since we assume the economic risk related to
collections, customer service and fulfillment and we determine the price of the
service, we recognize revenue from e-services transactions as the total price
of the service a small business customer purchases. We recognize revenue when
the service is delivered to our small business customer.
Network Fees. Small businesses access our platform through our business-to-
business network of leading business portals as well as through our own site at
www.digitalwork.com. We typically earn initial content licensing fees from
business portals for the integration of a co-branded version of our e-services
platform into their Web sites. In addition to this licensing fee, we also
typically earn ongoing maintenance fees. We recognize revenue from the initial
licensing fees and the ongoing maintenance fees on a straight line basis over
the terms of the respective agreements. In addition to fees paid by business
portals, we also, in some cases, will earn slotting fees from our business
service suppliers which will entitle them to be a provider of a particular
service to our network. The revenue related to these fees will be recognized
over the term of the agreement. The term of our agreements typically ranges
from one to two years and the agreements are subject to renewal. Finally, we
earn revenue from the sale of advertising on our e-services platform.
Advertising revenue is recognized in the period in which the advertising is
displayed.
In addition, we have entered into agreements with third parties which will
act as both a service supplier and distribution partner, resulting in complex
sales and purchase arrangements. We recognize the revenue and expense of the
arrangement based on the objective evidence of fair value of the elements.
Objective evidence of fair value is determined by reference to our history of
other comparable and relevant third party cash transactions for each element in
the arrangement. In the year ended December 31, 1999, revenue and expense
elements of the arrangements we have entered into have been netted and will be
recognized over the terms of the agreements. This treatment resulted in a
reduction of revenue of approximately $443,000 and a corresponding amount of
expenses in the year ended December 31, 1999. No service arrangements were
entered into during the period from March 18, 1998 (inception) through December
31, 1998.
Cost of Revenues
Cost of revenues consists of fees paid to business service suppliers for e-
services fulfillment, revenue sharing with business portals from e-services
transaction fees, credit card processing fees and personnel and other costs
related to our customer service group. Cost of revenues has increased since our
inception due to the increase in revenues. Our gross margins vary from quarter
to quarter based on the volume and mix of e-services fulfilled and the network
fees generated during the quarter and the costs of customer service levels
maintained in the quarter.
Operating Costs
We classify our operating costs into four categories: marketing and
strategic alliances; technical and product development; general and
administrative; and non-cash charges.
19
<PAGE>
Marketing and Strategic Alliances. Marketing and strategic alliances expense
consists primarily of employee compensation, advertising, customer acquisition
costs, amortization of strategic marketing payments, and other marketing
programs. Our marketing and strategic alliances expenses have increased each
quarter since inception as we have expanded our marketing and strategic
alliance development efforts. We expect these expenses to continue to increase
in absolute dollars as we increase the number of business services suppliers
and business portals in our network, and as we promote our brand and the brand
of our e-services network.
Technical and Product Development. Technical and product development expense
relates to the development and enhancement of our e-services platform. These
expenses include related employee compensation and third-party contract
development costs. Technical and development costs have increased each quarter
since inception primarily due to increased staffing and associated costs
related to the development of our e-services platform. We expect our technical
and product development expense to increase in absolute dollars as we continue
to enhance and add features and services to our e-services platform.
General and Administrative. General and administrative expense consists
primarily of compensation for personnel, fees for outside professional advisors
and general overhead and facilities costs. General and administrative costs
have increased primarily as a result of personnel additions, the costs of
leasing additional office space to support our growth and increased fees paid
for professional services. We expect these costs will increase in absolute
dollars as we continue to add staff and infrastructure to support our business
growth and incur the costs associated with being a public company.
Non-cash charges. Non-cash charges consist of stock-based compensation
expense, strategic marketing equity instruments expense and other equity
expenses. Stock-based compensation expense consists of expenses related to
employee stock option grants issued with exercise prices lower than the deemed
fair value of the underlying shares at the time of the grant. Stock-based
compensation is amortized over the vesting period of each individual award
using a graded vesting method. We have recorded aggregate deferred stock
compensation of $5.6 million for options granted in 1999. We recognized a total
of $700,957 in stock compensation expense in 1999. We anticipate that the total
charges we will recognize in future periods from amortization of deferred stock
compensation as of December 31, 1999, are $2.6 million in 2000, $1.3 million in
2001, $713,501 in 2002 and $253,059 in 2003.
Strategic marketing equity instruments expense of $2.9 million consists of
expenses associated with the value of warrants issued under our agreements with
certain distribution partners. Other equity expense consists of warrants
granted with respect to services rendered, or financing provided to us. These
expenses are based on the estimated fair value of the warrants as determined by
the Black-Scholes option pricing model and the provisions of EITF 96-18. Non-
cash charges increased in the quarter ended December 31, 1999 as a result of
the issuance of warrants to purchase shares of our stock related to two key
strategic partner agreements and the recording of expenses related to the
issuance of stock options.
Interest Income, Net
Interest income, net consists primarily of interest income received from the
investment of proceeds from our financing activities offset by interest expense
under leasing arrangements and bank fees.
Income Taxes
We have incurred net losses since inception for tax purposes and have not
recognized any tax provision or benefit. As of December 31, 1999, we had
approximately $12.9 million of net operating loss carryforwards to offset
against future taxable income. The related net deferred tax assets have been
fully reserved through December 31, 1999. The net operating loss carryforwards
expire beginning in 2013, if not used. Utilization of net operating losses may
be subject to a substantial annual limitation due to the change in ownership
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses
before utilization.
20
<PAGE>
Liquidity and Capital Resources
We have historically satisfied our cash requirements primarily through
private equity financing transactions. Through December 31, 1999, we raised
cumulative net proceeds of $51.6 million through private equity offerings of
which approximately $5.1 million was received in January 2000. As of December
31, 1999, we had cash and cash equivalents of $33.8 million and working capital
of $32.8 million.
Net cash used in operating activities totaled $1.1 million in 1998 and $10.8
million in 1999. Our use of cash since inception was primarily attributable to
operating losses, partially offset by non-cash charges of depreciation and
amortization, amortization of deferred stock compensation and the expenses
associated with the value of warrants issued under our agreements with certain
distribution partners.
Net cash used in investing activities totaled $79,153 in 1998 and $351,289
in 1999. We have made substantial investments in computer equipment and
software, office furniture and leasehold improvements.
Net cash provided by financing activities was $2.6 million in 1998 and $43.5
million in 1999, primarily from the sale of preferred stock.
We expect to experience significant growth in our operating costs for the
foreseeable future in order to execute our business plan, particularly in the
areas of marketing and strategic alliances. In addition, we may use cash
resources to fund acquisitions of complementary businesses and technologies;
however, we currently have no commitments or agreements and are not involved in
any negotiations regarding any of these transactions. We believe that the net
proceeds from this offering, combined with current cash resources, will be
sufficient to meet our working capital and capital expenditures for at least
the next 18 months. Thereafter, we may find it necessary to obtain additional
equity or debt financing. In the event that we require additional financing, we
may not be able to raise it on terms acceptable to us, if at all.
Recent Developments
We recently entered into an agreement with America Online, Inc. to provide
sales and marketing services on a customized co-branded site which is
accessible from certain of America Online's properties. For more information
please refer to "Business--Distribution Partners--America Online, Inc." on page
28. As part of this agreement, we will receive all of the e-services revenue
generated from the purchase of our services provided to AOL's users during the
term of the agreement. We paid AOL a fee to enter into this agreement. We are
amortizing the fee we paid to AOL over the 18-month term of the agreement, and
including it as a marketing and strategic alliance expense. In connection with
this agreement, we also issued a warrant to AOL to purchase shares of our
common stock. We have included the value of the warrant, as calculated using
the Black-Scholes method, in non-cash charges as of December 31, 1999.
We also recently entered into an agreement with Dell Computer Corporation
whereby Dell will offer many of our business services to its customers and
prospects. For more information please refer to "Business--Distribution
Partners--Dell Computer Corporation" on page 28. Pursuant to the terms of the
agreement, we will share with Dell the e-services revenue generated by Dell
users, and we will pay a fee to Dell for each registered user and e-services
customer generated through this relationship. In addition, we will pay Dell a
slotting fee 12 months after the launch of the site. If Dell provides us with
less than a minimum number of paying customers during this period, Dell will
refund a portion of the fee. We are amortizing this fee over the two-year term
of the agreement, and including it as a marketing and strategic alliance
expense. In connection with this agreement, we also issued a warrant to Dell to
purchase shares of our common stock. We have included the value of the warrant,
as calculated using the Black-Scholes method, in non-cash charges as of
December 31, 1999.
21
<PAGE>
Year 2000 Impact
We have not experienced any problems with our computer systems relating to
distinguishing twenty-first century dates from twentieth century dates, which
are generally referred to as year 2000 problems. We are also not aware of any
material year 2000 problems with our vendors, business service providers or
distribution partners. Accordingly, we do not anticipate incurring material
expenses or experiencing any material operational disruptions as a result of
any year 2000 problems.
Disclosures About Market Risk
As of December 31, 1999, we had cash and cash equivalents of $33.8 million,
which consisted of cash and highly liquid short-term investments. Our short-
term investments will decline in value by an immaterial amount if market
interest rates increase. Declines of interest rates over time will, however,
reduce our interest income from our short-term investments.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and hedging activities. SFAS
No. 133, which will be effective for us for the fiscal year and quarters
beginning after June 15, 2000, requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We do not expect the
potential effect of adopting the provisions of SFAS No. 133 to have a
significant impact on our financial position, results of operations, and cash
flows.
22
<PAGE>
BUSINESS
Overview
We are a leading provider of Web-based business services to the small
business market. We have developed a business-to-business services platform
that connects a network of service suppliers, business portals and small
business buyers. Our e-services help small businesses grow by simplifying the
execution of over 30 critical business functions online, such as launching an
integrated marketing campaign, recruiting new employees and generating sales
leads. We enable business service suppliers to efficiently reach the under-
served small business market and offer business portals the ability to enhance
their product offerings with a customized suite of business services. We power
the business services offerings for over 55 business portals, including AT&T,
Citibank, IBM, Mail Boxes Etc. and PurchasePro.com. We also recently signed
agreements to provide our e-services platform to AOL, Bloomberg and Dell. As of
December 31, 1999, over 100,000 small businesses have registered to use our e-
services platform, either through one of our business portal partners or
directly at our Web site.
Industry Overview
Growth of Business-to-Business Electronic Commerce. The widespread adoption
and interactive nature of the Internet has created new opportunities for
conducting business online. Businesses are utilizing the Internet to improve
the way they reach and transact business with customers and suppliers. The
Internet is one of the fastest-growing means of communication, reaching
consumers and businesses globally. As the number of Internet users has grown,
businesses have increasingly recognized the power of the Internet to streamline
complex processes, lower costs and improve efficiency. Forrester Research
expects business-to-business electronic commerce to grow more rapidly than
business-to-consumer electronic commerce over the next several years. Forrester
Research estimates that business-to-business electronic commerce will grow from
$109 billion in 1999 to $1.3 trillion in 2003, accounting for 90% of the dollar
value of electronic commerce in the United States by 2003.
The Impact of the Internet on the Small Business Market. Small businesses,
which we define as businesses with less than 100 employees, are turning to the
Internet as a productivity tool to achieve access to the expertise, information
and services they require in order to compete more effectively. Given the
resource and time constraints of most small businesses, managers in this
environment are constantly seeking ways to complete critical business functions
efficiently. In most cases, these tasks span all aspects of a business. To
effectively compete in today's markets, small businesses need access to the
same breadth and depth of business services that have traditionally been
accessible only to larger business organizations. Likewise, business service
suppliers have not been able to reach and serve the large, highly fragmented
small business market efficiently.
The Small Business Market in the United States. According to International
Data Corporation, or IDC, small businesses will increase their spending on e-
commerce transactions from $6.2 billion in 1998 to $106.8 billion in 2002,
representing a compound annual growth rate of 104%. Furthermore, IDC estimates
that the number of small businesses today, 29.6 million, will grow to 38.5
million by 2002.
Small businesses are a major force in the United States economy. According
to the Small Business Administration, small businesses, as defined by the SBA:
. employ 53% of the private workforce;
. contribute 47% of all sales; and
. represent 50% of the private gross domestic product.
23
<PAGE>
The Opportunity For An Effective E-Services Network
We believe several converging trends have created a significant opportunity
for a network connecting small businesses, business service providers and
business portals.
Small Businesses Lack the Time, Resources and Expertise to Complete Critical
Business Functions. Small businesses need the same quality of services
traditionally accessible only by larger enterprises in order to compete
effectively and enhance their opportunity for success. However, small
businesses have limited resources, time and expertise and often cannot readily
find and establish relationships with suitable service providers.
The Small Business Market is Difficult to Reach and Serve. Business service
providers have not traditionally focused on the needs of small businesses due
to the high cost of targeting and servicing this large, highly fragmented
market. In addition, these service providers have not been able to efficiently
provide the customized products and services required by small businesses.
Business Portals Need E-Services to Attract Users and Enhance Their
Offerings. A wide range of organizations are creating business portals in order
to enhance and retain their relationships with their small business customers.
These organizations want to offer transaction-based business services to their
users as complements to the content and community components of their portal
strategies and to generate additional revenue streams. Competitive pressures
are forcing these business organizations to quickly bring comprehensive e-
service offerings to market. As importantly, these organizations require a
customized look, feel and branding to match their current portal offerings for
a consistent user experience.
The DigitalWork.com Solution
We believe we have created a new way for small businesses to execute
critical business functions. Through our e-services network, we facilitate
business-to-business transactions among small businesses, service suppliers and
business portals.
Small Businesses. Our e-services platform provides small businesses with
online access to business services that have not previously been readily
available to them. Our integrated Web-based solution allows time- and resource-
constrained small businesses to complete over 30 critical business functions
more efficiently than with traditional offline methods. Furthermore, our
platform enables small businesses to learn about and execute each business
function in an efficient step-by-step manner, all with a consistent look and
feel to the small business customer. By accessing our e-services network, small
businesses can:
. gain functional expertise by using decision-making tools, questionnaires,
testimonials and other educational content through our Learn About ItSM
process;
. streamline the execution of business services by accessing a step-by-
step, template-driven methodology through our Get It DoneSM process;
. gain access to personalized services, such as status of work-in-progress
and recommendations for additional services, through our My WorkspaceSM
feature;
. access new sales opportunities by real time notification of corporate
buying activities through our Lead GeneratorSM service;
. receive consistent online and offline customer support across all of our
services; and
. pay for the range of services through a single payment and billing
system.
24
<PAGE>
Business Service Providers. We carefully select each of the business service
providers within our e-services network and act as the electronic channel for
them to effectively reach the small business market. We customize and enhance
the offerings of service suppliers specifically for the small business market
and integrate them into our e-services platform with common interfaces and a
consistent look and feel. Our platform allows these organizations to make their
services available to small businesses on a large scale, while allowing small
businesses to receive these services on a customized and personalized level.
Business Portals. There are thousands of companies with small business
customers that have created or will create Internet portals to better reach and
serve their small business customers. We syndicate our e-services platform to
these portals, providing them the benefits of increased customer traffic,
improved customer retention and new revenue streams. Our services are co-
branded with each portal's logo and Web design and are hosted by our servers in
order to maintain a consistent work environment for our users and provide the
technical support required to maintain our platform for the portals.
Our Growth Strategy
Our goal is to become the dominant provider of Web-based business services
to the small business market. The key elements of our strategy are:
Capitalize on our Existing Global Distribution Network. Currently, we have
agreements with over 55 business portals that act as our distribution partners.
These distribution partners have extensive customer bases. We will take
advantage of the broad reach of this established distribution network to market
our e-services.
Further Expand our Global Distribution Network. We will leverage our market
position and technology platform to expand the number of our distribution
partners. We will continue to target the thousands of companies with
concentrated small business customer bases and that have Internet portal
strategies. We have built and will expand our business development
infrastructure to service the continuing addition of distribution partners and
to support joint online and offline marketing initiatives.
Continue to Expand the Number of Small Business E-Services We Offer. We
currently have over 30 e-services available through our network and we intend
to continuously add to and enhance our e-services. By adding additional e-
services, we increase the opportunity to offer our customers services targeted
to their specific needs, thereby driving new as well as repeat usage. We intend
to increase the number of services offered by:
. Leveraging our small business knowledge to expand services into new
categories. We will continue to leverage our knowledge of the small
business market captured through customer feedback, usage data, user
groups, demographic data and customer service to expand and modify our
services offering beyond our current categories.
. Enabling business services suppliers to add services to our network
themselves. We are developing technology to enable suppliers to add their
services into our network without significant technical assistance. We
will monitor new service introductions in order to maintain navigational
ease and ensure the quality of services we offer.
. Expanding international service offerings. We will develop services that
are specifically designed for foreign markets to increase our
international registered user base. In addition, we intend to expand our
business service supplier relationships internationally by identifying
partners within specific countries to fulfill certain of our services
locally.
Tailor Our E-Services for Specific Vertical Markets. We will add new
services and tailor existing services to meet the specific needs of small
businesses in selected industry vertical markets, such as the real estate and
retail industries.
Leverage Our Existing Network to Generate New Revenue Streams. Our network
of small businesses, distribution partners and business services suppliers is
an asset that can be utilized in new and powerful ways. For example, we
recently added a service for small businesses to promote and sell their
products and services to other small businesses within our network. Through
this and other initiatives, we can increase the value we add to all parties
using our platform.
25
<PAGE>
Strengthen Our Relationship With Our Small Business Users. We intend to
strengthen our relationships with our small business customers and foster
repeat usage by continuing to provide high quality customer service and
promoting specific services based on customer interest and usage. Our customer
care staff will continue to use e-mail, online chats and tutorials to
facilitate the use of our services and promptly respond to customer requests.
Enter into New Strategic Relationships and Acquisitions. We anticipate that
we will pursue strategic relationships and acquisitions in order to rapidly
expand the depth and breadth of our e-services, expand our geographic and
industry-specific presence and acquire new, complementary technologies.
Our E-Services
We provide our customers with a wide array of business services that we
categorize into eleven primary workshops:
<TABLE>
<CAPTION>
Workshop E-Service
- ------------------------------------------
<S> <C>
Public Relations . Write a Press Release
. Review a Press Release
. Send a Press Release
. Monitor Press Coverage
. Find a Tradeshow
Online Advertising . Banner Ad Campaigns
. Send Direct E-Mail
. Submit to Search Engines
Direct Mail . Buy Mailing Lists
. Launch a Direct Mail Campaign
. Web site Postcards
Sales . Lead Generator
. Business Partner Program
. Company Information
Recruiting . Review Salary Data
. Job Postings
. Search Resumes
. Find Temporary Employees
Credit . Accept Credit Cards
. Buy a Credit Report
. Collect Bad Debts
Market Research . Company Research
. Monitor Industries
. Purchase Business Software
Tech Support
. Online File Storage
. Backup Your Computer
Training . Take Online Tutorials
. Buy Business Books
Business Planning . Buy Management Software
. Buy Direct Marketing Software
Travel . Make Travel Reservations
</TABLE>
We have designed our workshops to simplify the execution of these critical
business functions. All of these e-services are provided in a user-friendly
format with a consistent user interface and a single payment process. Our Learn
About ItSM and Get It DoneSM approach allows small business customers to gain
expertise and complete these functions in an efficient, step-by-step fashion.
Our My WorkspaceSM feature provides a personalized interface that allows the
small business customers to monitor the progress of tasks underway while
providing additional information on promotions and recommendations that pertain
to workshops that our customers have previously used or in which the customers
have expressed interest. At each step in the process, we provide ongoing
customer support through our highly trained customer care team to guide our
small business customers through the process.
26
<PAGE>
An example of this approach is our "Send a Press Release," one of our
services that helps small businesses execute public relations campaigns. The
following is our process to help our customers effectively create and
distribute a press release:
[GRAPHIC OF AN EXAMPLE OF A SERVICE]
Learn About the Service. A small business customer can receive education on
our press release service and the most effective ways of sending press releases
through our "Learn About It" area. A small business customer can find:
. a general overview of the service;
. a list of advantages of using our service versus other, more traditional
methods;
. a description of how our service works;
. a general overview of the press release distribution options;
. a listing of prices;
. customer testimonials; and
. answers to frequently asked questions about press releases.
Compose the Press Release. After learning about the service and making the
decision to proceed with execution of the release, our customer is presented
with the first step of the press release "Get It Done" process. In this step,
our customer composes the release by entering the content of the press release,
company data and the distribution date. For an additional charge to our
customer, one of our product specialists will review the release and provide
guidance to the customer.
Select the Distribution Options. In this next "Get It Done" step, our
customer is presented with a wide array of distribution options--ranging from
local, state and regional media outlets to broader and more complex national
and international distribution. After selecting the geographic distribution for
the release, our customer can choose up to five industry categories for free
distribution to the trade media for these industries.
Proof and Edit the Order. Once our customer composes the release and selects
the distribution options, the customer enters the third "Get It Done" step.
This step allows the customer to review the provided information and make
changes if necessary.
Execute Payment for the Order. In this "Get It Done" step, we present the
customer with the final order details as well as the final payment price. Our
customer can pay either directly into the site through secured credit card
transaction or a credit card payment via phone.
Distribution of the Release. After we receive approved payment, we submit
the press release for distribution through our selected service provider. Our
customer service department informs the customer as to time of release
distribution as well as the links for viewing the release through the online
media.
27
<PAGE>
Distribution Partners
Over 55 business portals are distribution partners for our e-services
platform. Currently, these distribution partners include:
About.com Encanto NewsReal
Advancing Women Fortune Financial Group Office.com
America Online, Inc. FreeDrive Old Kent Bank
AT&T Business Networking Hispanic Business Online Inc.
Bank of America How2.com Orbit Commerce
BellSouth IBM Small Business PR Newswire
Bigstep.com IBM Business Partners Prodigy
Black Enterprise InfoUSA Prodigy Business
Black Stocks (New Visions) iVillage.com Solutions
Bloomberg JIAN PurchasePro.com
CCH KiraCom Region Online (12
Citibank LA Times regional portals)
ClickAction libertynet.com smalloffice.com
dbusiness.com Lycos Spare Time
Dell Computer Corporation Mail Boxes Etc. staffleasing.com
theGlobe.com
Vicinity Corporation
The following is a summary of the nature of the relationship we have with
some of our significant distribution partners.
America Online, Inc. In January 2000, we signed an agreement to provide
sales and marketing services on a customized co-branded site which is
accessible throughout certain of America Online's properties, including AOL,
CompuServe and Netscape. Through this agreement, America Online users can
access our public relations, online advertising, direct mail, market research
and sales workshops. Under the terms of the agreement, AOL has committed to
provide a minimum number of impressions to the co-branded site over the 18-
month term of the agreement. In addition, AOL has agreed to license a co-
branded version of its AOL Instant Messenger service for us. In connection with
this agreement, we also issued a warrant to AOL to purchase shares of our
common stock.
Dell Computer Corporation. In December 1999, we entered into an agreement
with Dell, whereby Dell will offer a majority of our business services to its
customers and prospects. In addition, we will participate in several joint
marketing activities with Dell in order to drive potential and existing
customers to our co-branded Web site. Pursuant to the terms of the agreement,
we will share with Dell the e-services revenue generated by the Dell users, and
will pay a fee for each registered user and e-services customer generated
through this relationship. In addition, we will pay Dell a slotting fee 12
months after the launch of the site. If Dell provides us less than a minimum
number of paying customers during the first 12 months after launch of the site,
Dell will refund a portion of the fee. Either party may terminate this
agreement six months after the launch. In connection with this agreement, we
also issued a warrant to Dell to purchase shares of our common stock. In
addition, in December 1999, Dell purchased shares of our common stock.
Mail Boxes Etc. We are the exclusive business services provider for Mail
Boxes Etc. within its online properties. Mail Boxes Etc. has rolled out a
program to encourage franchise owners to promote our services to their
customers. This program includes in-store promotional materials and Web site
promotions. We will also be customizing our e-service templates to incorporate
Mail Boxes Etc. branding and information so that franchise owners can use our
services to manage their businesses. In December 1999, Mail Boxes Etc.
purchased shares of our common stock.
PurchasePro.com. We signed a distribution agreement with PurchasePro.com in
June 1999. We are the platform for business services on PurchasePro.com's Web
site, and are substantially integrated into its Web site. In addition, we have
co-developed our Lead Generator service with PurchasePro.com, which allows
companies to respond to requests for quotations initiated by other companies
for the purchase of goods and services. In December 1999, PurchasePro.com
purchased shares of our common stock.
28
<PAGE>
Smalloffice.com. Smalloffice.com is one of the leading online providers of a
comprehensive set of proprietary content, community, business tools, and
services for owners and operators of small business and income-producing home
offices. Smalloffice.com has the exclusive digital content rights from Home
Office Computing and Small Business Computing & Communications, two leading
publications in the small business market with a combined monthly circulation
exceeding 650,000 as of June 1999. In December 1999, we signed an agreement
with smalloffice.com to integrate our e-services platform throughout the
content and community areas of the smalloffice.com Web site. In addition, we
are engaged in multiple online and offline joint marketing initiatives. In
December 1999, Smalloffice.com purchased shares of our common stock.
Business Development and Marketing
We attract small business customers through an integrated distribution and
electronic marketing model. Our primary distribution strategy is to syndicate
our services to sites that appeal to small businesses, rather than to incur the
significant costs associated with promoting DigitalWork.com as a destination
site. Once users have been introduced to our services through these
distribution partners, we analyze their usage patterns and their preference,
demographic and other data to develop focused online and offline marketing
programs.
Our business development and marketing strategy is designed to increase the
number of registered users and to convert them into customers. We implement our
strategy as follows:
. We conduct online and offline marketing programs with our distribution
partners that are designed to attract users to our e-services platform
through our co-branded sites. Our online marketing programs include
banner advertising, permission-based e-mail marketing and sponsorships.
Offline marketing programs include direct mail and print advertising
targeting our distribution partners' existing customers.
. We collect demographic and other data from potential small business users
who opt into our database when they register. Periodically, we send these
users targeted promotional messages highlighting various services that
meet their stated preferences and needs. In addition, users receive a bi-
weekly electronic magazine via e-mail. Messages to the users are co-
branded with the respective distribution partner's logo and direct the
potential user back to our co-branded e-services platform for the
advertised services.
. We operate a national advertising and public relations campaign using a
broad range of media to promote our unique e-services platform and our
relationships with leading business portals.
Our Systems and Technology
Since our inception, we have dedicated significant resources to the
development of the technology behind our e-services platform. Rather than
creating a series of hyperlinks to the service providers in our network, we
customize and enhance the providers' offerings specifically for the small
business market and integrate them into our e-services platform. We syndicate
this e-services platform to companies that have Internet portals focused on the
small business customer. Our e-services platform is co-branded with each
portal, but is actually hosted by our servers to maintain a consistent work
environment for our customers.
Our systems, which include Internet servers, database servers, load-
balancing hardware, switches, and routers, are housed at Exodus Communications'
Chicago facility. Exodus Communications is an independent provider of Internet
hosting services. Exodus provides continuous physical security, fully redundant
power supply with generator backup, cooling systems, and connectivity to the
Internet. Our systems are designed to be scalable, to ensure maximum network
uptime, to support heavy user traffic, and to provide a secure e-commerce
environment. We maintain multiple Internet servers on a web farm and balance
the load delivered to each server using third-party load-balancing hardware.
Additional Internet servers can be added to our system to handle increased
transaction volume without affecting our service.
Our systems are designed to be redundant so that no single point of failure
disrupts our system. The systems are comprised of Oracle databases running on
Sun hardware. We have developed monitoring systems to provide continuous
notification and coverage of our technology platform.
29
<PAGE>
Intellectual Property
We rely on a combination of trademark, copyright, trade secret protection
and confidentiality or license agreements with our employees, customers and
business partners to protect our proprietary rights in products, services,
know-how and information. Our means of protecting our proprietary rights in the
United States or abroad may not be adequate and competitors may independently
develop similar technology. We cannot be certain that our services do not
infringe patents or other intellectual property rights that may relate to our
services. Like other technology and Internet based businesses, we face the risk
that we will be unable to protect our intellectual property and other
proprietary rights, and the risk that we will be found to have infringed the
proprietary rights of others.
Competition
The small business e-services market is new and rapidly evolving.
Competition for small business customers, business service providers and
distribution partners is intense and is expected to increase significantly in
the future. Technological barriers to entry are relatively insubstantial. We
believe that the principal competitive factors for companies seeking to provide
e-services to small businesses include:
. the breadth and depth of services offered;
. the ability to re-sell services through other channels;
. the reach of distribution channels through which services are marketed;
. the reliability of transaction fulfillment;
. the quality of customer services offered; and
. the brand awareness with small businesses.
We compete with both Internet-based as well as traditional providers of
business services. Our current and potential competitors include:
. companies offering business services to the small business market, such
as Allbusiness.com;
. companies operating Web sites that principally sell deeply discounted
products to small businesses over the Internet, such as Onvias.com;
. business portals who are not currently partners of ours;
. traditional business service providers that may offer their services
online; and
. companies that offer a broad array of services over the Internet, such as
Microsoft and Yahoo!, which may elect to add businesses services similar
to ours.
In addition to the competition for small business customers, we face
competition in securing strategic alliances with business portals and business
service providers. This competition may prove to decrease the amount of revenue
we receive from our strategic relationships with business portals and service
providers. Also, our agreements with our strategic partners have termination
provisions, which may allow one or more of our strategic partners to terminate
their relationships with us and partner with our competitors.
Some of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing, technical and other resources. Some of these
competitors may be able to secure distribution channels and service providers
on more favorable terms than we can. In addition, many of these competitors may
be able to devote significantly greater resources to:
. conduct marketing and promotional campaigns;
. attract traffic to their Web sites;
. attract and retain key employees; and
. develop Web sites and systems.
30
<PAGE>
Increased competition may result in reduced operating margins and loss of
market share and adversely affect our relationships with our distribution
partners and service suppliers. We cannot assure you that we will be able to
compete successfully against current and future competitors or that competition
will not have a material adverse effect on our business, results of operations
and financial condition.
Government Regulation
There is an increasing number of laws and regulations pertaining to the
Internet, including laws or regulations relating to user privacy, liability for
information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation and domain name registration. Moreover, the
applicability to the Internet of existing laws governing issues such as
intellectual property ownership and infringement, copyright, patent, trademark,
trade secret, obscenity, libel employment and personal privacy is uncertain and
developing.
Privacy Concerns. Legislatures and government agencies have adopted and are
considering adopting laws and regulations restricting the collection and use of
personal information obtained from individuals when accessing Web sites, which
could limit our ability to use our databases to generate revenue.
Internet Taxation. A number of legislative proposals would impose additional
taxes on the sale of goods and services over the Internet, which may
substantially impair the growth of commerce on the Internet and, as a result,
adversely affect our opportunity to derive financial benefit from these
activities.
Domain Names. Domain names are addresses on the Internet, namely the World
Wide Web. The current system for registering, allocating and managing domain
names has been the subject of litigation and proposed regulatory reform.
Although we assert trademark rights in our domain names, third parties may
bring claims for infringement against us for the use of these trademarks. There
can be no assurance that these domain names will not lose their value, or that
we will not have to obtain entirely new domain names in addition to or in lieu
of our current domain names if reform efforts result in a restructuring in the
current system.
Jurisdiction. Due to the global nature of the Internet, it is possible that,
although we principally operate our business in Illinois, the governments of
other states and foreign countries might attempt to regulate our business
activities. In addition, as our service is available over the Internet in
multiple states and foreign countries, these jurisdictions may require us to
qualify to do business as a foreign corporation in each of these states or
foreign countries, which could subject us to taxes and other regulations.
Legal and Regulatory Proceedings
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of business. We are not
aware of any legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse effect on our business,
financial condition or results of operations.
We have received a letter from an entity which claims it is entitled to
receive warrants to purchase 238,100 shares of our common stock at an exercise
price of $1.10 per share as compensation for services rendered pursuant to an
agreement. We believe, based on consultation with counsel, that this entity is
not legally entitled to these warrants and we intend to defend this claim
vigorously. However, due to the uncertainties surrounding claim resolution we
cannot assure you that we will resolve this issue on favorable terms.
31
<PAGE>
Employees
As of December 31, 1999, we had 68 full-time employees. We have never had a
work stoppage. We are not a party to any collective bargaining agreements. We
consider our relations with our employees to be good. Our future success will
depend, in part, on our ability to continue to attract, integrate, retain and
motivate highly qualified technical and managerial personnel, for whom
competition is intense.
Facilities
Our executive, administrative and operating offices are located in
approximately 23,000 square feet of leased office space in Chicago, Illinois
under leases that expire on December 31, 2004. We have a non-binding letter of
intent to acquire additional office space.
32
<PAGE>
MANAGEMENT
Executive Officers, and Directors
The following table sets forth information regarding our executive officers,
directors and the individual who has agreed to join our board of directors upon
completion of this offering.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert A. Schultz....... 33 Chief Executive Officer and Chairman of the
Board of Directors
Craig A. Terrill........ 40 President, Chief Operating Officer and Director
David P. Aniol.......... 40 Chief Financial Officer
John Banta.............. 38 Vice President of Strategic Alliances
Randy Grudzinski........ 31 Vice President of Marketing
Doug Mulderink.......... 35 Vice President of Technology and Development
Brian Petula............ 33 Vice President of Business Development
Loreen Sieroslawski..... 34 Vice President of Finance and Business Operations
Raj Atluru(1)........... 30 Director
Warren Packard(2)....... 32 Director
Marc Benioff(1)......... 35 Director
Edward C.
Coppola(1)(2).......... 45 Director Nominee
</TABLE>
- --------
(1) Will become a member of our compensation committee upon the completion of
this offering.
(2) Will become a member of our audit committee upon the completion of this
offering.
Robert A. Schultz has served as our chief executive officer and chairman of
the board since he co-founded our company with Mr. Terrill in March 1998. From
February 1997 to March 1998, Mr. Schultz was president and general manager of
Nequity, a wholly-owned subsidiary of Signet Bank, which was focused on
providing Internet-based services to the small business market. From January
1996 to February 1997, he was a vice president responsible for target marketing
and new product development for the commercial services group of Signet Bank.
From August 1992 to December 1995, he was a consultant with Deloitte & Touche.
From August 1989 to July 1992, Mr. Schultz was a consultant with McKinsey and
Company. Mr. Schultz holds a B.A. degree in economics from Northwestern
University and an M.B.A. in finance from the University of Chicago Graduate
School of Business.
Craig A. Terrill has served as our president and chief operating officer and
as a director since he co-founded the company with Mr. Schultz in March 1998.
From 1997 to 1998, Mr. Terrill was a partner with Intellectual Capital, a
venture consulting firm that works exclusively with early-stage companies,
where he was one of the three senior leaders for Nequity. From 1990 to 1997,
Mr. Terrill was an owner and senior executive at Kuczmarski & Associates, a
strategic marketing and new products consulting firm. Prior to 1990, he was a
manager with Andersen Consulting. He is an adjunct professor of
entrepreneurship at the Graduate School of Business at the University of
Chicago and an adjunct professor of marketing at the J.L. Kellogg Graduate
School of Management at Northwestern University. Mr. Terrill authored a book,
Market Leadership Strategies for Service Companies, that was published in
October 1999. He holds a B.S. degree in business administration from Miami
University (Ohio) and a Masters of Management degree from the J.L. Kellogg
Graduate School of Management at Northwestern University.
David P. Aniol has served as our chief financial officer since October 1999.
From January 1996 to October 1999, Mr. Aniol was chief financial officer of
Open Port Technology, a venture capital-backed developer of Internet messaging
software. From December 1991 to December 1995, he was with McMaster-Carr Supply
Co. in various operational and financial roles. From May 1981 to November 1991,
he was with PricewaterhouseCoopers, most recently as a senior manager, focusing
on the small business and technology industries and mergers and acquisitions.
He is a certified public accountant. Mr. Aniol holds a B.S. in accounting and a
M.S. in taxation from DePaul University.
33
<PAGE>
John Banta has served as our vice president of strategic alliances since
February 1999, having been an investor in the company prior to joining. Mr.
Banta served as vice president of corporate services for a major investment
banking and brokerage firm, and currently serves as a director of the
Investment Management Consultants Association. He currently serves as general
partner of Maroons Partnerships, a private equity firm. Mr. Banta holds a B.A.
in finance from the University of Illinois College of Commerce and an M.B.A. in
finance and statistics with high honors from the University of Chicago Graduate
School of Business.
Randy Grudzinski has served as our vice president of marketing since March
1998. From September 1997 to March 1998, Mr. Grudzinski was a senior associate
with Intellectual Capital, Inc., a venture consulting firm that works
exclusively with early stage companies. From July 1995 to August 1997, Mr.
Grudzinski was a senior associate with Kuczmarski & Associates, a strategic
marketing and new services consulting firm. At both firms, he developed and
launched new service strategies. Mr. Grudzinski holds a B.A. degree in
economics and mathematics from DePauw University and an M.B.A. with high honors
from the J.L. Kellogg Graduate School of Management at Northwestern University.
Douglas J. Mulderink has served as our vice president of technology and
development since October, 1998. From February 1997 to February 1998, Mr.
Mulderink served as director of customer services for NetDox, a security-
focused Internet start-up company. From February 1996 to January 1997, he was a
manager with Deloitte & Touche Consulting and from January 1988 to December
1995, he was a management consultant and manager for Andersen Consulting. At
both Andersen Consulting and Deloitte & Touche Consulting, Mr. Mulderink
developed and managed enterprise systems. Mr. Mulderink holds a B.A. in
psychology from Beloit College.
Brian Petula has served as our vice president of business development since
November 1998. Prior to this position, Mr. Petula served as our vice president
of publishing from July 1998 to November 1998. From July 1997 to July 1998, Mr.
Petula was a co-partner and president of Entrepreneur Publications, Inc., a
magazine holding company, serving as publisher of NC Entrepreneur and Photo
Imaging. During that time, he served as a director of High Growth Alliance,
L.L.C., a consortium of business consultants. From January 1996 to January
1998, he was director of planning and development for Farr Associates, Inc.
Additionally, Mr. Petula was vice president of iXL from January 1994 to January
1996. He is a member of the bar of the State of North Carolina. Mr. Petula
holds a B.A. in government from Lehigh University and a J.D./M.B.A. from Wake
Forest University.
Loreen Sieroslawski has served as our vice president of finance and business
operations since August 1998. From June 1992 to July 1998, Ms. Sieroslawski was
vice president of finance and operations at the consulting firm of Kuczmarski &
Associates. From September 1987 to May 1992, she was a senior accountant for
the Kenneth Leventhal & Company accounting firm. Ms. Sieroslawski is a
certified public accountant and a member of the American Institute of Certified
Public Accountants and the Illinois CPA Society. She holds a B.A. in accounting
from Iowa State University.
Raj Atluru became one of our directors on May 17, 1999. In January 2000, Mr.
Atluru joined Draper Fisher Jurvetson. From August 1997 to December 1999, Mr.
Atluru was a principal with TL Ventures where he focused on early stage
Internet business-to-business services and applications companies. Prior to
that time, he worked in the leveraged finance group and Asian investment
banking group of Credit Suisse First Boston in New York, Hong Kong and
Singapore. Mr. Atluru also serves as a director for Syncra Systems, an
application services provider in the inter-enterprise supply chain and
collaboration field, and Strategic Weather Services, a company providing long
range weather forecasting data and planning applications for major
manufacturers, retailers and agri-business. Mr. Atluru holds a B.S. and M.S. in
environmental engineering from Stanford University and an M.B.A. from the
Stanford Graduate School of Business.
Warren Packard became one of our directors on May 17, 1999. Since June 1997,
Mr. Packard has been with Draper Fisher Jurvetson, a venture capital firm, most
recently serving as director. From January 1996 until June 1997, Mr. Packard
was a co-founder and vice president of business development of Angara E-
Commerce Services, an Internet company focused on delivering hosted Web site
personalization services. From June 1996
34
<PAGE>
to January 1997, Mr. Packard was an associate at Institutional Venture
Partners, a venture capital firm. From 1991 to August 1995, Mr. Packard served
as a senior principal engineer in the new business and advanced product
development group at Baxter International. He currently serves as a director of
Digital Impact and Fogdog Sports. Mr. Packard is a Phi Beta Kappa graduate of
Stanford University and holds a B.S. and M.S. in mechanical engineering. He
also holds an M.B.A. from Stanford University, where he was an Arjay Miller
Scholar.
Marc Benioff became one of our directors in August 1999. Mr. Benioff is
currently the chairman of salesforce.com. For the 13 years prior to his service
at salesforce.com, Mr. Benioff was a senior executive with Oracle Corporation.
Mr. Benioff also sits on the board of directors of Notifi.com, an Internet
start-up unifying the telephony industry with the Internet and Yield Dynamics,
a solutions provider for the semiconductor industry. Mr. Benioff hold a B.S. in
business administration from the University of Southern California.
Edward C. Coppola will become one of our directors upon the completion of
this offering. Mr. Coppola is an executive vice president and director of The
Macerich Company where he is responsible for directing acquisition activity and
establishing strategic direction. He is also actively involved in the capital
market activities for Macerich and in developing and maintaining relationships
with joint venture partners. Mr. Coppola holds a B.B.A. in finance from the
University of Notre Dame and a J.D. from Drake University.
Board Composition
Our board of directors is currently comprised of five directors and we
intend to expand the board of directors to seven directors upon the
consummation of this offering. Messrs. Atluru and Packard were elected to the
board of directors pursuant to a voting agreement among our company and some of
our stockholders. Each of our current directors will continue to serve on our
board of directors after the completion of this offering.
Following this offering, our board of directors will be divided into three
classes serving staggered three-year terms, except for the first term of Class
I and Class II directors, which will be one- and two-year terms, respectively.
Each year, the directors of one class will stand for election as their terms of
office expire. After this offering, we expect that Messrs. Atluru and Benioff
will be designated as Class I directors, with their terms of office expiring in
2001, Messrs. Coppola and Packard will be designated as Class II directors with
their terms of office expiring in 2002, and Messrs. Schultz and Terrill will be
designated as Class III directors with their terms of office expiring in 2003.
Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than non-employee
directors, devotes his full time to our affairs. Our non-employee directors
devote such time to our affairs as is necessary to discharge their duties.
There are no family relationships among our directors, officers or key
employees.
Board Committees
Currently, our board of directors does not have any committees. Upon the
completion of this offering, our board of directors intends to create an audit
committee and a compensation committee.
We expect that the audit committee will consist of Messrs. Atluru, Coppola
and Packard. The audit committee will review our financial statements and
accounting practices, make recommendations to our board of directors regarding
the selection of independent auditors and reviews the results and scope of the
audit and other services provided by our independent auditors.
We expect that the compensation committee will consist of Messrs. Atluru,
Benioff and Coppola. The compensation committee will make recommendations to
the board of directors concerning salaries and incentive compensation for our
executive officers and administers certain of our employee benefit plans.
Director Compensation
We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with their duties as a director.
After the completion of this offering, directors who are also employees of
DigitalWork.com will receive no additional compensation for serving on our
board of directors.
35
<PAGE>
Outside directors, who are not employees of DigitalWork.com, will receive an
annual stipend of $10,000 per year after the completion of this offering. We
will grant outside directors options to purchase 20,000 shares of our common
stock at the initial public offering price. These options will be granted under
our amended and restated 1998 stock option plan. In addition, we will continue
to reimburse the outside directors for all travel and other expenses incurred
in connection with attending board and committee meetings. In August 1999, in
connection with his appointment as a director, we granted Mr. Benioff an option
to purchase 75,000 shares of our common stock at a purchase price of $0.70 per
share.
Compensation Committee Interlocks and Insider Participation
None of the anticipated members of our compensation committee is an officer
or employee of our company. None of our executive officers serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving on our compensation committee.
During our fiscal year ended December 31, 1999, our board of directors set
the compensation for executive officers. Mr. Schultz, our chief executive
officer and chairman of the board of directors, and Mr. Terrill, our president
and chief operating officer, participated as directors in deliberations and
determinations regarding executive compensation.
Executive Compensation
The following table sets forth information concerning compensation that we
paid to our chief executive officer and each of the four other highest paid
executives that earned more than $100,000 during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
---------------- ---------------------
Securities Underlying
Salary Bonus Options
-------- ------- ---------------------
<S> <C> <C> <C>
Robert A. Schultz....................... $141,000 $ 9,500 --
CEO and Chairman
Craig A. Terrill........................ $141,000 $ 9,500 --
President and COO
Douglas J. Mulderink.................... $106,384 -- 170,200
Vice President of Technology and
Development
Randy Grudzinski........................ $102,000 $10,400 25,200
Vice President of Marketing
Loreen J. Sieroslawski.................. $101,000 $ 4,200 125,200
Vice President of Finance and Business
Operations
</TABLE>
In addition, we hired David Aniol as our chief financial officer in October
1999 and John Banta as our vice president of strategic alliances in February
1999. As of December 31, 1999, Mr. Aniol's annual base salary was $135,000 and
Mr. Banta's annual base salary was $108,000.
Options Granted and Restricted Stock Sold During 1999
Options. The following table sets forth information regarding the option
grants made to our chief executive officer and each of our four other most
highly paid executive officers during 1999. We have never granted any stock
appreciation rights. All options granted in 1999 were granted under our 1998
stock option plan. In accordance with the 1998 stock option plan, each grant
had an exercise price equal to the fair market value of our common stock on the
date of grant as determined by our board of directors, and the options have a
ten-year term.
The percent of total options granted to employees in 1999 is based on an
aggregate of 1,074,350 options granted to employees in 1999, including options
granted to the individuals listed in the following table. Potential realizable
value is calculated by assuming that the initial public offering price of $
per share
36
<PAGE>
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of the
appreciated price. Potential realizable values are net of exercise price, but
before taxes associated with exercise. The assumed 0%, 5% and 10% rates of
stock appreciation are provided in accordance with the rules of the SEC and do
not represent our estimate or projection of future stock price.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Appreciation
for Option
Individual Grants Term
------------------------------------------ --------------
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Per Expiration
Name Granted in 1999 Share Date 0% 5% 10%
---- ---------- ---------- --------- ---------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Schultz....... -- -- -- -- -- -- --
Craig A. Terrill........ -- -- -- -- -- -- --
Douglas J. Mulderink.... 120,000 11% $0.35 1/09
50,000 5% $1.20 10/09
200 0% $2.40 12/09
Randy Grudzinski........ 25,000 2% $1.20 10/09
200 0% $2.40 12/09
Loreen J. Sieroslawski.. 100,000 9% $0.35 1/09
25,000 2% $1.20 10/09
200 0% $2.40 12/09
</TABLE>
Restricted Stock. In October 1999, we sold Mr. Schultz 225,000 shares of our
common stock, Mr. Terrill 200,000 shares of our common stock and Mr. Aniol
230,000 shares of our common stock, at a price of $1.20 per share. Some of
these shares are subject to our option to repurchase the shares if the
executive leaves his employment with the company within four years. Each of
Messrs. Schultz, Terrill and Aniol paid for their shares with a five-year
promissory note bearing interest at 5.93% per annum.
1999 Option Values
The following table shows the number of shares covered by both exercised and
unexercisable stock options as of December 31, 1999 and the values of these
exercised and unexercisable options for our chief executive officer and each of
our four most highly compensated executive officers. Each of these executive
officers exercised all exercisable options during 1999. To pay for the exercise
of the options, each of the executives issued us a five-year promissory note
bearing interest at 5.93% per annum.
The value of unexercised in-the-money options at December 31, 1999 is based
on a price per share of $8.36 as determined in good faith by the board of
directors, less the exercise price for these options.
1999 Year-End Options
<TABLE>
<CAPTION>
Number of Securities Value of Exercised and
Underlying Options Unexercised Options at
at December 31, 1999 December 31, 1999
----------------------- ------------------------
Name Exercised Unexercisable Exercised Unexercisable
- ---- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Robert A. Schultz............. 350,000 350,000 $2,917,250 $2,917,250
Craig A. Terrill.............. 350,000 350,000 $2,917,250 $2,917,250
Douglas J. Mulderink.......... 50,000 220,200 $ 416,750 $1,737,142
Randy Grudzinski.............. 200,000 225,200 $1,667,000 $1,847,192
Loreen J. Sieroslawski........ 50,000 175,200 $ 416,750 $1,397,942
</TABLE>
37
<PAGE>
Stock-Based Plans
Amended and Restated 1998 Stock Option Plan. We have established a stock
option plan to provide additional incentive to our employees, officers,
directors and consultants. Pursuant to the stock option plan, we may grant
incentive stock options to our employees and officers and non-qualified stock
options to our employees, officers, directors and consultants. Our board of
directors or a committee to whom the board has delegated authority, selects the
individuals to whom options are granted, interprets and adopts rules for the
operation of the stock option plan and specifies the vesting, exercise price
and other terms of options. As of December 31, 1999, we had outstanding options
to purchase an aggregate of 2,375,425 shares of our common stock, at a weighted
average exercise price of $0.44 per share. There are an additional 3,212,335
shares reserved for issuance pursuant to the Amended and Restated 1998 Stock
Option Plan.
The maximum term of an incentive stock option granted under the options is
generally limited to ten years. If an optionee terminates his or her service
with our company, the optionee generally may exercise only those options vested
as of the date of termination of service. Unless otherwise specified in the
option agreement, the optionee must effect such exercise within three months of
termination of service for any reason other than death or disability. The
exercise price of incentive stock options granted under the stock option plan
must be at least equal to the fair market value of our common stock on the date
of grant and in the case of 10% shareholders, 110% of the fair market value.
Payment of the exercise price may be made by such methods as determined by the
plan administrator and may include cash, check, a promissory note or shares of
our common stock owned by the holder for six months and valued at the fair
market value on the date of exercise in an amount equal to the exercise price.
In the event we are acquired or merged with another entity or we transfer
all or substantially all of our assets and the entity does not assume all
options, then immediately prior to such change of control all outstanding
options will be deemed to be vested and exercisable.
2000 Employee Stock Purchase Plan. We will initiate our 2000 Employee Stock
Purchase Plan shortly after the completion of this offering. Under this plan a
total of 750,000 shares of common stock will be made available for sale to our
employees. The purchase plan, which is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended, will be administered by our Board of Directors or by a
committee appointed by our Board of Directors. Employees are eligible to
participate if they are employed by us for at least 20 hours per week and for
more than five months in any calendar year. The purchase plan permits eligible
employees to purchase common stock through payroll deductions, which may not
exceed 10% of an employee's compensation, subject to certain limitations.
The purchase period will be implemented in a series of consecutive,
overlapping offering periods, each approximately six months in duration.
Purchase periods will begin on the first trading day on or after January 1 and
July 1 of each year and terminate on the last trading day in the period six
months later. However, the first purchase period will begin on the date on
which the registration statement of which this prospectus is a part is declared
effective by the Securities and Exchange Commission and terminate on the last
trading day in the period ending . Each participant will be
entitled through a payroll deduction to purchase stock on the first day of the
six-month purchase period and such election will be automatically exercised on
the last date of each purchase period. The purchase price of each share of
common stock under the purchase plan will be equal to 85% of the lesser of the
fair market value per share of common stock on the start date of that purchase
period or on the last day of the purchase period. Employees may modify or end
their participation in the offering at any time during the offering period.
Participation ends automatically on termination of employment with us. The
purchase plan will terminate in 2010 unless terminated sooner by our board of
directors.
Employment Agreements and Change of Control Arrangements
We will enter into employment agreements with Messrs. Schultz, Terrill,
Aniol, Banta, Grudzinski and Mulderink and Ms. Sieroslawski that will become
effective upon the completion of this offering. These agreements set forth each
executive's base annual compensation level, eligibility for salary increases,
bonuses and options and level of benefits.
38
<PAGE>
In addition, each of the agreements provides for separation benefits if such
executive is terminated without cause or for a constructive termination upon a
change of control of our company. In this event, each of Messrs. Schultz,
Terrill and Aniol will be entitled to receive a payment equal to six months
compensation and accelerated vesting of 50% of his unvested options and
restricted stock. In the event that Messrs. Banta, Grudzinski, Mulderink and
Petula and Ms. Sieroslawski are terminated following a change of control of our
company, the terminated executive will be entitled to receive three months of
compensation and accelerated vesting of 25% of his or her unvested options.
Indemnification of Directors and Executive Officers and Limitation of Liability
Our amended and restated certificate of incorporation permits us to
indemnify our directors and officers to the fullest extent permitted under
Delaware General Corporation Law. As permitted by Delaware law, our amended and
restated certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of
fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to the corporation or
our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for liability under Section 174 of the Delaware General Corporation Law
regarding unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or recision.
Further, as permitted by Delaware law, our by-laws provide that we are
required to indemnify our directors and officers to the fullest extent
permitted by Delaware law. Our by-laws provide that:
. we are permitted to indemnify our other employees and agents to the
fullest extent permitted by Delaware law;
. we may advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding; and
. the rights conferred in the certificate of incorporation and by-laws are
not exclusive.
In addition to indemnification provided for in our amended and restated
certificate of incorporation and by-laws, we have entered into agreements to
indemnify our directors and executive officers. These agreements, among other
things, provide for indemnification of our directors and executive officers for
certain expenses, including attorneys fees, judgments, fines and settlement
amounts incurred by such person in any action or proceeding, including any
action by or in the right of our company or any other company or enterprise to
which the person provides services at our request. We are also required to
advance expenses in certain circumstances. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons
pursuant to the provisions of our amended and restated certificate of
incorporation and by-laws, Delaware law or the agreements described above, we
have been informed that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
39
<PAGE>
CERTAIN TRANSACTIONS
Since our inception in March 1998, we have not been a party to, and have no
plan to be a party to, any transaction or series of transactions in which the
amount involved exceeded or will exceed $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock had or will
have an interest, other than as described under "Management" beginning on page
33 and the transactions described below.
Transactions with Founders
In May 1998, in connection with our initial capitalization, we issued an
aggregate of 1.9 million shares of common stock, at $0.025 per share, to our
founders, Robert A. Schultz and Craig A. Terrill, for an aggregate purchase
price of $47,500. We have also granted stock options and sold restricted stock
to Messrs. Schultz and Terrill. For more information, please refer to
"Management--Executive Compensation" beginning on page 35.
Transactions with Management and Others
Private Placements of Preferred Stock. From April 1998 through June 1998, we
sold an aggregate of 1,866,672 shares of Series A preferred stock to investors
for an aggregate purchase price $350,001, or $0.1875 per share. From July 1998
to December 1998, we sold an aggregate of 2,374,000 shares of Series B
preferred stock to investors at an aggregate purchase price of $2.4 million, or
$1.00 per share. In May 1999, we sold an aggregate of 11,471,276 shares of
Series C preferred stock to investors at an aggregate purchase price of $12.4
million, or $1.08 per share. In December 1999, we sold an aggregate of
4,359,305 shares of our Series D preferred stock for an aggregate purchase
price of $36.4 million, or $8.36 per share. Each of the shares of preferred
stock will automatically convert into common stock upon the closing of this
offering.
The investors in the preferred stock included the following entities that
own 5% or more of our voting stock and two of our directors.
<TABLE>
<CAPTION>
Shares Shares Shares
of of of Aggregate
Series Series Shares of Series Purchase
Investor A B Series C D Price
-------- ------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Draper Fisher Jurvetson........ -- -- 5,258,460 508,373 $9,925,059
TL Ventures.................... -- -- 3,706,404 358,851 7,000,038
Attractor Capital Management... -- -- 463,296 897,129 7,999,999
Edward C. Coppola.............. 533,334 500,000 333,572 26,802 1,184,064
Marc Benioff................... -- -- 92,660 7,445 162,240
Raj Atluru..................... -- -- -- 11,961 99,994
</TABLE>
Warren Packard and Raj Atluru, two of our directors, are affiliated with
Draper Fisher Jurvetson.
Attractor Warrants. During December 1999, we issued to affiliates of
Attractor Investment Management, Inc., who together beneficially own more than
5% of our voting stock, warrants to purchase, in the aggregate, 192,261 shares
of our common stock. These warrants are exercisable until December 2, 2004 at a
per share exercise price of $8.36.
Series D Warrants. In December 1999, we issued to each of the purchasers of
our Series D preferred stock, including each of the holders of 5% of our voting
stock and directors listed in the table above, a warrant to purchase shares of
our common stock. The warrants are exercisable from the date the registration
statement of which this prospectus forms a part is declared effective by the
SEC to the one-year anniversary of this effective date. The holder of the
warrant may purchase a number of shares, based upon its pro rata holdings of
our Series D preferred stock, at the same price as the offering price per share
of this offering.
40
<PAGE>
Transactions With 5% Shareholder and Director Nominee. In November 1998, we
issued a warrant to Edward C. Coppola to purchase up to 124,000 shares of our
common stock at $1.10 per share, as compensation for advisory services he
performed for us. This warrant will expire in November 2008.
In April 1999, we issued Mr. Coppola and one of his affiliates convertible
promissory notes in the aggregate principal amount of $360,000. The notes had
an interest rate of 7% per annum. In May 1999, the entire outstanding balance
on the notes was converted into 333,572 shares of our Series C preferred stock
at a conversion price of $1.08 per share. In connection with this transaction,
we issued Mr. Coppola and one of his affiliates warrants to purchase up to
66,715 shares of our common stock at $1.08 per share. This warrant expires in
April 2004.
Registration Rights Agreement. We entered into an amended and restated
registration rights agreement with certain purchasers of our capital stock.
This agreement provides that these and other stockholders will have
registration rights with respect to the common stock issuable upon conversion
of Series C and Series D preferred stock. For more information, please see
"Description of Capital Stock--Registration Rights" beginning on page 47.
Compensation and Other Arrangements with Executives and Directors. We have
entered into indemnification agreements with our directors and certain officers
for indemnification and advancement of expenses to these persons to the fullest
extent permitted by law. We also intend to enter into similar agreements with
our future officers and directors. See "Management--Indemnification of
Directors and Executive Officers and Limitation of Liability" on page 39.
Our compensation arrangements and stock option grants to our executive
officers are described under the caption "Management--Executive Compensation"
beginning on page 36.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of December 31, 1999, as adjusted
to reflect the sale of shares of common stock in this offering, by:
. each stockholder that is known to us to beneficially own more than 5% of
our common stock;
. each of our directors;
. our chief executive officer and each of our executive officers; and
. all of our executive officers and directors as a group.
Unless otherwise indicated, the address for each of the named individuals is
c/o DigitalWork.com, Inc., 230 West Monroe Street, Suite 1950, Chicago,
Illinois 60606.
The number of shares includes common stock to be issued upon conversion of
preferred stock prior to the completion of this offering. Applicable percentage
ownership in the table is based upon 24,091,293 shares of common stock
outstanding as of December 31, 1999 and shares outstanding immediately
following the completion of this offering. The percentage of shares owned after
this offering as set forth in the forth column in the table assumes no exercise
of the underwriters' over-allotment option.
We have determined beneficial ownership of our common stock in accordance
with the rules of the SEC. Shares of common stock subject to options presently
exercisable or exercisable within 60 days of December 31, 1999 are deemed to be
outstanding for the purpose of computing the percentage ownership of the person
or entity holding such options, but are not treated as outstanding for the
purpose of computing the percentage ownership for any other person or entity.
To the extent that any such shares are issued upon the exercise of options,
warrants or other rights to acquire our capital stock that are presently
outstanding or granted in the future or reserved for future issuance under our
stock plans, new public investors will be subject to further dilution.
<TABLE>
<CAPTION>
Percent of Common
Stock
Beneficially
Number of Owned
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
------------------------ ------------ -------- --------
<S> <C> <C> <C>
Our Executive Officers and Directors
Robert A. Schultz (1)..................... 1,475,000 6.1%
Craig A. Terrill (2)...................... 1,550,000 6.4
David P. Aniol............................ 230,000 *
John Banta (3)............................ 198,337 *
Randy Grudzinski.......................... 200,000 *
Douglas Mulderink (4)..................... 110,000 *
Brian Petula.............................. 100,000 *
Loreen Sieroslawski (5)................... 100,000 *
Raj Atluru (6) (7) (8).................... 5,778,794 24.0
Warren Packard (7) (8).................... 5,766,833 23.9
Marc Benioff.............................. 100,105 *
All directors and executive officers as a
group (11 people)........................ 9,842,236 40.9
Other Five Percent Stockholders
Draper Fisher Jurvetson (7) (9)........... 5,766,833 23.9
TL Ventures (7) (10)...................... 4,065,255 16.9
Attractor Capital Management (7) (11)..... 1,552,686 6.4
Edward C. Coppola (7) (12)................ 1,584,423 6.6
</TABLE>
- --------
* Less than 1%
(1) Consists of the following:
. 1,250,000 shares of common stock owned by Mr. Schultz individually;
and
. 225,000 shares of common stock owned by a trust controlled by Mr.
Schultz.
42
<PAGE>
(2) Consists of the following:
. 605,000 shares of common stock owned by Mr. Terrill individually; and
. 945,000 shares of common stock owned by family trusts and relatives
of Mr. Terrill.
(3) Consists of the following:
. 133,337 shares of common stock owned by Maroons Capital, a limited
partnership, of which Mr. Banta is a general partner;
. 15,000 shares of common stock owned by Maroons Partnership II, a
limited partnership, of which Mr. Banta is a general partner; and
. options granted to Mr. Banta to purchase 50,000 shares of common
stock at an exercise price of $0.35 per share.
Mr. Banta disclaims beneficial ownership of the shares of common stock
owned by Maroons Capital and Maroons Partnership II.
(4) Consists of the following:
. 42,000 shares of common stock owned by Mr. Mulderink individually;
. 8,000 shares of common stock owned by relatives of Mr. Mulderink; and
. options granted to Mr. Mulderink to purchase 60,000 shares of common
stock at an exercise price of $0.35 per share.
(5) Consists of the following:
. 44,000 shares of common stock owned by Ms. Sieroslawski individually;
. 6,000 shares of common stock owned by relatives of Ms. Sieroslawski;
and
. options granted to Ms. Sieroslawski to purchase 50,000 shares of
common stock at an exercise price of $0.35 per share.
(6) Includes 11,961 shares of common stock owned by Cyprus Partners, LLC, a
limited liability company of which Mr. Atluru is a member.
(7) Includes shares of common stock that may be purchased pursuant to a
warrant granted as part of our Series D convertible preferred stock
financing. Each warrant is exercisable from the date the registration
statement of which this prospectus forms a part is declared effective by
the SEC to the one year anniversary of the effective date. The holder of
each warrant may purchase a number of shares, based upon its pro rata
holdings of our Series D convertible preferred stock, at the same price as
the offering price per share of this offering.
(8) Includes 5,766,833 shares of common stock owned by the entities listed in
note 10 below which are collectively owned or controlled by Draper Fisher
Jurvetson as a general partner or manager. Mr. Packard and Mr. Atluru are
affiliated with Draper Fisher Jurvetson; however, both Messrs. Packard and
Atluru disclaim beneficial ownership of the shares of common stock owned
by each of the entities listed below.
(9) Consists of the following:
. 5,334,321 shares of common stock owned by Draper Fisher Jurvetson
Fund V, LP; and
. 432,512 shares of common stock owned by Draper Fisher Jurvetson
Partners V, LLC.
Draper Fisher Jurvetson's address is 400 Seaport Court, Suite 250, Redwood
City, California 94063.
(10) Consists of the following:
. 4,056,016 shares of common stock owned by TL Ventures IV, L.P.; and
. 9,239 shares of common stock owned by TL Ventures Interfund, L.P.
TL Venture's address is The 700 Building, 435 Devon Park Drive, Wayne,
Pennsylvania 19087.
(11) Consists of the following:
. 572,571 shares of common stock owned by Attractor QP LP;
. 546,668 shares of common stock owned by Attractor LP;
43
<PAGE>
. 120,700 shares of common stock owned by Attractor Ventures LLC;
. 67,988 shares of common stock owned by Attractor Institutional LP;
. 52,498 shares of common stock owned by Attractor Offshore Ltd; and
. warrants to purchase 192,261 shares of our common stock at $8.36 per
share.
Attractor Capital Management's address is 1110 Burlingame, Suite 211
Burlingame, California 94010
(12) Consists of the following:
. 696,852 shares of common stock owned by Mr. Coppola individually;
. 696,856 shares of common stock owned by the E.C. Coppola Family
Limited Partnership; and
. warrants to purchase 124,000 shares of our common stock at an
exercise price of $1.10 per share and 66,715 shares of our common
stock at an exercise price of $1.08 per share.
Mr. Coppola's address is 13455 Noel Road, Suite 400, Dallas, Texas 75240
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 100 million shares of common stock and ten million shares of preferred
stock. The following summary of certain provisions of the common stock and
preferred stock is subject to, and qualified in its entirety by, our amended
and restated certificate of incorporation and by-laws and by the provisions of
applicable law.
Common Stock
As of December 31, 1999, we had 24,091,293 shares of common stock
outstanding held of record by 80 stockholders. Subject to preferences that may
apply to shares of preferred stock outstanding at any time, the holders of
outstanding shares of our common stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the
board of directors may from time to time determine. Each stockholder is
entitled to one vote for each share of common stock held on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is not provided for in our amended and restated certificate of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. Our common stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon the occurrence of a liquidation, dissolution or winding-up of
our company, the holders of shares of common stock would be entitled to share
ratably in the distribution of all of our assets remaining available for
distribution after satisfaction of all of our liabilities and the payment of
the liquidation preference of any outstanding preferred stock. Each outstanding
share of common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
Upon completion of this offering, we will not have any outstanding preferred
stock. Under our amended and restated certificate of incorporation, our board
of directors may issue up to ten million shares of preferred stock in one or
more series with such designations, rights and preferences as may be determined
from time to time by the board of directors. Accordingly, the board of
directors is empowered under our amended and restated certificate of
incorporation, without further stockholder approval, to issue preferred stock
with dividend, liquidation, conversion, voting or other rights that may
adversely affect the voting power or other rights of the holders of our common
stock. In the event of issuance, preferred stock could be utilized to
discourage, delay or prevent an acquisition or change in control. We do not
have any present plans to issue any shares of preferred stock. The issuance of
preferred stock could have the effect of decreasing the market price of the
common stock and could adversely affect the voting and other rights of the
holders of common stock. See "Risk Factors--Our charter documents and Delaware
law contain provisions that may discourage takeover attempts which could
preclude our stockholders from receiving a change of control premium" on page
.
Rights Plan
Upon completion of this offering, our board of directors will declare a
dividend distribution of one preferred share purchase right for each
outstanding share of common stock. The dividend is payable to stockholders of
record immediately prior to the completion of this offering, which is the
record date for this distribution and with respect to common stock issued
thereafter until the distribution date. Except as set forth below, each right,
when it becomes exercisable, entitles the registered holder to purchase from us
one one-hundredth of a share of the Series A participating preferred stock at
an exercise price equal to five times the initial offering price of our common
stock, subject to adjustment. The description and terms of the rights are set
forth in a rights agreement between us and Chase Mellon Shareholder Services,
L.L.C., as rights agent. A copy of the rights agreement is available to
stockholders free of charge from us upon request directed to our corporate
secretary.
45
<PAGE>
Initially, the rights will be attached to all certificates representing
shares of common stock then outstanding and no separate rights certificates
will be distributed. The rights separate from the common stock upon a
distribution date, which is the earlier of:
. 10 days following public announcement that an acquiring person, a person
or group of affiliated or associated persons, has acquired beneficial
ownership of 15% or more of the outstanding common stock; or
. 15 business days or a later date as our board may determine following the
commencement of, or announcement of an intention to make, a tender offer
or exchange offer the consummation of which would result in a person or
group becoming an acquiring person.
The definition of an acquiring person includes a person or group that
beneficially owns 15% or more of our outstanding common stock, but excludes any
of our employee benefits plans. Affiliates of Draper Fisher Jurvetson will not
be deemed to be an acquiring person as long as these entities beneficially own
less than 28% of our outstanding common stock. The date that a person or group
becomes an acquiring person is the share acquisition date. Until a right is
exercised, the holder thereof, as such, will not have any rights as a
stockholder, including the right to vote or receive dividends thereon.
The rights agreement provides that, until the distribution date, the rights
will be transferred only with the common stock. Until the distribution date, or
earlier redemption or expiration of the rights, new common stock certificates
issued after the record date upon transfer or new issuance of common stock will
contain a notation incorporating the rights agreement by reference. Until the
distribution date, or earlier redemption or expiration of the rights, the
surrender for transfer of any certificates for common stock outstanding as of
the record date, even without any notation or a copy of the summary of rights
attached thereto, will also constitute the transfer of the rights associated
with the common stock represented by this certificate. As soon as practicable
following the distribution date, separate certificates evidencing the rights
will be mailed to holders of record of the common stock as of the close of
business on the distribution date and to each initial records holder of certain
common stock issued after the distribution date, and separate rights
certificates alone will evidence the rights.
The rights are not exercisable until the distribution date and will expire
at the close of business on the tenth anniversary of the effective date of the
plan, unless earlier redeemed by us as described below.
In the event that any person becomes an acquiring person, in lieu of
acquiring preferred stock, each holder of a right (other than an acquiring
person) will thereafter have the right to receive upon payment of the exercise
price, the number of shares of common stock, or, in certain circumstances,
cash, or other types of our securities, having a value equal to two times the
exercise price. Notwithstanding the foregoing, following the occurrence of
triggering events described above or in the paragraph below, all rights that
are, or (under certain circumstances specified in the rights agreement) were,
beneficially owned by an acquiring person or an affiliate or associate thereof
will be null and void.
In the event that, at any time following the share acquisition date, we are
acquired in a merger or other business combination transaction, or more than
50% of our assets or earning power is sold or transferred to any other person,
then each holder of a right, except rights which previously have been voided as
set forth above shall thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
exercise price of the right.
The exercise price and the number of shares of preferred stock or other
securities or property issuable upon exercise of the rights are subject to
adjustment from time to time to as a result of, among other things, a
subdivision, split--other than a stock dividend on the common stock payable in
shares of common stock--combination, consolidation or reclassification of the
Series A participating preferred stock or the common stock, or a reverse split
of the outstanding shares of Series A participating preferred stock or common
stock.
46
<PAGE>
At any time prior to the earlier to occur of a person becoming an acquiring
person or the expiration of the rights, and under certain other circumstances,
we may redeem the rights in whole, but not in part, at a price of $0.01 per
right which redemption shall be effective upon the action of the board of
directors. Additionally, at any time after a triggering event and prior to the
time that a person or group acquires 50% or more of the outstanding common
stock, we may exchange the rights, other than those that have become null and
void, in whole or in part, for shares of common stock at an exchange ratio of
one common stock per right, subject to adjustment.
The provisions of the rights agreement may be amended by our board of
directors in order to cure ambiguity, defect or inconsistency, provided that
after such time as any person becomes an acquiring person, the rights agreement
may not be amended in any manner that would adversely affect the interests of
the holders of the rights.
Option and Purchase Plans
As of December 31, 1999, we had outstanding options to purchase a total of
2,375,425 shares of our common stock under our Amended and Restated 1998 Stock
Option Plan. Additionally, as of December 31, 1999, under our Amended and
Restated 1998 Stock Option Plan, our board of directors was authorized to grant
options to purchase up to 3,212,335 additional shares of common stock. Under
our 2000 stock purchase plan, our employees will be able to purchase up to
750,000 shares of our common stock.
Warrants
In November 1998, we issued a warrant to Edward C. Coppola to purchase up to
124,000 shares of our common stock at $1.10 per share, as compensation for
advisory services he performed for us. This warrant will expire in November
2008. In April 1999, we issued Mr. Coppola and one of his affiliates warrants
to purchase up to 66,715 shares of our common stock at $1.08 per share. These
warrants expire in April 2004.
On December 2, 1999, we issued to each of the purchasers of our Series D
convertible preferred stock a warrant to purchase shares of our common stock.
The warrants are exercisable from the date the registration statement of which
this prospectus forms a part is declared effective by the SEC to the one-year
anniversary of this effective date. The holder of the warrant may purchase a
number of shares, based upon its pro rata holdings of our Series D convertible
preferred stock, at the same price as the offering price per share of this
offering.
In connection with the interactive marketing agreement we entered with AOL,
we granted AOL a warrant to purchase 276,000 shares of our common stock. These
warrants are exercisable until three years after the date the registration
statement of which this prospectus forms a part is declared effective by the
SEC, at a per share exercise price of $8.36.
In connection with the master services agreement we entered with Dell, we
granted Dell USA, L.P. a warrant to purchase 150,000 shares of our common
stock. These warrants are exercisable until December 22, 2001, at a per share
exercise price of $8.36.
On December 29, 1999, in connection with our sale of Series D convertible
preferred stock, we issued to each of Attractor QP LP, Attractor LP, Attractor
Ventures LLC, Attractor Institutional LP, and Attractor Offshore Ltd. warrants
to purchase, in the aggregate, 192,261 shares of our common stock. These
warrants are exercisable until December 2, 2004, at a per share exercise price
of $8.36.
Registration Rights
We have granted registration rights to the holders of all outstanding shares
of Series C convertible preferred stock and Series D convertible preferred
stock. Upon the completion of this offering, the shares of Series C and Series
D preferred stock will automatically convert into an equal number of shares of
common stock. Following this offering, holders of 15,830,581 shares of our
common stock, or % of the outstanding common stock, will have registration
rights. These registration rights may permit these stockholders to resell
47
<PAGE>
their shares of our common stock in the public market earlier than they
otherwise could. The market price for our common stock could fall if
stockholders sell large amounts of common stock in the public market after this
offering. See "Risk Factors --Shares eligible for future sale by our existing
stockholders may adversely affect our stock price" on page 11.
The registration rights are set forth in an amended and restated
registration rights agreement among our company and the holders of all of our
outstanding Series C and Series D convertible preferred stock. The following
summary of the registration rights agreement is subject to, and qualified in
its entirety by, the amended and restated registration rights agreement, a copy
of which has been filed as an exhibit to the registration statement of which
this prospectus is a part.
Required Registration. At any time after 180 days after this offering,
stockholders owning at least 25% of the number of shares that are subject to
registration rights may require us to file a registration statement with the
SEC to register their shares under the Securities Act. After this same time,
stockholders holding at least 50% of Series D preferred stock may require us to
file a registration statement with respect to the shares of common stock
converted from the Series D preferred stock and exercised warrants received in
the sale of the Series D preferred stock. We have the right to delay filing a
registration statement for up to 90 days once during any 12-month period:
. after a subsequent offering of common stock;
. if, in the good faith judgement of the our board of directors, it would
be materially detrimental to us to file a registration statement at that
time; or
. if the registration would require us to disclose material non-public
information, which, in the reasonable opinion of the board of directors,
should not be disclosed.
If the offering is to be underwritten and the underwriters advise us that
the number of shares to be registered should be reduced, the stockholders with
registration rights are entitled to have their shares registered before the
shares to be sold by our company. We are required to pay all expenses,
including the fees of one counsel representing the stockholders, in connection
with the required registrations. However, we are not required to pay the
underwriting discounts and commissions for those offerings, extraordinary and
unique expenses of a single holder or any special audits required for such
registration.
Incidental Registration Rights. Stockholders with registration rights can
request to have their shares registered under the Securities Act any time we
file a registration statement to register our equity securities for our own
account or for the account of any of our stockholders. There is no limit on the
number of times stockholders may exercise these piggyback registration rights.
We will pay all expenses, other than underwriting discounts and commissions for
selling stockholders, in connection with each piggyback registration.
Delaware Anti-Takeover and Certain Certificate of Incorporation and By-Law
Provisions
Certain provisions of Delaware law and our amended and restated certificate
of incorporation and by-laws could make more difficult the acquisition of our
company by means of a tender offer, a proxy contest, or otherwise, and the
removal of incumbent officers and directors. 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 our company to
first negotiate with us. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure our company outweighs the
disadvantages of discouraging such proposals. The increased protection is
beneficial even if a proposal is priced above the then current market value of
our common stock, because negotiation of such proposals could result in an
improvement of their terms.
48
<PAGE>
Section 203 of the Delaware General Corporation Law. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law. This
provision generally prohibits any publicly held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the date of the transaction in which the person became an
interested stockholder, unless:
. the transaction in which the stockholder became an interested stockholder
is approved by the board of directors prior to the date the interested
stockholder attained such status;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction was commenced, excluding those shares owned by persons
who are directors and also officers and stock held by certain employee
stock option plans; or
. on or subsequent to that date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested shareholder.
A business combination includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an interested stockholder is defined to include any person that is:
. the owner of 15% or more of the outstanding voting stock of the
corporation;
. an affiliate or associate of the corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation, at any time
within three years immediately prior to the relevant date; and
. an affiliate or associate of the persons described in the foregoing
bullet points.
The restrictions contained in Section 203 do not apply to Draper Fisher
Jurvetson or TL Ventures, because they were interested stockholders when our
voting stock was not listed on a national securities exchange or authorized for
quotation on the Nasdaq national market or held by record by more than 2,000
stockholders.
Stockholders may, by adopting an amendment to the corporation's certificate
of incorporation or by-laws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption. Neither our amended and
restated certificate of incorporation nor our by-laws exempt us from the
restrictions imposed under Section 203 of the Delaware General Corporation Law.
We anticipate that the provisions of Section 203 of the Delaware General
Corporation Law may encourage companies interested in acquiring us to negotiate
in advance with our board of directors because the stockholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction that results in the
stockholder becoming an interested stockholder.
Classification and Structure of our Board of Directors. Immediately upon the
completion of this offering, our board of directors will be divided into three
classes of directors serving staggered, three-year terms. The number of
directors will be fixed by resolution of our board of directors consisting of
at least five but not more than nine directors. The size of our board is
currently fixed at five members. The directors shall be elected at the annual
meeting of the stockholders, except for filling vacancies. Directors may be
removed only for cause and only with the approval of the holders of at least
80% of voting power present and entitled to vote at a meeting of stockholders.
Vacancies and newly-created directorships resulting from any increase in the
number of directors may be filled by a majority of the directors then in
office, a sole remaining director, or if a Delaware provision expressly confers
power on stockholders to fill a directorship, at a special meeting by the
holders of at least 80% of the voting power present and entitled to vote at a
meeting of stockholders.
As a result of the classification of our board of directors, approximately
one-third of the members of our board of directors will be elected each year.
When coupled with the provision of our restated certificate of incorporation
authorizing the board of directors to fill vacant directorships and increase
the size of the board of directors up to nine, these provisions may prevent
stockholders from removing incumbent directors and simultaneously gaining
control of the board of directors by filling the vacancies created by such
removals with their own nominees.
49
<PAGE>
Meetings of Stockholders. Our amended and restated certificate of
incorporation and by-laws provide that any action required or permitted to be
taken by our stockholders may be effected at a duly called annual or special
meeting of our stockholders. Special meetings of stockholders may be called by
the chief executive officer or by a majority of our board of directors. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control of our management.
Written Consent. Under our amended and restated certificate of
incorporation, our stockholders will not be allowed to take action in writing
outside of an annual or special meeting of our stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our by-laws require that timely notice in proper form be provided
by stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. Such notice must
be received by us 120 calendar days in advance of the date specified in the
previous year's notice of the annual meeting. These provisions may preclude
stockholders from timely bringing matters before, or from making nominations
for directors at, an annual meeting of stockholders.
Amendment of our Amended and Restated Certificate of Incorporation and By-
Laws. Our amended and restated certificate of incorporation may be amended by
the approval of the majority of our board of directors and a majority of our
outstanding voting securities. Except the approval of at least 80% of voting
securities is required to amend a provision in the amended and restated
certificate of incorporation relating to the liability or indemnification of
our officers and directors, the structure and classification of our board of
directors and stockholder actions. Our board of directors is authorized to
amend our by-laws consistent with Delaware law and our amended and restated
certificate of incorporation.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Chase Mellon
Shareholder Services, L.L.C.
Listing
We intend to apply for quotation of the common stock on the Nasdaq National
Market under the trading symbol "DWRK."
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock.
Future sales of substantial amounts of our common stock in the public market
following this offering could cause the prevailing market price of our common
stock to fall and impede our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming that the underwriters do not
exercise their over-allotment option and no exercise of outstanding options or
warrants. Of these shares, the shares sold in this offering will be
freely tradable without registration or further restriction under the
Securities Act, unless such shares are purchased by our officers, directors or
principal shareholders. The remaining shares of common stock
outstanding upon completion of this offering and held by existing stockholders
will be restricted securities. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rule 144 or 701, the limitations of which are summarized below.
Of the remaining restricted shares, will be eligible for sale
immediately upon the effective date of this offering pursuant to Rule 144(k),
and will be eligible for sale pursuant to Rule 144 and Rule 701
beginning 91 days after the effective date of this offering.
Lock-Up Agreements
Sales of the restricted shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of the common
stock. All of our executive officers and directors and stockholders who
beneficially own more than one percent of our capital stock have agreed under
lock-up agreements, that without the prior written consent of Lehman Brothers
Inc., they will not, directly or indirectly, offer, sell, pledge, or otherwise
dispose of any shares of common stock or any securities which may be converted
into or exchanged for any such shares for the period ending 180 days after the
date of this prospectus. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rule 144 and 701, additional shares will be eligible for sale
beginning 181 days after the effective date of this offering, subject to the
requirements of Rule 144.
Rule 144
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who owns shares that were acquired from the issuer or an affiliate of the
issuer at least one year prior to the proposed sales, including persons who may
be deemed to be our "affiliates," would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice of Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a stockholder who is not deemed to have been our
"affiliate" at any time during the 90 days preceding a sale by the stockholder,
and who owns shares that were acquired from the issuer or an affiliate of the
issuer at least two years prior to the proposed sale, is entitled to sell the
shares, without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
51
<PAGE>
Warrants, Stock Options and Employee Common Stock Purchases
As of December 31, 1999, there were outstanding warrants to purchase 853,453
shares of common stock and options to purchase 2,375,425 shares of common
stock, of which 72,200 options were fully vested. In addition, we have
outstanding warrants to purchase a number of shares equal to 10% of the shares
of common stock we are selling in this offering. The common stock underlying
these warrants and options will be eligible for sale subject to the
requirements of Rule 144 or Rule 701.
An additional 3,212,335 shares are reserved for issuance under our amended
and restated 1998 stock option plan and an additional 750,000 shares are
reserved under our 2000 employee stock purchase plan. We intend to file
registration statements under the Securities Act covering the shares of common
stock reserved for issuance under our 1998 stock option plan and our 2000
employee stock purchase plan. The registration statements are expected to be
filed within 90 days after the date of this prospectus and will automatically
become effective upon filing. Accordingly, shares registered under such
registration statements will, subject to Rule 144 volume limitations applicable
to affiliates and the expiration of the 180-day lock-up period, be available
for sale in the open market, except to the extent that such shares are subject
to our vesting schedules.
Registration Rights
Holders of 15,830,581 shares of common stock are entitled to registration
rights with respect to their shares for resale under the Securities Act of
1933. If these holders, by exercising their registration rights, cause a large
number of shares to be registered and sold in the public market, these sales
could harm the market price for our common stock. These registration rights may
not be exercised prior to the expiration of the 180 days from the date of this
prospectus. See "Description of Capital Stock--Registration Rights" beginning
on page 46.
Rule 701
Rule 701 permits resales of shares issued prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, pursuant to certain compensatory benefit plans and contracts commencing
90 days after the issuer becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirements. In addition, the Securities and Exchange Commission has indicated
that Rule 701 will apply to typical stock options granted by an issuer before
it becomes subject to the reporting requirements of the Securities Exchange Act
of 1934, along with the shares acquired upon exercise of such options,
including exercises after the date the issuer becomes so subject. Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 91 days after the date of
this prospectus, may be sold by persons other than affiliates subject to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its one-year minimum holding period requirements.
52
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., U.S. Bancorp Piper Jaffray Inc. and
Prudential Securities Incorporated are acting as representatives, have each
agreed to purchase from us the respective number of shares of common stock
shown opposite its name below:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Lehman Brothers Inc.............................................
U.S. Bancorp Piper Jaffray Inc..................................
Prudential Securities Incorporated..............................
------
Total.......................................................
======
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement and that if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, then
all of the shares of common stock which the underwriters have agreed to
purchase under the underwriting agreement, must be purchased. The conditions
contained in the underwriting agreement include the requirement that the
representations and warranties made by us to the underwriters are true, that
there is no material change in the financial markets and that we deliver to the
underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover of this prospectus and to dealers, who may include the
underwriters, at such public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After this offering, the underwriters may change the offering price and other
selling terms.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, to cover over-allotments, if any, at
the public offering price less the underwriting discounts and commissions shown
on the cover page of this prospectus. The underwriters may exercise this option
at any time until 30 days after the date of the underwriting agreement. If this
option is exercised, each underwriter will be committed, so long as the
conditions of the underwriting agreement are satisfied, to purchase a number of
additional shares of common stock proportionate to the underwriter's initial
commitment as indicated in the preceding table and we will be obligated, under
the over-allotment option, to sell the shares of common stock to the
underwriters.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us:
<TABLE>
<CAPTION>
With Without
Over-Allotment Exercise Over-Allotment
----------------------- --------------
<S> <C> <C>
Exercise
Per Share........................ $ $
Total............................ $ $
</TABLE>
53
<PAGE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $ .
Fidelity Capital Markets, a division of National Financial Services
Corporation, will be facilitating electronic distribution of information
through the Internet, its Intranet and other proprietary electronic technology.
Fidelity Capital Markets will not be acting as an underwriter of this offering.
We have agreed that, subject to certain exceptions, without the prior
consent of Lehman Brothers Inc., we will not directly or indirectly, offer,
sell or otherwise dispose of any shares of common stock or any securities which
may be converted into or exchanged for any such shares of common stock for a
period of 180 days from the date of this prospectus. All of our executive
officers and directors and stockholders who beneficially own more than one
percent of our capital stock have agreed under lock-up agreements, that without
the prior written consent of Lehman Brothers Inc., they will not, directly or
indirectly, offer, sell, pledge, or otherwise dispose of any shares of common
stock or any securities which may be converted into or exchanged for any such
shares for the period ending 180 days after the date of this prospectus. See
"Shares Eligible for Future Sale--Lock Up Agreements" on page 51.
Prior to this offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our performance and capital
structure, estimates of our business potential and earning prospects, an
overall assessment of our management and the consideration of the above factors
in relation to market valuation of companies in related businesses.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock.
Persons participating in this offering may also engage in passive market-
making transactions in the common stock on the Nasdaq National Market.
Specifically, the underwriters may create a short position in the common stock
in connection with this offering, which means that they may sell more shares
than are set forth on the cover page of this prospectus. If the underwriters
create a short position, then the representatives may reduce that short
position by purchasing common stock in the open market. The representatives
also may elect to reduce any short position by exercising all or part of the
over-allotment option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this offering.
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
54
<PAGE>
addition, neither we nor any of the underwriters makes any representation that
the representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
The representatives have informed us that they do not intend to confirm the
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
At our request, the underwriters have reserved up to shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to business associates of ours at the
initial public offering price set forth on the cover of this prospectus. These
persons must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares.
In May 1999, we sold an aggregate of 11,471,276 shares of Series C preferred
stock to investors in a private placement at a purchase price of $1.08 per
share, or $12.4 million in the aggregate. In December 1999, we sold an
aggregate of 4,359,305 shares of our Series D preferred stock for an aggregate
purchase price of $36.4 million, or $8.36 per share. Seven employees of Lehman
Brothers Inc. purchased a total of 138,984 shares of Series C preferred stock
at a price of $1.08 per share, or an aggregate of $150,000 and six employees of
Lehman Brothers Inc. purchased a total of 7,441 shares of Series D preferred
stock at a price of $8.36 per share, or an aggregate of $62,252. These shares
will automatically convert into an equal number of shares of common stock prior
to the closing of this offering. In addition, these individuals received
warrants to purchase in aggregate 27,798 shares of our common stock at an
exercise price of $1.08 per share, and warrants to purchase shares of our
common stock at the initial offering price.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for us by Freeborn & Peters, Chicago, Illinois. Certain
legal matters will be passed upon for the underwriters by Morgan, Lewis &
Bockius LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent public auditors, have audited our financial
statements at December 31, 1998 and 1999 and for the period from March 18, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999, as
described in their report. We have included our financial statements in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock we are offering by
this prospectus. This prospectus does not contain all of the information set
forth in the registration statement. For further information with respect to
our business and our common stock, please refer to the registration statement
and the exhibits thereto. While we have provided summaries of the material
terms of the contents of contracts and other documents, these summaries do not
describe all of the provisions of the contracts and other documents. In each
instance where we have filed a
55
<PAGE>
copy of a contract or other document with the registration statement, please
refer to the registration statement. Each statement about the contracts and
other documents in the prospectus is qualified in all respects to the actual
documents filed with the registration statement.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Our fiscal year ends on December 31. We intend
to furnish our stockholders with annual reports containing audited financial
statements and other appropriate reports.
You may read and copy the registration statement on Form S-1, any reports,
statements or other information we file at the SEC's Public Reference Room, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the SEC's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You can request copies of these documents, upon payment of a duplicating
fee, by writing the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. Our SEC filings are
also available to the public on the SEC Web site at http://www.sec.gov.
56
<PAGE>
DIGITALWORK.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
DigitalWork.com, Inc.
We have audited the accompanying balance sheets of DigitalWork.com, Inc. as
of December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for the period from March 18, 1998
(Inception) to December 31, 1998 and the year ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DigitalWork.com, Inc. at
December 31, 1998 and 1999 and the results of its operations and its cash flows
for the period from March 18, 1998 (Inception) to December 31, 1998 and the
year ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Chicago, Illinois
January 26, 2000
F-2
<PAGE>
DIGITALWORK.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity
------------------------- December 31,
1998 1999 1999
----------- ------------ -------------
<S> <C> <C> <C>
Assets (unaudited)
Current assets:
Cash and cash equivalents........... $ 1,394,222 $ 33,751,312
Accounts receivable, net of
allowance of $46,500 at
December 31, 1999.................. 11,704 976,640
Prepaid expenses and other current
assets............................. -- 1,533,181
----------- ------------
Total current assets.............. 1,405,926 36,261,133
Restricted cash....................... -- 575,685
Other assets.......................... -- 1,098,272
Property and equipment, net........... 72,369 983,034
----------- ------------
Total assets...................... $ 1,478,295 $ 38,918,124
=========== ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable.................... $ 89,954 $ 2,417,333
Accrued compensation and other
liabilities........................ 143,765 320,224
Accrued strategic partner fees...... -- 266,466
Other accrued liabilities........... 12,284 150,000
Current portion of obligations under
capital leases..................... -- 319,160
----------- ------------
Total current liabilities......... 246,003 3,473,183
Non-current obligations under capital
leases............................... -- 263,290
Accrued strategic partner fees........ -- 2,000,000
----------- ------------
Total liabilities................. 246,003 5,736,473
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, par
value $.005; 20,895,360 shares
authorized, 4,240,672 and
20,071,253 shares issued and
outstanding at December 31, 1998
and 1999, respectively and no pro
forma.............................. 21,203 100,356 $ --
Common stock, par value $.005;
41,633,786 shares authorized,
1,995,240 and 4,020,040 shares
issued and outstanding at December
31, 1998 and 1999, respectively,
and 24,091,293 shares issued and
outstanding pro forma.............. 9,976 20,100 120,456
Additional paid-in capital.......... 2,698,240 60,669,580 60,669,580
Stockholders' receivables........... (30,000) (5,959,750) (5,959,750)
Deferred stock compensation......... -- (4,864,514) (4,864,514)
Accumulated deficit................. (1,467,127) (16,784,121) (16,784,121)
----------- ------------ -----------
Total stockholders' equity........ 1,232,292 33,181,651 $33,181,651
----------- ------------ ===========
Total liabilities and
stockholders' equity............. $ 1,478,295 $ 38,918,124
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
DIGITALWORK.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
March 18,
1998
(Inception) Year ended
to December December 31,
31, 1998 1999
----------- ------------
<S> <C> <C>
Revenues............................................ $ 32,800 $ 1,916,588
Cost of revenues.................................... 61,066 1,586,597
----------- ------------
Gross (loss) profit................................. (28,266) 329,991
Operating expenses:
Marketing and strategic alliances................. 504,036 7,032,380
Technical and product development................. 207,566 2,851,738
General and administrative........................ 660,607 2,441,928
Non-cash stock compensation and charges........... 83,080 3,649,453
----------- ------------
Total operating expenses.......................... 1,455,289 15,975,499
----------- ------------
Operating loss...................................... (1,483,555) (15,645,508)
Interest expense.................................... -- (25,700)
Interest income..................................... 16,428 354,214
----------- ------------
Net loss............................................ $(1,467,127) $(15,316,994)
=========== ============
Basic and diluted net loss per share................ $ (6.13) $ (15.54)
=========== ============
Weighted average shares of common stock outstanding
used in computing basic and diluted net loss per
share.............................................. 239,370 985,871
=========== ============
Pro forma basic and diluted net loss per share
(unaudited)........................................ $ (1.21)
============
Weighted average shares used in computing pro forma
basic and diluted net loss per share (unaudited)... 12,659,847
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
DIGITALWORK.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Deferred Total
------------------- ------------------ Paid-In Stockholders' Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Receivables Compensation Deficit Equity
---------- -------- --------- ------- ----------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
18, 1998....... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Proceeds from
the issuance of
common stock,
net of issuance
costs of
$2,408......... -- -- 2,873,430 14,367 53,425 -- -- -- 67,792
Issuance of
series A
convertible
preferred
stock, net of
issuance costs
of $6,049...... 1,834,672 9,173 -- -- 310,780 -- -- -- 319,953
Issuance of
series B
convertible
preferred
stock, net of
issuance costs
of $6,586...... 2,374,000 11,870 -- -- 2,355,544 (30,000) -- -- 2,337,414
Issuance of
series A
convertible
preferred stock
and common
stock for
services....... 32,000 160 21,810 109 25,911 -- -- -- 26,180
Repurchase of
common stock... -- -- (900,000) (4,500) (130,500) -- -- -- (135,000)
Issuance of
warrant to
purchase
preferred
stock.......... -- -- -- -- 83,080 -- -- -- 83,080
Net loss........ -- -- -- -- -- -- -- (1,467,127) (1,467,127)
---------- -------- --------- ------- ----------- ----------- ----------- ------------ ------------
Balance at
December 31,
1998........... 4,240,672 21,203 1,995,240 9,976 2,698,240 (30,000) -- (1,467,127) 1,232,292
Proceeds on
stockholders'
receivables.... -- -- -- -- -- 30,000 -- -- 30,000
Proceeds from
the issuance of
common stock... -- -- 655,000 3,275 782,725 (786,000) -- -- --
Issuance of
series C
convertible
preferred
stock, net of
issuance costs
of $36,802..... 11,471,276 57,356 -- -- 12,285,887 -- -- -- 12,343,243
Issuance of
series D
convertible
preferred
stock, net of
issuance costs
of $60,826..... 4,359,305 21,797 -- -- 36,361,365 (5,146,250) -- -- 31,236,912
Issuance of
common stock
upon exercise
of stock
options........ -- -- 1,369,800 6,849 27,396 (27,500) -- -- 6,745
Issuance of
warrants to
purchase
preferred
stock.......... -- -- -- -- 2,948,496 -- -- -- 2,948,496
Deferred stock
compensation... -- -- -- -- 5,565,471 -- (5,565,471) -- --
Amortization of
deferred stock
compensation... -- -- -- -- -- -- 700,957 -- 700,957
Net loss........ -- -- -- -- -- -- -- (15,316,994) (15,316,994)
---------- -------- --------- ------- ----------- ----------- ----------- ------------ ------------
Balance at
December 31,
1999........... 20,071,253 $100,356 4,020,040 $20,100 $60,669,580 $(5,959,750) $(4,864,514) $(16,784,121) $ 33,181,651
========== ======== ========= ======= =========== =========== =========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
DIGITALWORK.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
March 18, 1998
(Inception) to Year ended
December 31, December 31,
1998 1999
-------------- ------------
<S> <C> <C>
Operating activities
Net loss......................................... $(1,467,127) $(15,316,994)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 6,784 180,705
Allowance for bad debts........................ -- 46,500
Issuance of series A preferred stock and common
stock for services............................ 26,180 --
Amortization of deferred stock compensation and
other stock related charges................... 83,080 3,649,453
Change in assets and liabilities:
Accounts receivable.......................... (11,704) (1,011,436)
Prepaid expenses and other current assets.... -- (2,533,181)
Other assets................................. 89,954 (673,957)
Accounts payable............................. 12,284 2,327,379
Accrued compensation and other............... 143,765 176,459
Accrued strategic partner fees............... -- 2,266,466
Other accrued liabilities.................... -- 137,716
----------- ------------
Net cash used in operating activities...... (1,116,784) (10,750,890)
Investing activities--Capital expenditures....... (79,153) (351,289)
Financing activities
Proceeds from issuance of common stock, net of
issuance cost................................... 67,792 --
Proceeds from the issuance of convertible
preferred stock, net of issuance cost........... 2,657,367 42,980,155
Principal payments on capital lease obligation... -- (157,631)
Repayments on stockholders' receivables.......... -- 30,000
Proceeds from exercise of common stock options... -- 6,745
Proceeds from issuance of convertible notes
payable......................................... -- 600,000
Repurchase of common stock....................... (135,000) --
----------- ------------
Net cash provided by financing activities........ 2,590,159 43,459,269
----------- ------------
Net increase in cash and cash equivalents........ 1,394,222 32,357,090
Cash and cash equivalents at beginning of the
period.......................................... -- 1,394,222
----------- ------------
Cash and cash equivalents at end of the period... $ 1,394,222 $ 33,751,312
=========== ============
Supplemental schedule of cash flow information
Cash paid during the year for interest........... $ -- $ 25,700
=========== ============
Supplemental schedule of non-cash activities
Property and equipment acquired under capital
leases.......................................... $ -- $ 740,081
=========== ============
Conversion of notes payable into series C
convertible preferred stock..................... $ -- $ 600,000
=========== ============
Deferred stock compensation...................... $ -- $ 5,565,471
=========== ============
Stockholders' receivable from issuance of
convertible preferred stock and common stock.... $ 30,000 $ 5,959,750
=========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Description of Business
DigitalWork.com, Inc. (DigitalWork.com) provides Web-based business services
to the small business market. DigitalWork.com has developed a business-to-
business services platform that connects a network of service suppliers,
business portals and small business buyers. DigitalWork.com's e-services help
small businesses grow by simplifying the execution of over 30 critical business
functions on-line, such as launching an integrated marketing campaign,
recruiting new employees and generating sales leads. DigitalWork.com currently
offers its services primarily in the United States.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of financial investments with an original
maturity from the date of purchase of three months or less. As of December 31,
1998 and 1999, cash equivalents consisted primarily of investments in money
market accounts and their cost approximated fair value. DigitalWork.com places
its cash and cash equivalents in high-quality U.S. financial institutions and,
to date, has not experienced any losses on any of its investments.
Restricted Cash
DigitalWork.com maintains restricted collateral invested in certificates of
deposits, which mature within one year, and are used as security for
DigitalWork.com's office lease. The classification is determined based on the
expected term of the collateral requirement and not necessarily the maturity
date of the underlying securities.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation is computed on a straight-line basis over the
assets' estimated useful life, generally three to seven years. Equipment
acquired under capital leases is amortized on a straight-line basis over the
shorter of its lease term or estimated useful life, generally three years.
Leasehold improvements are depreciated over the shorter of its lease term or
estimated useful life, generally five years.
Income Taxes
DigitalWork.com has elected to be taxed as a C Corporation under the
applicable provisions of the Internal Revenue Code. Deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax basis 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
reverse.
F-7
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Revenue Recognition
DigitalWork.com generates revenue from e-services transactions and network
fees earned from business portals and service suppliers.
Small businesses utilize DigitalWork.com's Web-based e-services platform to
access and execute business services. DigitalWork.com utilizes business service
suppliers to fulfill the transaction and deliver the service to the customer.
As the economic risk related to collections, customer service and fulfillment
and the establishment of the price of the service remains with DigitalWork.com,
revenues are recognized on the total sales price when the service is delivered.
Network fee revenue is derived principally from reciprocal and non-
reciprocal agreements with business portals. In non-reciprocal agreements,
DigitalWork.com typically earns initial content licensing fees from business
portals for the integration of a co-branded version of DigitalWork.com's e-
services platform into their Web sites. In addition to the licensing fee,
DigitalWork.com also typically earns ongoing maintenance fees, which entitle
the business portals to continue to receive this access. Revenue from the
initial licensing fees and ongoing maintenance fees is recognized on a
straight-line basis over the terms of the respective agreements. Revenue from
the sale of advertising is recognized in the period in which the advertising is
displayed.
DigitalWork.com has entered into reciprocal agreements with third parties
which will act as both a service supplier and distribution partner, resulting
in complex sales and purchase arrangements. DigitalWork.com recognizes the
revenue and expense of the arrangement based on the objective evidence of fair
value of the elements. Objective evidence of fair value is determined by
reference to DigitalWork.com's history of other comparable and relevant third
party cash transactions for each element in the arrangement. In the year ended
December 31, 1999, revenue and expense elements of the arrangements
DigitalWork.com has entered into have been netted and will be recognized over
the terms of the agreements. This treatment resulted in a reduction of revenue
of approximately $443,000 and a corresponding reduction in the amount of
expenses in the year ended December 31, 1999. No reciprocal service
arrangements were entered into during the period from March 18, 1998
(inception) through December 31, 1998.
Technical and Product Development
Technical and product development expenses consist primarily of salaries,
payroll taxes and benefits, expenditures related to editorial content,
community management and support personnel, server hosting costs, and software
development and operations expenses. Statement of Position (SOP) 98-1 requires
all costs related to the development of internal use software other than those
incurred during the application development stage to be expensed as incurred.
Costs incurred during the application development stage are required to be
capitalized and amortized over the estimated useful life of the software. To
date, DigitalWork.com's software development has been completed concurrently
with the establishment of technological feasibility and, as a result, no
technical and product development costs have been capitalized.
Stock-Based Compensation
DigitalWork.com accounts for stock-based compensation for awards to
employees using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and has
adopted the disclosure only alternative of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
DigitalWork.com accounts for stock-based compensation awards to nonemployees
using the fair value method prescribed in FAS 123.
F-8
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Advertising Costs
Advertising costs are charged to expense when incurred. Advertising
expense for the period from March 18, 1998 to December 31, 1998 was
approximately $153,000 and for the year ended December 31, 1999 was
approximately $4,220,000.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("FAS") No. 107, "Disclosures
About Fair Value of Financial Instruments," requires that fair values be
disclosed for most of DigitalWork.com's financial instruments. The carrying
amounts of DigitalWork.com's financial instruments, which include cash and cash
equivalents, accounts receivable, note receivable from stockholder, capital
lease obligations, and current liabilities are considered to be representative
of their respective fair values.
Concentration of Credit Risk
Financial instruments which subject DigitalWork.com to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. DigitalWork.com maintains cash and cash equivalents with one
domestic financial institution. From time to time, DigitalWork.com's cash
balances with its financial institution may exceed Federal Deposit Insurance
Corporation insurance limits.
DigitalWork.com's customers are concentrated in the United States. The
Company performs ongoing credit evaluations, generally does not require
collateral, and establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of customers, historical trends and other
information.
Comprehensive Loss
DigitalWork.com has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130). Under FAS 130, DigitalWork.com
is required to display comprehensive income (loss) and its components as part
of the financial statements. Other comprehensive income includes changes in
equity that are excluded from net income (loss). Specifically, FAS 130 requires
unrealized holding gains and losses on available-for-sale securities to be
included in accumulated and other comprehensive income (loss). DigitalWork.com
has no components of other comprehensive loss, and, as a result, the
comprehensive loss is the same as the net loss for all periods presented.
Segment Information
DigitalWork.com adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (FAS 131)
in the fiscal year ended December 31, 1998. FAS 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. FAS 131 also establishes
standards for related disclosures about products and services, and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by
the chief operating decision maker, or decision making group, in making
decisions how to allocate resources and assess performance. DigitalWork.com's
chief decision maker, as defined under FAS 131, is the Chief Executive Officer.
To date, DigitalWork.com has viewed their operations as principally one
segment. Additionally, DigitalWork.com derives an immaterial amount of revenue
from non-domestic sources. As a result, the financial information disclosed
herein, materially represents all of the financial information related to
DigitalWork.com's principal operating segment.
F-9
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Net Loss Per Share, Pro Forma Net Loss Per Share and Pro Forma Stockholders'
Equity
Basic and diluted net loss per share are presented in conformity with FAS
No. 128, "Earnings Per Share" (FAS 128), for all periods presented. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of DigitalWork.com's
initial public offering must be included in the calculation of basic and
diluted net loss per share as if they had been outstanding for all periods
presented. To date, DigitalWork.com has not had any issuances or grants for
nominal consideration. In accordance with FAS 128, basic and diluted net loss
per share has been computed using the weighted average number of shares of
common stock outstanding during the period, less the weighted average number of
shares subject to repurchase.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of convertible preferred stock not included above that will
automatically convert upon completion of DigitalWork.com's initial public
offering (using the as converted method). If DigitalWork.com's initial public
offering is consummated, all of the convertible preferred stock outstanding as
of December 31, 1999 will automatically be converted into an aggregate of
20,071,253 shares of common stock. Pro forma stockholders' equity at December
31, 1999, as adjusted for the conversion of convertible preferred stock, is
disclosed on the balance sheet.
Historical and pro forma basic and diluted net loss per share are as
follows:
<TABLE>
<CAPTION>
Period From
March 18,
1998
(Inception) Year ended
to December December 31,
31, 1998 1999
----------- ------------
<S> <C> <C>
Historical:
Net loss.......................................... $(1,467,127) $(15,316,994)
=========== ============
Basic and diluted shares:
Weighted average shares of common stock
outstanding...................................... 2,137,407 2,491,392
Less weighted average shares subject to
repurchase....................................... 1,898,037 1,505,521
----------- ------------
Weighted average shares of common stock
outstanding used in computing basic and diluted
net per loss share............................... 239,370 985,871
=========== ============
Basic and diluted net loss per share................ $ (6.13) $ (15.54)
=========== ============
Pro forma (unaudited):
Net loss.......................................... $(15,316,994)
============
Weighted average shares of common stock
outstanding used in computing basic and diluted
net loss per share............................... 985,871
Adjustment to reflect the assumed conversion of
convertible preferred stock from the date of
issuance......................................... 11,673,976
------------
Weighted average shares used in computing pro
forma basic and diluted net loss per share....... 12,659,847
============
Pro forma basic and diluted net loss per share.... $ (1.21)
============
</TABLE>
If DigitalWork.com had reported net income, diluted net income per share
would have included the shares used in the computation of pro forma net loss
per share as well as the effect of approximately 3,140,000 and 3,228,878 common
shares related to outstanding options and warrants to purchase common stock not
included
F-10
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
above for the years ended December 31, 1998 and 1999, respectively. The common
equivalent shares from options and warrants would be determined on a weighted
average basis using the treasury stock method.
Start-Up Costs
In April 1998, the AICPA issued Statement of Position 98-5 (SOP 98-5),
"Reporting on the Costs of Start-Up Activities." This statement requires
companies to expense the costs of start-up activities and organization costs as
incurred. DigitalWork.com adopted SOP 98-5 on January 1, 1999, and there was no
material impact on the accompanying financial statements.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and hedging activities. SFAS
No. 133, which will be effective for DigitalWork.com for the fiscal year and
quarters beginning after June 15, 2000, requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. DigitalWork.com does not
expect the potential effect of adopting the provisions of SFAS No. 133 to have
a significant impact on its financial position, results of operations, and cash
flows.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31
------------------
1998 1999
------- ----------
<S> <C> <C>
Computer equipment and software....................... $72,021 $ 717,657
Office furniture, fixtures, and equipment............. 7,132 320,078
Leasehold improvements................................ -- 132,788
------- ----------
79,153 1,170,523
Less: Accumulated depreciation........................ 6,784 187,489
------- ----------
$72,369 $ 983,034
======= ==========
</TABLE>
As of December 31, 1999, property and equipment included amounts under
capital leases of $740,081, with related accumulated amortization of $139,964.
There is no property and equipment under capital leases as of December 31,
1998.
4. Convertible Promissory Notes Payable
In April 1999, DigitalWork.com issued $600,000 in convertible promissory
notes to investors, which bear interest at 7%. Interest was payable on demand
at any time on or after July 22, 1999. On May 17, 1999, the entire principal
balance of $600,000 was converted into 555,948 shares of Series C convertible
preferred stock.
In connection with the convertible promissory notes issued, DigitalWork.com
issued warrants to purchase 111,192 shares of series C preferred stock at an
exercise price of $1.08 per share. The warrants are exercisable
F-11
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
at any time prior to expiration and will expire five years from issuance.
DigitalWork.com allocated approximately $55,600 of the proceeds received from
the issuance of the promissory notes to the value of the warrants. The
principal amounts of the convertible promissory notes were reduced by the value
assigned to the warrants, and such amount was recognized as a non-cash charge
in the year ended December 31, 1999.
5. Stockholders' Equity
General
In September 1999, the Company's stockholders' approved certain
modifications to the Company's capital structure, including a four-for-one
stock split of the Company's common and preferred stock, and an increase in the
number of shares authorized for issuance. All share amounts in the financial
statements have been retroactively adjusted to reflect such split and increase
in shares authorized for issuance.
Stockholders' Receivable
Certain grants of options to employees to purchase common stock under
DigitalWork.com's 1998 Stock Plan were exercised in exchange for full recourse
notes receivable. In addition, DigitalWork.com issued shares of restricted
stock to certain members of management in exchange for full recourse notes
receivable. These notes receivable bear interest at a rate of approximately 6%
per year and interest payments are due annually on the anniversary date of the
notes. At December 31, 1999, notes receivable in exchange for exercises of
options and issuances of restricted stock totaled $813,500. The restricted
stock is subject to a right of repurchase that generally lapse over four years.
Additional stockholders' receivables of $5,173,750 at December 31, 1999 and
$30,000 at December 31, 1998 represent proceeds from convertible preferred
stock received in the subsequent year.
Convertible Preferred Stock
DigitalWork.com is authorized to issue 20,895,360 shares of convertible
preferred stock, designated in series. A summary of preferred stock is as
follows:
<TABLE>
<CAPTION>
Issued and
Outstanding Shares Liquidation
December 31, Preference at
Shares -------------------- December 31,
Designated 1998 1999 1999
---------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Series A.................... 1,866,672 1,866,672 1,866,672 $ 350,001
Series B.................... 2,374,000 2,374,000 2,374,000 2,374,000
Series C.................... 11,471,276 -- 11,471,276 12,388,978
Series D.................... 5,183,412 -- 4,359,305 36,443,790
--------- ---------- -----------
4,240,672 20,071,253 $51,556,769
========= ========== ===========
</TABLE>
Each share of convertible preferred stock is convertible, at the option of
the holder, into common stock on a 1-for-1 basis, subject to certain
adjustments for antidilution. Conversion is automatic upon the closing of an
initial public offering of common stock in which, with respect to the series A
and B convertible preferred stock, the offering price equals or exceeds $1.25
per share or upon the approval of two-thirds of the series A and B convertible
preferred stockholders, voting as a single class. Conversion will automatically
occur, with respect to the series C convertible preferred stock, upon the
closing of an initial public offering of common stock that
F-12
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
meets certain minimum requirements or upon the approval of two-thirds of the
series C convertible preferred stockholders. Conversion will automatically
occur, with respect to the series D convertible preferred stock, upon the
closing of an initial public offering of common stock that meets certain
minimum requirements or upon the approval of two-thirds of the series D
convertible preferred stockholders.
Holders of convertible preferred stock are entitled to one vote for each
share of common stock into which such shares are converted. Each of the
convertible preferred stock is entitled to receive, when and as declared by the
board of directors, noncumulative dividends at the annual rate of $0.015,
$0.08, $0.0875, and $0.6688 per share for series A, B, C, and D convertible
preferred stock, respectively, payable in preference and priority to any
payment of any dividend on common stock. As of December 31, 1999, no dividends
have been declared.
In the event of liquidation, the series C and D convertible preferred
stockholders would be entitled to a liquidation preference equal to $1.08 and
$8.36 per share, respectively, plus declared but unpaid dividends, and if
assets remain in the corporation, the series A and B convertible preferred
stockholders would be entitled to a liquidation preference equal to $0.1875 and
$1.00, respectively, plus declared but unpaid dividends. After the series A, B,
C, and D convertible preferred stockholders have received their liquidation
preference, the remaining assets of the corporation, if any, would be
distributed ratably amongst the common stockholders and the series C and D
convertible preferred stockholders unless the liquidation occurs after May 16,
2001 in which case the remaining assets would only be distributed amongst the
common stockholders.
At December 31, 1999, DigitalWork.com has reserved 124,000 shares of series
B convertible preferred stock, 111,192 shares of series C convertible preferred
stock, and 618,261 shares of series D convertible preferred stock for issuance
upon exercise of warrants outstanding.
Common Stock
At December 31, 1999, DigitalWork.com has reserved 20,071,253 shares of its
common stock for issuance upon conversion of the outstanding shares of its
convertible preferred stock, 853,453 shares of its common stock upon exercise
of warrants outstanding and 4,087,760 shares of its common stock for issuance
upon exercise of options outstanding and available under the 1998 Stock Plan.
DigitalWork.com issued 2,800,000 and 655,000 shares of its common stock to
its founders and management in May 1998 and October 1999, respectively. These
shares are subject to certain repurchase rights and lapse ratably over 48
months from the date of issuance. Within 90 days following a termination of
employment, DigitalWork.com may exercise the repurchase option by written
notice. On October 1, 1998, DigitalWork.com repurchased 900,000 shares of
common stock from one of the founders upon his termination. At December 31,
1998 and 1999, 1,603,125 and 1,715,833, respectively, shares of common stock
remain subject to repurchase rights.
1998 Stock Plan
During 1998, DigitalWork.com adopted the 1998 Stock Plan (the Plan). Under
the Plan, up to 5,457,560 shares of the DigitalWork.com's common stock may be
granted to employees and directors. Options are generally granted at an
exercise price which approximates 100% of the fair value on the date of the
grant, as determined by the board of directors. Options vest over a three or
four-year period and have a maximum term of 10 years.
F-13
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Options Price per Exercise
for Grant Outstanding Share Price
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Shares authorized.......... 4,000,000 -- $ -- $ --
Options granted............ (3,716,000) 3,716,000 $0.03-$0.35 $0.04
Options canceled........... 700,000 (700,000) $0.03 $0.03
---------- ---------- ----------- -----
Balances at December 31,
1998........................ 984,000 3,016,000 $0.03-$0.35 $0.04
Shares authorized.......... 1,457,560 -- -- --
Options granted............ (1,074,350) 1,074,350 $0.35-$2.40 $0.93
Options exercised.......... -- (1,369,800) $0.03-$0.35 $0.03
Options canceled........... 345,125 (345,125) $0.03-$1.80 $0.08
---------- ---------- ----------- -----
Balances at December 31,
1999........................ 1,712,335 2,375,425 $0.03-$2.40 $0.44
========== ========== =========== =====
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Life in Exercise Exercise
Prices Shares Years Price Shares Price
----------- --------- --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$0.03 1,170,000 8.3 $0.03 1,000 $0.03
$0.35-$0.45 545,900 9.0 $0.36 71,200 $0.35
$0.90-$1.20 556,225 9.7 $1.09 -- --
$1.80-$2.40 103,300 9.9 $2.16 -- --
--------- ------
$0.03-$2.40 2,375,425 8.9 $0.44 72,200 $0.35
========= ======
</TABLE>
Stock Based Compensation
DigitalWork.com has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its employee stock option plan because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (FAS 123), requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB Opinion
No. 25, when the exercise price of DigitalWork.com's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
In connection with its grants of options and issuance of restricted stock to
employees during the year ended December 31, 1999, DigitalWork.com recorded
deferred stock compensation of approximately $5,565,471 for the difference
between the exercise price of the option or issuance price of the restricted
stock at their respective dates of grant or issuance and what was considered to
be the fair values for accounting purposes of the shares of common stock
subject to options. These amounts are included as a reduction of stockholder's
equity and are being amortized on a graded vesting method. DigitalWork.com has
recognized deferred stock compensation expense of $700,957 for the year ended
December 31, 1999 included in non-cash charges in the statements of operations.
F-14
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Pro forma information regarding net loss is required by FAS 123 as if
DigitalWork.com had accounted for its stock-based awards to employees under the
fair value method using the Black-Scholes option pricing method. The Black-
Scholes model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock volatility. DigitalWork.com is a
nonpublic company and is permitted to use a near-zero volatility factor in its
assumptions when applying the Black-Scholes model. Since DigtalWork.com's
stock-based awards have characteristics significantly different from those of
traded options and since changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its stock-based awards. The fair value of DigitalWork.com's
stock-based awards to employees was estimated using input assumptions as
follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Risk-free interest rate....................................... 5.5% 5.5%
Expected dividend yield....................................... -- --
Expected life (in years)...................................... 8 8
Stock volatility.............................................. 0.0% 0.0%
</TABLE>
The weighted-average fair value of options granted and restricted stock
issued during the period from March 18, 1998 (inception) to December 31, 1998
and the year ended December 31, 1999, with an exercise price equal to the fair
value of DigitalWork.com's common stock on the date of grant was $0.01 and
$0.12, respectively. The weighted-average fair value of options granted and
restricted stock issued during the year ended December 31, 1999 with an
exercise price below the deemed fair value of DigitalWork.com's common stock on
the dates of grant was $3.96 and $5.04, respectively.
Had compensation cost for DigitalWork.com's stock option plan been
determined based on the fair value at the dates of grants in accordance with
FAS 123, the Company's net loss and per share data would have been as follows
on a pro forma basis:
<TABLE>
<CAPTION>
1998 1999
----------- -------------
<S> <C> <C>
Net loss.....................................
As reported................................ $(1,467,127) $ (15,316,994)
Pro forma.................................. $(1,475,106) $ (15,363,889)
Net loss per share basic and diluted:
As reported................................ $ (1.21)
Pro forma.................................. $ (1.21)
</TABLE>
For purposes of pro forma disclosure, the estimated fair value of the option
is amortized to expense over the options' vesting period. Future pro forma net
loss results may be materially different from actual future amounts reported.
Warrants
In November 1998, DigitalWork.com issued a warrant to a stockholder to
purchase 124,000 shares of series B convertible preferred stock at an exercise
price of $1.10 per share. The warrant was issued for business advisory services
and expires in November 2008. The estimated fair value of the warrant, as
calculated using the Black-Scholes method, totaled $83,080, and was included in
non-cash charges in the period ended December 31, 1998 as the warrant was
exercisable on the date of issuance.
In connection with the convertible promissory notes issued in April 1999,
warrants to purchase 111,192 shares of series C convertible preferred stock at
an exercise price of $1.08 per share were issued (see Note 4).
F-15
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
In December 1999, in connection with the issuance of series D convertible
preferred stock, DigitalWork.com issued a warrant to a stockholder to purchase
192,261 shares of series D convertible preferred stock at an exercise price of
$8.36 per share. The warrant was exercisable on the date of issuance and
expires on December 4, 2004.
In connection with a third-party agreement (see Note 6), DigitalWork.com
issued a warrant to purchase 150,000 shares of series D convertible preferred
stock at an exercise price of $8.36 per share, the fair value of the series D
convertible preferred stock at the date of the Agreement. This warrant expires
in December 2001. The fair value of the warrant, as calculated using the Black-
Scholes method, totaled $850,500 at December 31, 1999, and was included in non-
cash charges in DigitalWork.com's statement of operations as the warrant was
exercisable on the date of issuance.
In connection with a third-party agreement (see Note 9), DigitalWork.com
issued a warrant to purchase 276,000 shares of series D convertible preferred
stock at an exercise price of $8.36 per share, the fair value of the series D
convertible preferred stock at the date of the Agreement. This warrant expires
on the earlier of three years after the completion of an initial public
offering or December 2004. The fair value of the warrant, as calculated using
the Black-Scholes method, totaled $2 million at December 31, 1999, and was
included in non-cash charges in DigitalWork.com's statement of operations as
the warrant was exercisable on the date of issuance.
In applying the Black-Scholes method for the warrants issued under third
party agreements, DigitalWork.com used an expected dividend yield of zero, a
risk-free interest rate of 5% and a volatility factor of 135%. The lives used
to value these warrants was based on the term of the warrants.
In December 1999, in connection with the issuance of the convertible
preferred stock, the purchasers of series D convertible preferred stock were
issued warrants to purchase up to an aggregate of 10% of the number of common
stock to be issued in a initial public offering of DigitalWork.com's common
stock. These warrants are exercisable for one year subsequent to the initial
public offering at an exercise price equal to the initial public offering
price.
6. Commitments and Contingencies
Capital and Operating Leases
DigitalWork.com leases certain property and equipment under various
noncancelable operating and capital leases. These leases contain various terms
and provide for renewal at prevailing market rates.
Future minimum lease payments for noncancelable operating and capital leases
at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- ---------
<S> <C> <C>
Year ending December 31:
2000.............................................. $ 368,500 $ 401,245
2001.............................................. 374,600 274,895
2002.............................................. 353,300 7,177
2003.............................................. 363,800 --
2004.............................................. 375,900 --
---------- ---------
$1,836,100 683,317
==========
Less: Amounts representing interest................. (100,867)
---------
Capital lease obligations........................... 582,450
Less: Current portion............................... 319,160
---------
$ 263,290
=========
</TABLE>
F-16
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Total rent expense was approximately $36,000 for the period from March 18,
1998 to December 31, 1998 and $191,000 for the year ended December 31, 1999.
7. License Agreement
In December 1999, DigitalWork.com entered into an agreement with Dell
Computer Corporation (Dell), whereby Dell will offer many of its business
services to Dell's customers and prospects. Pursuant to the terms of the
agreement, DigitalWork.com will share with Dell the e-services revenue
generated by Dell users, and DigitalWork.com will pay a fee to Dell for each
registered user and e-services customer generated through this relationship. In
addition, DigitalWork.com will pay Dell a slotting fee 12 months after the
launch of the site. If Dell provides DigitalWork.com with less than a minimum
number of paying customers during the first 12 months after launch of the site,
Dell will refund a portion of the fee. DigitalWork.com included this fee in
accrued strategic partner fees and will amortize the related prepaid expense
over the two-year term of the agreement, and include it as a marketing and
strategic alliance expense. In connection with this agreement, DigitalWork.com
also issued a warrant to Dell to purchase shares of its series D convertible
preferred stock (see Note 5).
8. Income Taxes
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the U.S. federal statutory rate
of 34% is primarily due to net operating losses not being benefited. For that
reason, there is no provision for income taxes for the period from March 18,
1998 (inception) to December 31, 1998 and year ended December 31, 1999.
At December 31, 1999, DigitalWork.com had net operating loss carryforwards
of approximately $12.9 million, which may be used to offset future taxable
income. The net operating loss carryforwards expire beginning in 2013, if not
used. Should certain changes in DigitalWork.com's ownership occur, there could
be a limitation on the utilization of its net operating losses.
DigitalWork.com's net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
Net operating loss carryforwards.................. $ 551,000 $ 5,184,000
Other............................................. 2,000 36,000
Fixed assets...................................... (1,000) (16,000)
--------- -----------
Net deferred tax assets........................... 552,000 5,204,000
Less: Valuation allowance......................... (552,000) (5,204,000)
========= ===========
$ -- $ --
========= ===========
</TABLE>
DigitalWork.com has recorded a 100% valuation allowance equal to the net
deferred tax asset balance based upon management's determination that the
recognition criteria for realization have not been met.
9. Subsequent Events
In January 2000, DigitalWork.com entered into an agreement with America
Online, Inc. (AOL) to provide sales and marketing services on a customized co-
branded site which is accessible throughout certain of AOL's properties. As
part of this agreement, DigitalWork.com will receive all of the e-services
revenue generated from the purchase of its services by AOL's users.
DigitalWork.com paid AOL a fee to enter into this agreement. It is amortizing
the fee it paid to AOL over the 18-month term of the agreement, and including
it as a marketing and strategic alliance expense. In connection with this
agreement, DigitalWork.com also issued a warrant to AOL to purchase shares of
its series D convertible preferred stock (see Note 5).
F-17
<PAGE>
DESCRIPTION OF ARTWORK ON INSIDE BACK COVER
Artwork with the work "network" is treated as a subtle background shadow
with a screen shot and copy overprinting. There is a black rounded bar at the
top of the page that contains the copy: "The DigitalWork.com Solution." A copy
block below this bar and above the screen shot reads: "We are a leading
provider of Web-based business services to the small business market. We have
developed a business-to-business services platform that connects a network of
service suppliers, business portals and small business buyers. Our e-services
help small businesses grow by simplifying the execution of over 30 critical
business functions online, such as launching an integrated marketing campaign,
recruiting new employees and generating sales leads."
<PAGE>
Shares
[Digital Work.com Logo]
Common Stock
------------------
PROSPECTUS
, 2000
------------------
Lehman Brothers
U.S. Bancorp Piper Jaffray
Prudential Volpe Technology
a unit of Prudential Securities
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Registrant in connection
with the sale of shares of common stock being registered. All amounts
are estimates except the SEC registration fee, the NASD filing fee and the
Nasdaq National Market Application and Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $23,760
NASD Filing Fee.................................................. 9,500
NASDAQ National Market Application and Listing Fee...............
Blue Sky Fees and Expenses.......................................
Printing and Engraving Expenses..................................
Legal Fees and Expenses..........................................
Accounting Fees and Expenses.....................................
Director and Officer Securities Act Liability Insurance..........
Transfer Agent and Registrar Fees................................
Miscellaneous Expenses...........................................
-------
Total........................................................ $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
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").
As permitted by the DGCL, Article Sixth of the Registrant's amended and
restated certificate of incorporation provides that (i) the Registrant is
required to indemnify its directors and officers to the fullest extent
permitted by the DGCL, subject to certain very limited exceptions; (ii) the
Registrant is permitted to indemnify its other employees to the extent that it
indemnifies its officers and directors, unless otherwise required by law, its
certificate of incorporation, its by-laws or agreements; (iii) the Registrant
is required to advance expenses, as incurred, to its directors and officers in
connection with a legal proceeding to the fullest extent permitted by the DGCL,
subject to certain very limited exceptions; and (iv) the rights conferred in
the by-laws are not exclusive. As permitted by the DGCL, the Registrant's
amended and restated certificate of incorporation includes a provision that
eliminates the personal inability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders; (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law; (iii) under Section 174 of the DGCL (regarding
payments of dividends; stock purchases or redemptions which are unlawful); or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision in the amended and restated certificate of
incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Registrant for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment
of dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
II-1
<PAGE>
The Registrant has entered into indemnification agreements with its officers
and directors. These Directorship Agreements provide that the directors will be
indemnified to the fullest extent permitted by law against all expenses
(including attorneys' fees), judgments, fines, amounts paid or incurred by them
for settlement in any action or proceeding, including any derivative action, on
account of their service as directors of the Registrant or of any subsidiary of
the Registrant or of any other company or enterprise in which they are serving
at the request of the Registrant. No indemnity will be provided to any director
under these agreements on account of liability for any breach of the director's
duty of loyalty to the Registrant, such subsidiaries, stockholders or
enterprises, any act or omission not in good faith or which involved
intentional misconduct or a knowing violation of laws, or any transaction from
which the director derived an improper personal benefit. In addition, no
indemnification will be provided for which payment is made to or on behalf of
the director under any insurance policy, except with respect to any excess
amount to which the director is entitled under the Directorship Agreement
beyond the amount of payment under such insurance policy, if a court having
jurisdiction in the matter finally determines that such indemnification is not
lawful under any applicable statute or public policy, or in connection with any
proceeding initiated by the director, or any proceeding by the director against
the Registrant or its directors, officers, employees or other persons entitled
to be indemnified by the Registrant, unless (1) the Registrant is expressly
required by law to make the indemnification, (2) the proceeding was authorized
by the board of directors of the Registrant or (3) the director initiated the
proceeding pursuant to the Directorship Agreement and the director is
successful in whole or in part in the proceeding.
Under Article VI of the Registrant's by-laws, the Registrant is authorized
to, and has purchased, insurance covering the Registrant's directors and
officers against liability asserted against them in their capacity as such.
Reference is made to the Underwriting Agreement contained in Exhibit 1.1
hereto, which contains provisions indemnifying officers and directors of the
Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our inception in March 1998, we have sold and issued the following
unregistered securities:
On May 14, 1998, we issued an aggregate of 2,800,000 shares of common stock
at $0.025 per share to our founders, Robert A. Schultz, Craig A. Terrill and
Christopher E. Getner, for an aggregate purchase price of $70,000. No
underwriter was involved in this issuance and no commissions were paid. We
issued these shares to our founders in reliance upon Section 4(2) of the
Securities Act.
Also during May 1998, we issued 1,866,672 shares of Series A convertible
preferred at $0.1875 per share of our capital stock, for an aggregate purchase
price of approximately $350,000 to seven individual and entity accredited
investors. No underwriter was involved in the offering and no commissions were
paid. We issued these shares in reliance upon an exemption from registration
under Rule 506 of Regulation D.
Additionally, on May 2, 1998, we issued to Invest Linc Consulting Corp.: (i)
133,333 shares of Series A convertible preferred in exchange for $1,000 and
certain advisory services and (ii) 95,240 shares of Common Stock in exchange
for $200 and certain advisory services. No underwriter was involved in this
offering and no commissions were paid. We issued these shares to Invest Linc in
reliance upon Section 4(2) of the Securities Act.
During October 1998, we issued 2,374,000 shares of Series B convertible
preferred at $1.00 per share for an aggregate purchase price of approximately
$2.4 million to 25 individual and entity accredited investors. No underwriter
was involved in the offering and no commissions were paid. We issued these
shares in reliance upon an exemption from registration under Rule 506 of
Regulation D.
In November 1998, we issued a warrant to Edward C. Coppola to purchase up to
124,000 shares of our common stock at $1.10 per share. This warrant will expire
in November 2008. In April 1999, we issued Mr. Coppola and one of his
affiliates warrants to purchase up to 66,715 shares of our Series C preferred
stock at
II-2
<PAGE>
$1.08 per share. These warrants expire in April 2004. We issued these warrants
to Mr. Coppola and his affiliate in reliance upon Section 4(2) of the
Securities Act.
During May 1999, we issued 11,471,276 shares of Series C convertible
preferred stock at $1.08 per share for an aggregate purchase price of
approximately $12.4 million to 41 individual and entity accredited investors.
No underwriter was involved in the offering and no commissions were paid. We
issued these shares in reliance upon an exemption from registration under Rule
506 of Regulation D.
During October 1999 we issued an aggregate of 655,000 shares of common stock
to Robert A. Schultz, Craig A. Terrill and David P. Aniol for aggregate
consideration of $786,000 or $1.20 per share. We issued these shares to these
officers in reliance upon an exemption from registration under Rule 701 of the
Securities Act.
During December 1999, we issued 4,359,305 shares of Series D convertible
preferred stock for approximately $36.4 million at $8.36 per share to 51
accredited entities and individuals. In connection with this offering, we
issued to each of the 61 accredited entities and individuals warrants to
purchase shares of our common stock. The warrants are exercisable from the date
the registration statement, of which this prospectus is a part, is declared
effective by the SEC to the one year anniversary of this effective date. Each
holder of the warrant may purchase a number of shares, based upon its pro rata
holdings of our Series D Convertible Preferred Stock, at the same price as the
offering price per share of this offering. No underwriter was involved in the
offering and no commissions were paid. We issued these shares and warrants in
reliance upon an exemption from registration under Rule 506 of Regulation D.
During December 1999, we issued to America Online, Inc. a warrant to
purchase up to 276,000 shares of our Series D convertible preferred stock at an
exercise price of $8.36 per share. This warrant is exercisable until three
years from the effectiveness of this registration statement. No underwriter was
involved in the offering and no commissions were paid. We issued these warrants
to America Online, Inc., an accredited investor, in reliance upon an exemption
from registration under Rule 506 of Regulation D.
During December 1999, we issued a warrant to Dell USA, L.P. to purchase
150,000 shares of our common stock. This warrant is exercisable until December
2001, at a per share exercise price of $8.36.
During December 1999, we issued to each of Attractor QP LP, Attractor LP,
Attractor Ventures LLC, Attractor Institutional LP, and Attractor Offshore Ltd.
warrants to purchase, in the aggregate, 192,261 shares of our Series D
Convertible Preferred Stock. These warrants are exercisable until December 2,
2004 at a per share exercise price of $8.36.
Since our inception and until December 31, 1999, we have granted options
under our 1998 stock option plan to acquire an aggregate of 3,745,225 shares of
common stock. The exercise prices of those options range from $0.625 to $0.35
per share for options issued in 1998 and $0.35 to $2.40 per share for options
issued in 1999. We have issued these options to our officers in reliance upon
an exemption from registration under Rule 701 and Section 4(2) of the
Securities Act.
The factors which made such exemptions available include the accreditation
and sophistication of the offerees and purchasers, their access to our officers
and directors and material information about us, the disclosures which were
actually made to them and the absence of any general solicitation or
advertising. In addition, the investors represented their intention to acquire
our securities for investment purposes and not with a view to, or for sale in
connection with, any distribution. Furthermore, legends were affixed to share
certificates or other instruments indicating that such securities are
"restricted securities." Where appropriate, share numbers and per share
consideration for common stock have been adjusted for the 4-for-1 stock split
in October 1999.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation
of Registrant
3.2 Form of By-Laws of Registrant
4.1 Specimen Certificate for Registrant's common stock
4.2 Amended and Restated Registration Rights Agreement
5.1* Opinion of Freeborn & Peters
10.1 Form of DigitalWork.com Amended and Restated 1998 Stock
Option Plan
10.2 Form of DigitalWork.com 2000 Employee Stock Purchase Plan
10.3 Form of Employee Stock Option Agreement for the Amended
and Restated 1998 Stock Option Plan
10.4* Form of DigitalWork.com, Inc. Stock Subscription warrant
issued to affiliates of Attractor Capital Management
10.5 Form of DigitalWork.com, Inc. Stock Subscription Warrant
issued to Series D Participants dated December 2, 1999
10.6* DigitalWork.com, Inc. Stock Subscription Warrant issued to
America Online, Inc. dated December 27, 1999
10.7* DigitalWork.com, Inc. Stock Subscription Warrant issued to
Dell USA, L.P. dated December 22, 1999
10.8* DigitalWork.com, Inc. Stock Subscription Warrant issued to
Edward C. Coppola, Jr. dated November , 1998;
DigitalWork.com, Inc. Stock Subscription Warrant issued to
Edward C. Coppola, Jr. dated April , 1999.
10.9 Form of DigitalWork.com, Inc. Employment Confidential
Information, Invention Assignment and Arbitration
Agreement
10.10* Form of Employment Agreement between Registrant and Robert
A. Schultz
10.11* Form of Employment Agreement between Registrant and Craig
A. Terrill
10.12* Form of Employment Agreement between Registrant and David
P. Aniol
10.13* Form of Employment Agreement between Registrant and John
Banta
10.14* Form of Employment Agreement between Registrant and Randy
Grudzinski
10.15* Form of Employment Agreement between Registrant and Doug
Mulderink
10.16* Form of Employment Agreement between Registrant and Brian
Petula
10.17* Form of Employment Agreement between Registrant and Loreen
Sieroslawski
10.18 Form of Directorship Indemnification Agreement
10.19 Lease for 230 West Monroe between DigitalWork, Inc., TIAA
Realty, Inc., First Amendment to Lease by and between
DigitalWork, Inc. and TIAA Realty, Inc., and Second
Amendment to Lease by and between DigitalWork, Inc. and
TIAA Realty, Inc.
10.20** Confidential Interactive Marketing Agreement by and
between the Registrant and America Online, Inc. dated as
of January 1, 2000.
10.21** Master Services Agreement by and between the Registrant
and Dell Computer Corporation entered into as of December
22, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
23.1 Consent of Ernst & Young LLP
23.2* Consent of Freeborn & Peters (contained in Exhibit 5.1)
24.1 Power of Attorney (See page II-6)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Subject to a confidential treatment request.
(B) Financial Statement Schedules:
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the combined 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 Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to 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 SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed 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 purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on February 1, 2000.
DigitalWork.Com, Inc.
/s/ Robert A. Schultz
By: _________________________________
Robert A. Schultz,
Chairman of the Board of Directors
and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Robert A. Schultz, Craig A. Terrill and David
Aniol, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof. This power of attorney may be executed
in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 1, 2000:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Robert A. Schultz Chairman of the Board of Directors and
___________________________________________ Chief Executive Officer (Principal
Robert A. Schultz Executive Officer)
/s/ Craig A. Terrill President and Chief Operating Officer
___________________________________________
Craig A. Terrill
/s/ David Aniol Chief Financial Officer (Principal
___________________________________________ Financial and Accounting Officer)
David Aniol
/s/ Raj Atluru Director
___________________________________________
Raj Atluru
/s/ Warren Packard Director
___________________________________________
Warren Packard
/s/ Marc Benioff Director
___________________________________________
Marc Benioff
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of
Registrant
3.2 Form of By-Laws of Registrant
4.1 Specimen Certificate for Registrant's common stock
4.2 Amended and Restated Registration Rights Agreement among the
Registrant and certain holders of the Registrant's securities
5.1* Opinion of Freeborn & Peters
10.1 Form of DigitalWork.com Amended and Restated 1998 Stock Option
Plan
10.2 Form of DigitalWork.com 2000 Employee Stock Purchase Plan
10.3 Form of Employee Stock Option Agreement for the Amended and
Restated 1998 Stock Option Plan
10.4* Form of DigitalWork.com, Inc. Stock Subscription warrant
issued to affiliates of Attractor Capital Management
10.5 Form of DigitalWork.com, Inc. Stock Subscription Warrant
issued to Series D Participants dated December 2, 1999
10.6* DigitalWork.com, Inc. Stock Subscription Warrant issued to
America Online, Inc. dated December 27, 1999
10.7* DigitalWork.com, Inc. Stock Subscription Warrant issued to
Dell USA, L.P. dated December 22, 1999
10.8* DigitalWork.com, Inc. Stock Subscription Warrant issued to
Edward C. Coppola, Jr. dated November , 1998;
DigitalWork.com, Inc. Stock Subscription warrant issued to
Edward C. Coppola, Jr. dated April , 1999.
10.9 Form of the Registrant's Employment Confidential Information,
Invention Assignment and Arbitration Agreement
10.10* Form of Employment Agreement between Registrant and Robert A.
Schultz
10.11* Form of Employment Agreement between Registrant and Craig A.
Terrill
10.12* Form of Employment Agreement between Registrant and David P.
Aniol
10.13* Form of Employment Agreement between Registrant and John Banta
10.14* Form of Employment Agreement between Registrant and Randy
Grudzinski
10.15* Form of Employment Agreement between Registrant and Doug
Mulderink
10.16* Form of Employment Agreement between Registrant and Brian
Petula
10.17* Form of Employment Agreement between Registrant and Loreen
Sieroslawski
10.18 Form of Directorship Indemnification Agreement
10.19 Lease for 230 West Monroe between DigitalWork, Inc., TIAA
Realty, Inc. , First Amendment to Lease by and between
DigitalWork, Inc. and TIAA Realty, Inc., and Second Amendment
to Lease by and between DigitalWork, Inc. and TIAA Realty,
Inc.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
10.20** Confidential Interactive Marketing Agreement by and between
the Registrant and America Online, Inc. dated as of January 1,
2000.
10.21** Master Services Agreement by and between the Registrant and
Dell Computer Corporation entered into as of December 22,
1999.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Freeborn & Peters (contained in Exhibit 5.1)
24.1 Power of Attorney (See page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Subject to a confidential treatment request.
II-8
<PAGE>
Exhibit 3.1
- -----------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DIGITAL WORK.COM, INC.
The name of the corporation is DigitalWork.com, Inc, and the original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on _____, ___, and was amended on each of
____________ and _________. The original Certificate of Incorporation of the
corporation, as amended, is hereby amended and restated to read in its entirety
as follows:
"FIRST: The name of the corporation is DigitalWork.com, Inc.
SECOND: The registered office of the corporation in the State of
Delaware is located at No. 306 South State Street, in the City of Dover,
County of Kent; and the name of its registered agent at such address is
United States Corporation Company.
THIRD: The purposes of the corporation are to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (1) The total number of shares of stock which the Corporation
shall have authority to issue is ____ million (____________), consisting of
___ million (___________) shares of Common Stock, par value $.001 per share
("Common Stock") and ____ million (__,000,000) of Preferred Stock, par
value $.001 per share ("Preferred Stock").
(2) Shares of Preferred Stock may be issued in one or more series,
from time to time, with each such series to consist of such number of
shares and to have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating,
optional or special rights, and the qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors
of the Corporation (the "Board of Directors"), and the Board of Directors
is hereby expressly vested with authority, to the full extent no or
hereafter provided by law, to adopt any such resolution or resolutions.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
1
<PAGE>
(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(c) whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(e) whether or not the shares of that series shall be
redeemable, and if, so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, and the relative rights of priority, if any, of payment
of shares of that series; and
(h) any other relative rights, preferences and limitations of
that series.
(3) (a) Each holder of Common Stock, as such, shall be entitled to
one vote for each share of Common Stock held of record by such holder on
all matters on which stockholders generally are entitled to vote; provided,
however, that, except as otherwise required by law, holders of Common
Stock, as such, shall not be entitled to vote on any amendment to this
Restated Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock) that relates solely
to the terms of one or more outstanding series of Preferred Stock if the
holders of such affected series are entitled, either separately or together
with the holders of one or more other such series, to vote thereon pursuant
to this Restated Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock) or pursuant to the
General Corporation Law of the State of Delaware.
2
<PAGE>
(b) Except as otherwise required by law, holders of a series of
Preferred Stock, as such, shall be entitled only to such voting rights, if
any, as shall expressly be granted thereto by this Restated Certificate of
Incorporation (including any certificate of designations relating to such
series).
(c) Subject to applicable law and the rights, if any, of the holders
of any outstanding series of Preferred Stock or any class or series of
stock having a preference over or the right to participate with the Common
Stock with respect to the payment of dividends, dividends may be declared
and paid on the Common Stock at such times and in such amounts as the Board
of Directors in its discretion shall determine.
(d) Upon the dissolution, liquidation or winding up of the
corporation, subject to the rights, if any, of the holders of any
outstanding series of Preferred Stock or any class or series of stock
having a preference over or the right to participate with the Common Stock
with respect to the distribution of assets of the corporation upon such
dissolution, liquidation or winding up of the corporation, the holders of
the Common Stock, as such, shall be entitled to receive the assets of the
corporation available for distribution to its stockholders ratably in
proportion to the number of shares held by them.
FIFTH: The Board of Directors shall be authorized to make, amend,
alter, change, add to or repeal the By-Laws of the corporation in any
manner not inconsistent with the laws of the State of Delaware, subject to
the power of the stockholders to amend, alter, change, add to or repeal the
By-Laws made by the Board of Directors. Notwithstanding anything contained
in this Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80 percent in voting power of
all the shares of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required
in order for the stockholders to alter, amend or repeal any provision of
the By-Laws which is to the same effect as Article Fifth, Article Seventh,
and Article Eighth of this Restated Certificate of Incorporation or to
adopt any provision inconsistent therewith.
SIXTH: (1) The corporation may indemnify to the fullest extent
permitted by Delaware law as the same exists or as may hereafter be amended
any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that the person, or such person's testator or intestate
is or was a director, officer or employee of the corporation or any
predecessor of the corporation or serves of served at any other enterprise
as a director, officer or employee at the request of the corporation or any
predecessor to the corporation. The rights conferred on any person by this
Article 6 Subsection (1) shall not be exclusive of any other rights that
such person may have or hereafter acquire by statute, provision of the By-
Laws, agreement, vote of stockholders or disinterested directors or
otherwise,
3
<PAGE>
either as to action in such person's official capacity or as to action in
any other capacity while holding office.
(2) To the fullest extent permitted by Delaware law as the same
exists of as may hereafter be amended, a director of the corporation
shall not be personally liable to the corporation or its stockholders
for monetary damages for a breach of fiduciary duty as director.
(3) Neither any amendment nor repeal of this Article Sixth, nor
the adoption of any provision of the corporation's Certificate of
Incorporation inconsistent with this Article Sixth, shall eliminate or
reduce the effect of this Article Sixth, in respect of any matter
occurring, or any action or proceeding accruing or arising or that,
but for this Article Sixth, would accrue or arise, out of an alleged
act or omission to act or breach of fiduciary duty occurring prior to
such amendment, repeal or adoption of an inconsistent provision.
SEVENTH: (1) The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors consisting of not
less than 3 directors nor more than 9 directors, the exact number of
directors to be determined from time to time by resolution adopted by
affirmative vote of a majority of the Board of Directors in a manner set
forth in the By-Laws of the corporation. On the effective date of the
Registration Statement of the Corporation [to be] filed with the Securities
and Exchange Commission, the directors shall be divided into three classes
designated Class I, Class II and Class III. Each class shall consist, as
nearly as possible, of one-third of the total number of directors
constituting the entire Board of Directors. Class I directors shall be
originally elected for a term expiring at the 2001 annual meeting of
stockholders, Class II directors shall be originally elected for a term
expiring at the 2002 succeeding annual meeting of stockholders, and Class
III directors shall be originally elected for a term expiring 2003
succeeding annual meeting of stockholders. At each succeeding annual
meeting of stockholders following 2001, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
term expiring at the third succeeding annual meeting. If the number of
directors is changed, any increase or decrease shall be apportioned among
the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected
to fill a newly created directorship resulting from an increase in such
class shall hold office for a term that shall coincide with the remaining
term of that class, but in no case shall a decrease in the number of
directors remove or shorten the term of any incumbent director. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification
or removal from office. Any newly created directorship on the Board of
Directors that results from an increase in the number of directors and any
vacancy occurring in the Board of Directors shall be filled only by a
majority of the directors then in
4
<PAGE>
office, although less than a quorum, or by a sole remaining director. If
any applicable provision of the General Corporation Law of the State of
Delaware expressly confers power on stockholders to fill such a
directorship at a special meeting of stockholders, such a directorship may
be filled at such meeting only by the affirmative vote of at least 80
percent of the voting power of all shares of the corporation entitled to
vote generally in the election of directors, voting as a single class. Any
director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor. Directors may be removed only for cause, and only by the
affirmative vote of at least 80 percent in voting power of all shares of
the corporation entitled to vote generally in the election of directors,
voting as a single class.
(2) Notwithstanding the foregoing, whenever the holders of any one or
more series of Preferred Stock issued by the corporation shall have the
right, voting separately as a series or separately as a class with one or
more such other series, to elect directors at an annual or special meeting
of stockholders, the election, term of office, removal, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation (including any
certificate of designations relating to any series of Preferred Stock)
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article Seventh unless expressly provided by such
terms.
EIGHTH: Any action required or permitted to be taken by the holders
of the Common Stock of the corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing by such holders. Except as otherwise required by law
and subject to the rights of the holders of any series of Preferred Stock
special meetings of stockholders of the corporation may be called only by
the Chief Executive Officer of the corporation or by the Board of Directors
pursuant to a resolution approved by the Board of Directors.
NINTH: The Corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws
of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors
or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted
subject to the rights reserved in this article; provided, however, that the
affirmative vote of 80% of the voting power of the capital stock of the
Corporation entitled to vote thereon shall be required to amend, alter or
repeal, or adopt any provision inconsistent with, whether by amendment,
merger or otherwise, the provisions of Articles Sixth, Seventh and Eight."
5
<PAGE>
DigitalWork.com, Inc. does hereby further certify that this Restated
Certificate of Incorporation was duly adopted by the Board of Directors and by
unanimous written consent of the stockholders in accordance with the provisions
of Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, DIGITALWORK, INC. has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Robert A. Schultz, its
Chairman, of the Board of Directors and Chief Executive Officer, this ____ day
of January, 2000
DIGITALWORK.COM, INC.
By:____________________________
Name: Robert A. Schultz
Title: Chairman, of the Board of Directors and
Chief Executive Officer
6
<PAGE>
Exhibit 3.2
- -----------
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
DIGITALWORK.COM, INC.,
A DELAWARE CORPORATION
<PAGE>
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the Certificate
of Incorporation (the "Certificate of Incorporation"), of the corporation.
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 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
(a) The annual meeting of stockholders 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 stockholders shall be held on the third
Thursday in May of each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the annual meeting shall be held at the same time and place on the
next succeeding full business day. At the annual meeting, directors shall be
elected, and any other proper business may be transacted.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) 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. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have 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 120 calendar days
in advance of the date specified in the corporation's proxy statement released
to stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than 30 days from the date contemplated at
<PAGE>
the time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received a reasonable time before the solicitation is made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, 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 to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his or her capacity as a
proponent of a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, a stockholder must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these By-Laws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he or she should so determine, he or she shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
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 direction 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 paragraph (c). 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 in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residential address of such person, (B) the principal occupation or employment
of such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are
being made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this Section 2.2. At the request of the board of directors, any person nominated
by a stockholder 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 that pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and
2
<PAGE>
declare at the meeting that a nomination was not made in accordance with the
procedures prescribed by these By-Laws, and if he or she should so determine, he
or she shall so declare at the meeting, and the defective nomination shall be
disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors pursuant to a resolution duly adopted by the Board of
Directors or the chief executive officer, and such special meetings may not be
called by any other person or persons.
If a special meeting is called by the chief executive officer, 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 of directors and the secretary of the corporation. No
business may be transacted at such special meeting otherwise than specified in
such notice. The secretary shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.5
and 2.6, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than 10 nor more than 60 days after the
receipt of the request. If the notice is not given within 20 days after the
receipt of the request, the chief executive officer 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 stockholders may be
held when called by action of the board of directors.
2.4 ORGANIZATION
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his or her absence by the vice chairman of the board, if
any, or in his or her absence by the chief executive officer, if any, or in his
or her absence by the president, if any, or in his or her absence a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his or her absence the chairman of the meeting may appoint any person to act
as secretary of the meeting.
2.5 NOTICE OF STOCKHOLDERS' MEETINGS
Except as set forth in Section 2.3, all notices of meetings of stockholders
shall be sent or otherwise given in accordance with Section 2.6 of these By-Laws
not less than 10 nor more than 60 days before the date of the meeting. The
notice shall specify the place, date, and hour of the meeting and (i) in the
case of a special meeting, the general nature of the business to be transacted
(no business other than that specified in the notice may be transacted) or (ii)
in the case of the annual meeting, those matters which the board of directors,
at the time of giving the notice, intends to present for action by the
stockholders (but 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.
3
<PAGE>
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder 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 stockholder 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.
An affidavit of the mailing or other means of giving any notice of any
stockholders' 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.
2.7 QUORUM
The presence in person or by proxy of the holders of a majority of the
voting power of the shares entitled to vote thereat constitutes a quorum for the
transaction of business at all meetings of stockholders; provided, however, that
in the case of any vote to be taken by classes, the holders of a majority of the
votes entitled to be cast by the stockholders of a particular class shall
constitute a quorum for the transaction of business by such class. The
stockholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the voting
power of the shares required to constitute a quorum.
2.8 ADJOURNED MEETING; NOTICE
Any stockholders' 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
voting power 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 2.7 of these By-Laws.
When any meeting of stockholders, 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 30 days from the date set forth the original
meeting, then notice of the adjourned meeting shall be given. Notice of any such
adjourned meeting shall be given to each stockholder of record entitled to vote
at the adjourned meeting in accordance with the provisions of Sections 2.5 and
2.6 of these By-Laws. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
4
<PAGE>
2.9 VOTING
Voting at any meeting of stockholders need not be by ballot, unless
otherwise provided in the Certificate of Incorporation.
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these By-Laws,
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, and to voting trusts and other voting agreements).
Each stockholder shall be entitled to that number of votes for each share
held as is set forth in the Certificate of Incorporation or in the resolution or
resolutions adopted by the board of directors providing for the issuance of such
stock, except as may otherwise be required by law.
Any stockholder 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 stockholder fails to specify the number of shares which the
stockholder is voting affirmatively, it will be conclusively presumed that the
stockholder's approving vote is with respect to all shares which the stockholder
is entitled to vote.
If a quorum is present, the affirmative vote of at least a majority of the
voting power of the shares represented, in person or by proxy, and voting at a
duly held meeting and authorized to vote on the subject matter shall be the act
of the stockholders, unless the vote of a greater number or a vote by classes is
required by law or by the Certificate of Incorporation.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions at any meeting of stockholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. 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 law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
5
<PAGE>
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders 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 60 days nor less than 10 days before the date of
any such meeting nor more than 60 days before any such action without a meeting,
and in such event only stockholders 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.
If the board of directors does not so fix a record date, the record for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the business day preceding the day on which the meeting is held. The record
date for any other purpose shall be as provided in Article VIII of these By-
Laws.
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, 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. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A stockholder may revoke any proxy that is not irrevocable by attending
the meeting and voting in person or by filing an instrument in writing revoking
the proxy or another duly executed proxy bearing a later date with the secretary
of the corporation.
2.13 INSPECTORS OF ELECTION
Before any meeting of stockholders, 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 stockholder or a stockholder's proxy shall, appoint an
inspector or inspectors of election to act at the meeting. The number of
inspectors shall be either one or three. If inspectors are appointed at a
meeting pursuant to the request of one or more stockholders or proxies, then the
holders of a majority of the voting power of shares or their proxies present at
the meeting shall determine whether one or three 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 stockholder or
a stockholder's proxy shall, appoint a person to fill that vacancy.
6
<PAGE>
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 stockholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the Certificate of Incorporation or these By-Laws 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 AND TERM OF OFFICE
The authorized number and term of directors shall be as set forth in the
Certificate of Incorporation.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires. If for any
cause, the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these By-Laws.
7
<PAGE>
3.3 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman
of the board, the chief executive officer, 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.
Unless otherwise provided in the Certificate of Incorporation or these By-
Laws, 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 of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the voting power of 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 written consent of a
majority of the voting power of shares entitled to vote thereon. Each director
so elected shall hold office until the next annual meeting of the stockholders
and until a successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these By-
Laws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors to be elected by all of the
stockholders entitled to vote, voting 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 the manner
prescribed by the provisions of the Certificate of Incorporation or these By-
Laws, 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 10% of the total number of the then outstanding shares 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
8
<PAGE>
aforesaid, which election shall be governed by the provisions of Section 211 of
the General Corporation Law of Delaware so far as applicable.
3.4 REMOVAL
Subject to any limitations imposed by law, and unless otherwise provided in
the Certificate of Incorporation the board of directors, or any individual
director, may be removed from office at any time by the affirmative vote of the
holders of at least a majority of the voting power of the then outstanding
shares of the capital stock of the corporation entitled to vote at an election
of directors.
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 Delaware that has been designated from time to time by
resolution of the board of directors. 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 of directors may be held at any place
within or outside the State of Delaware 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 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting, and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting so long as a quorum
is present at the first meeting of such newly elected board of directors. In the
event of the failure of the stockholders to fix the time or place of such first
meeting of the newly elected board of directors, or in the event such meeting is
not held at the time and place so fixed by the stockholders, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the board of directors, or as shall
be specified in a written waiver signed by all of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if
the dates of such meetings are fixed by the board of directors.
9
<PAGE>
3.8 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, or in the absence of the
chairman of the board by the chief executive officer or by a majority of the
directors then in office.
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 the 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 seven days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 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 of the meeting. In
addition, if the meeting is to be held at the principal executive office of the
corporation, the notice need not specify the place of the meeting.
3.9 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 3.11
of these By-Laws. 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 the
Certificate of Incorporation and 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.
3.10 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. 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.
3.11 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT
10
<PAGE>
Notice of the time and place of holding an adjourned meeting need not be
given if announced at the meeting at which the adjournment is taken, unless the
meeting is adjourned for more than 24 hours. If the meeting is adjourned for
more than 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 3.8 of these By-Laws, to the directors who were not present at the
time of the adjournment.
3.13 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 of directors
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.
3.14 ORGANIZATION
Meetings of the board of directors shall be presided over by the chairman
of the board, if any, or in his or her absence by the vice chairman of the
board, if any, or in his or her absence by the chief executive officer, or in
their absence by a chairman chosen at the meeting. The secretary shall act as
secretary of the meeting, but in his or her absence the chairman of the meeting
may appoint any person to act as secretary of the meeting.
3.15 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 3.15 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.
3.16 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 contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
11
<PAGE>
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 or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one 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, 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 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), (ii) adopt an agreement of merger or consolidation under Sections
251, 252, 255, 256, 257, 258, 263 or 264 of the General Corporation Law of
Delaware, (iii) recommend to the 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 By-Laws of the corporation; and, unless the board
resolution establishing the committee, the By-Laws 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 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 By-Laws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without meeting), with such changes in the context of those By-Laws
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
12
<PAGE>
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 By-
Laws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
The corporation shall have such officers as determined by the board of
directors, which officers may include a chairman of the board, a chief executive
officer, a president, a secretary, a chief financial officer and a treasurer.
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 such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these By-Laws. 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 By-
Laws, shall be chosen by the board of directors, subject to the rights, if any,
of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the chief executive
officer 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 By-Laws 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 any 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.
13
<PAGE>
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 By-Laws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall serve as
the corporation's general manager, and shall have general supervision, direction
and control of the corporation's business and its officers, and, if present,
preside at meetings of the stockholders and the board of directors and exercise
and perform such other powers and duties as may from time to time be assigned to
him or her by the board of directors or as may be prescribed by these By-Laws.
If there is no chief executive officer, 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 By-Laws. The chairman of the
board shall report to the board of directors.
5.7 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 there be such an officer, 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. He shall have the general powers and
duties of management usually vested in the chief executive officer of a
corporation, and shall have such other powers and duties as may be prescribed by
the board of directors or these By-Laws.
5.8 PRESIDENT
The president may assume and perform the duties of the chief executive
officer in the absence or disability of the chief executive officer or whenever
the office of the chief executive officer is vacant. The president of the
corporation shall exercise and perform such powers and duties as may from time
to time be assigned to him or her by the board of directors or as may be
prescribed by these By-Laws. In the absence or nonexistence of the chairman of
the board and chief executive officer, he or she shall preside at all meetings
of the stockholders and at all meetings of the board of directors and shall
perform such other duties as the board of directors may from time to time
determine.
5.9 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
14
<PAGE>
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 By-Laws, the chairman of the board or the chief
executive officer.
5.10 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, 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 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 By-Laws. 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 By-Laws.
5.11 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 depositaries 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
chief executive officer 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 corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these By-Laws.
15
<PAGE>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS
------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the 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 action, suit or proceeding, whether civil, criminal, administrative or
investigative, arising by reason of the fact that such person is or was a
director, office, employee or agent of the corporation; provided, however, that
the corporation shall not be required to indemnify or advance expenses to any
director or officer in connection with any proceeding brought or claim made by
such person, unless such indemnification or advancement of expenses is expressly
required to be made by law or by contract or the proceeding or claim was
authorized in advance by the board of directors of the corporation. The
corporation may modify by contract the extent of the rights provided by this
Section 6.1 and the rights to advancement provided by Section 6.3, provided that
any modification that has the effect of diminishing or restricting such rights
shall be prospective in effect and shall not affect such rights with respect to
conduct occurring prior to the date of the contract. 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 indemnify each of its employees and
agents (other than directors and officers) to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware 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 6.2, 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 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,
16
<PAGE>
joint venture, trust or other enterprise, against any liability asserted against
or incurred by him or her in any capacity, or arising out of his or her status
as such, whether or not the corporation would have power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware. The corporation may establish alternative arrangements for purposes of
funding indemnification, including, without limitation, trusts, letters of
credit, captive insurance entities and reciprocal risk retention group
arrangements.
6.4 ADVANCEMENT OF EXPENSES
The corporation shall advance to any person who was or is a party or
witness or is threatened to be made a party or witness to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal
administrative or investigative by reason of the fact that he or she is or was a
director or officer, as defined in this Article VI, all expenses incurred by the
person in connection with such proceeding. All expenses incurred by such person
in connection with such proceeding shall be paid promptly upon request
therefore, but in any event prior to the ultimate disposition of the proceeding,
provided that an undertaking has been furnished by or on behalf of the person
requesting advancement to repay said amounts if it should be determined
ultimately that he or she is not entitled to be indemnified under this Article
VI or otherwise.
Notwithstanding the foregoing, no advance shall be made by the corporation
to an officer of the corporation (except by reason of the fact that such officer
is or was also a director of the corporation in which event this paragraph shall
not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made by the board of directors (i) by a majority vote of the directors who are
not parties to the action, suit or proceeding, or (ii) by a committee of such
directors designated by a majority vote of such directors, even though less than
a quorum, or (iii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, that the facts known
to the determining party(ies) at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe either to be in or not opposed to the best interests
of the corporation.
6.5 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this By-Law shall not be exclusive of
any other rights which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote
of stockholders or disinterested directors or otherwise, either as to action in
such person's official capacity or as to action in any other capacity while
holding office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees and
agents respecting indemnification and advances to the fullest extent not
prohibited by the General Corporation Law of Delaware.
17
<PAGE>
6.6 SURVIVAL OF RIGHTS
The rights conferred on any person by this By-Law shall continue as to a
person who has ceased to be a director, officer, employee or other agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
6.7 AMENDMENTS
Any repeal or modification of this By-Law shall have prospective effect
only, and shall not affect the rights of any person under this By-Law as in
effect at the time of an alleged action or omission to act giving rise to a
proceeding against such person, if such alleged action or omission occurred
prior to the repeal or modification of this By-Law.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep (i) a record of
its stockholders listing their names and addresses and the number and class of
shares held by each, (ii) a copy of these By-Laws as amended to date, and (iii)
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, a power of attorney or other writing that authorizes the attorney or
other agent to so act on behalf of the stockholder shall accompany the demand
under oath. The demand under oath shall be directed to the corporation at its
registered office in Delaware or at its principal place of business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of such stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
18
<PAGE>
7.2 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 herein granted may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution of allotment of any rights, or for purposes
of determining the stockholders entitled to exercise any rights in respect of
any other lawful action (other than action by stockholders by written consent
without a meeting), the board of directors may fix, in advance, a record date,
which shall not be more than 60 days before any such action. In that case, only
stockholders 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 by law.
If the board of directors does not fix a record date, then the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution, or the
60th day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The officers of the corporation enumerated Section 5.1 of these By-Laws
shall have the authority to execute in the name of the corporation bonds,
contracts, deeds, leases and other written instruments to be executed by the
corporation. In addition, the board of directors, except as otherwise provided
in these By-Laws, may authorize any other 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
19
<PAGE>
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 render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the 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, any holder of uncertificated shares shall, upon request, 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, the president or a vice-president, and by the chief financial officer,
the secretary or an assistant secretary of the corporation, representing the
number of shares registered in certificate form. Any or all of the signatures on
the certificate may be a facsimile(s). If 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, such certificate may be issued by the corporation
with the same effect as if such person 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, or 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 partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 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 pursuant to the Certificate of Incorporation
then the powers, designations, preferences, and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights 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 such certificate a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences, and relative,
participation, 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.
20
<PAGE>
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace previously issued certificates unless the latter are
surrendered to the corporation and canceled at the same time. The board of
directors may, if any share certificate or certificate for any other security is
lost, stolen or destroyed, authorize the issuance of a replacement certificate
on such terms and conditions as the board of directors may require; the board of
directors 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.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these By-Laws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
ARTICLE IX
AMENDMENTS
----------
Subject to Section 6.7, hereof the By-Laws of the corporation may be
adopted, amended or repealed and new By-Laws adopted by the affirmative vote of
stockholders holding a majority of the voting power of stock entitled to vote,
or by the board of directors.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation be dissolved, the board, after the
adoption of a resolution to that effect by a majority of the whole board at any
meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the voting power of the outstanding stock of the
corporation entitled to vote thereon votes for the proposed dissolution, then a
certificate stating that the dissolution has been authorized in accordance with
the provisions of Section 275 of the General Corporation Law of Delaware and
setting forth the names and residences of the directors and officers shall be
executed, acknowledged, and filed and shall become effective in accordance with
Section 103 of
21
<PAGE>
the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall b attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
22
<PAGE>
EXHIBIT 4.1
COMMON STOCK DigitalWork.com, Inc COMMON STOCK
Logo
------------ ------------
NUMBER SHARES
------------ ------------
INCORPORATED UNDER SEE REVERSE FOR CERTAIN
THE LAWS OF DELAWARE DEFINITIONS AND RESTRICTIONS
CUSIP
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.005 PAR VALUE, OF
=============================DigitalWork.com, Inc.==============================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: DigitalWork.com, Inc
CORPORATE
SEAL
SECRETARY DELAWARE President
Countersigned and Registered:
Chase Mellon Shareholder Savings LLP
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
DigitalWork.com, Inc
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT. ______________Custodian_________________
(Cust) (Minor)
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship and
not as tenants in common Act_____________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________________________________________ hereby sell, assign and transfer unto.
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------
_________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated, __________________________________________________________________________________________________________________
X ___________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) WRITTEN UPON THE FACE
OF THE CERTIFICATE, IN EVERY PART CLEAR WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: ________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
This certificate also evidences and entitles the holder hereof to certain rights
(the "Rights") as set forth in the Rights Agreement between DigitalWork.com,
Inc. (the "Company") and Chase Mellon Shareholder Savings, L.L.C. dated as of
_________ (the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal offices of
the Company. Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or an Affiliate
or Associate thereof (as such terms defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any subsequent holder, shall
become null and void.
<PAGE>
Exhibit 4.2
- -----------
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement")
made as of the 2nd day of December, 1999, by and among DigitalWork.com, Inc., a
Delaware corporation (the "Company") and each of the persons listed as an
Investor on the signature pages hereto (the "Investors").
WHEREAS, pursuant to that certain Series C Convertible Preferred Stock
Purchase Agreement of May 17, 1999 (the "Series C Purchase Agreement"), among
the Company and certain of the Investors, such Investors purchased Series C
Convertible Preferred Stock, $0.005 par value per share, of the Company (the
"Series C Preferred Stock") in each case as listed on Schedule I thereto, all of
----------
which shares are convertible into shares of the Company's Common Stock, as
hereinafter defined;
WHEREAS, as a condition to the closing of the transactions contemplated by
the Series C Purchase Agreement, the Company and the purchasers of the Series C
Preferred Stock entered into that certain Registration Rights Agreement dated as
of May 17, 1999 (the "Original Registration Rights Agreement");
WHEREAS, pursuant to that certain Series D Convertible Preferred Stock
Purchase Agreement of even date herewith (the "Series D Purchase Agreement" and,
together with the Series C Purchase Agreement, the "Purchase Agreements"), among
the Company and certain of the Investors, such Investors are purchasing Series D
Convertible Preferred Stock, $0.005 par value per share, of the Company ("Series
D Preferred Stock") in each case as listed on Schedule I thereto, all of which
----------
shares are convertible into shares of the Company's Common Stock;
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Series D Purchase Agreement that the Company
and the investors that are parties to the Original Registration Rights Agreement
amend and restate the Original Registration Rights Agreement on the terms and
subject to the conditions set forth herein; and
WHEREAS, pursuant to Section 14 of the Original Registration Rights
Agreement, the Company and the Holders of at least two-thirds of the outstanding
Registrable Stock and the securities convertible into such stock on the date
hereof, do hereby amend and restate the Original Registration Rights Agreement
in its entirety on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 1 of 18
<PAGE>
1. Definitions. The following terms shall be used in this Agreement with
-----------
the following respective meanings:
"Affiliate" means (i) any Person directly or indirectly controlling,
-----------
controlled by or under common control with another Person; (ii) any Person
owning or controlling ten (10%) percent or more of the outstanding voting
securities of such other Person; (iii) any officer, director or partner of such
Person; and (iv) if such Person is an officer, director or partner, any such
company for which such Person acts in such capacity.
"Commission" means the Securities and Exchange Commission, or any other
------------
federal agency at the time administering the Securities Act.
"Common Stock" means and includes (a) the Company's Common Stock, $0.005
--------------
par value per share, as authorized on the date of this Agreement and (b) any
other securities into which or for which the securities described in (a) above
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
--------------
any successor Federal statute, and the rules and regulations of the Commission
(or of any other Federal agency then administering the Exchange Act) thereunder,
all as the same shall be in effect at the time.
"Holder" means any holder of Registrable Stock or Series D Preferred Stock,
--------
as the case may be.
"Initial Public Offering" means the consummation of an initial public
-------------------------
offering of the Company's common stock pursuant to an effective Registration
Statement under the Securities Act of 1933, as amended.
"Investors" means each of the persons who are listed on Schedule RRA-I
-----------
attached hereto and have executed this Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
------
"Person" means any natural person, partnership, corporation or other legal
--------
entity.
"Preferred Stock" means and includes (a) the Company's Series C Preferred
-----------------
Stock as authorized on the date of this agreement, (b) the Company's Series D
Preferred Stock as authorized on the date of this Agreement and (c) any other
securities into which or for which the securities described above may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
"Registrable Stock" means (a) the Common Stock issued or issuable upon
------------------
conversion of the Preferred Stock, whether or not such Common Stock is owned by
any of the Investors,
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 2 of 18
<PAGE>
(b) all Common Stock now or hereafter owned by any Investor which is acquired
otherwise than upon conversion of the Preferred Stock, including, without
limitation, any shares of Common Stock purchased by such investor pursuant to
the warrants issued to such Investor in connection with the transactions
contemplated by the Series D Purchase Agreement, so long as it is held by any
Investor or an Affiliate of any Investor and (c) any other shares of Common
Stock issued in respect of such shares by way of a stock dividend, or stock
split or in connection with a combination of shares, recapitalization, merger or
consolidation or reorganization; provided, however, that shares of Common Stock
-------- -------
shall only be treated as Registrable Stock if and so long as they are not
eligible for sale without restriction under Rule 144(k) under the Securities Act
or have not been (i) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (ii) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(l) thereof so that all transfer restrictions
and restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale.
"Registration Statement" means a registration statement filed by the
------------------------
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8, Form S-4, or successor
forms, or any registration statement covering only securities proposed to be
issued in exchange for securities or assets of another corporation).
"Series D Registrable Stock" means (a) shares of Common Stock issued or
----------------------------
issuable upon conversion of the Series D Preferred Stock, whether or not such
Common Stock is owned by any of the Investors, (b) shares of Common Stock
purchased by such Investor pursuant to a warrant issued to such Investor in
connection with the transactions contemplated by the Series D Purchase Agreement
and (c) the shares of Common Stock issued or issuable upon the conversion the
Series D Preferred Stock purchased pursuant to the warrants contemplated by that
certain Warrant Purchase Agreement by and among the Company and the affiliates
of Attractor Investment Management, Inc. set forth on Schedule 1 thereto (the
"Warrant Purchase Agreement"), so long as it is held by any Investor or an
Affiliate of any Investor and (c) any other shares of Common Stock issued in
respect of such shares by way of a stock dividend, or stock split or in
connection with a combination of shares, recapitalization, merger or
consolidation or reorganization; provided, however, that shares of Common Stock
-------- -------
shall only be treated as Series D Registrable Stock if and so long as they are
not eligible for sale without restriction under Rule 144(k) under the Securities
Act or have not been (i) sold to or through a broker or dealer or underwriter in
a public distribution or a public securities transaction, or (ii) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(l) thereof so that all transfer restrictions
and restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale.
"Securities Act" means the Securities Act of 1933, or any successor Federal
----------------
statute, and the rules and regulations of the Commission (or of any other
Federal agency then administering the Securities Act) thereunder, all as the
same shall be in effect at the time.
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 3 of 18
<PAGE>
2. Restrictive Legend. Each certificate representing Preferred Stock
------------------
shall, except as otherwise provided in this Section 2, be stamped or otherwise
imprinted with a legend substantially in the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE
SHARES (A) HAVE BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS, (B)
ARE TRANSFERABLE PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES ACT, OR
(C) IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY ARE TRANSFERABLE
PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT."
A certificate shall not bear such legend, or such legend shall be promptly
removed, if in the opinion of counsel satisfactory to the Company the securities
represented thereby may be publicly sold without registration under the
Securities Act and any applicable state securities laws or the Holder provides
the Company with a certificate that such Holder satisfies all the requirements
of Rule 144 (k).
3. Required Registration.
---------------------
(a) At any time after the earlier of (i) 180 days after the date of
the Company's Initial Public Offering and (ii) April 22, 2002,
the Holder or Holders of at least twenty-five percent (25%) of
all Registrable Stock then outstanding (the "Initiating Holders")
may by notice in writing to the Company request the Company to
register under the Securities Act at least twenty percent (20%)
of the Registrable Stock, or any lesser percentage if the
anticipated gross receipts of the offering exceed $2,000,000, in
the manner specified in such notice.
(b) At any time after the earlier of (i) 180 days after the date of
the Company's Initial Public Offering and (ii) April 2, 2002, the
Holder of the Holders of over fifty percent (50%) of the Series D
Registrable Stock then outstanding (the "Series D Initiating
Holders") may by notice to the Company request the Company to
register under the Securities Act at least twenty percent (20%)
of the Series D Registrable Stock, or any lesser percentage if
the anticipated gross receipts of the offering exceed $2,000,000,
in the manner specified in such notice.
(c) Notwithstanding anything to the contrary contained herein, the
Company shall not be required to seek to cause a Registration
Statement to become effective pursuant to this Section 3, if: (A)
within a period of 90 days after the effective date of a
Registration Statement (180 days if the Registration
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 4 of 18
<PAGE>
Statement is for the Initial Public Offering) filed by the
Company (other than a Registration Statement on Forms S-4, S-8 or
any successors thereto), provided that the Company shall use its
--------
best efforts to cause a registration requested hereunder to be
declared effective promptly following such period if such request
is made during such period; or (B) 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 it would be materially detrimental to the Company or
its stockholders for a Registration Statement to be filed at such
time, or that it would require disclosure of material non-public
information relating to the Company which, in the reasonable
opinion of the Board of Directors, should not be disclosed, then
the Company's obligation to use all reasonable efforts to
register, qualify or comply under this Section 3 shall be
deferred for a period not to exceed ninety (90) days from the
date of receipt of written request from such Holders; provided,
--------
however, that the Company may not utilize this deferral right
-------
more than once in any twelve-month period.
(d) Following receipt of any notice given under this Section 3(a) or
(b) by the Initiating Holders or the Series D Initiating Holders, the
Company shall immediately notify in writing (x) in the case of a notice by
a Holder pursuant to Section 3(a), all Holders, or (y) in the case of a
notice by the Series D Initiating Holders pursuant to Section 3(b), all
Holders of Series D Registrable Stock, that such registration is to be
effected and shall use its best efforts to register under the Securities
Act, for public sale in accordance with the method of disposition specified
in such notice from requesting Holders or Series D Initiating Holders, as
the case may be, the number of shares of Registrable Stock, specified in
such notice (and in all notices received by the Company pursuant hereto).
Holders, other than the Initiating Holders, shall notify the Company of
their desire to participate in the Registration within twenty (20) days of
the Company's notice to them. The Company shall designate the managing
underwriter of such offering, subject to the approval of the Holders of a
majority of the shares of Registrable Stock and Series D Registrable Stock
to be sold in such offering, which approval shall not be unreasonably
withheld or delayed. The Company is obligated to effect only two
registrations pursuant to Section 3(a) herein and one registration pursuant
to Section 3(b) herein; provided, however, that such obligation shall be
-------- -------
deemed satisfied only when a Registration Statement covering all shares of
Registrable Stock, specified in notices received as aforesaid and which
have not been withdrawn by the Holder thereof, for sale in accordance with
the method of disposition specified by the Initiating Holders, shall have
become effective. A registration which does not become effective after the
Company has filed a Registration Statement with respect thereto solely by
reason of the refusal of the Initiating Holders or Series D Initiating
Holders, as the case may be, to proceed shall be deemed to have been
effected by the Company at the request of such Initiating Holders or Series
D Initiating Holders, as the case may be, unless the registration was
withdrawn at the request of the Holders or Series D Initiating Holders, as
the case may be, of a majority of the Registrable Stock
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 5 of 18
<PAGE>
or Series D Registrable Stock to be sold in such offering upon learning of
a material adverse change in the condition, business or prospects of the
Company (other than a change in market demand for its securities or in the
market price thereof) from that known to such Holders (and any knowledge of
any Director appointed by such Holder shall be deemed knowledge of such
Holder for purposes of this provision) at the time of their request (or of
which the Company advised them in writing within 20 days thereafter) that
makes the proposed offering unreasonable in the good faith judgment of a
majority in interest of such Holders.
(e) If the Registration Statement is to cover an underwritten
distribution and, in the good faith judgment of the managing underwriter of
such public offering, the inclusion of all of the Registrable Stock
requested for inclusion pursuant to this Section 3 would interfere with the
successful marketing of a smaller number of shares to be offered, then the
number of shares of Registrable Stock to be included in the Offering shall
be reduced to the required level with the participation in such Offering to
be reduced pro rata among the Holders requesting such registration, based
upon the number of shares of Registrable Stock or Series D Registrable
Stock requested to be registered by such Holders. The Company shall be
entitled to include in any Registration Statement referred to in this
Section 3, for sale in accordance with the method of disposition specified
by the Initiating Holders, shares of Common Stock for the Company's own
account, except as and to the extent that, in the opinion of the managing
underwriter, if any, such inclusion would adversely affect the marketing of
the Registrable Stock or Series D Registrable Stock to be sold. Except for
registration statements on Form S-4, S-8 or any successor forms thereto,
the Company will not file with the Commission any other registration
statement with respect to its Common Stock, whether for its own account or
that of other stockholders, from the date of receipt of a notice from the
Initiating Holders or Series D Initiating Holders, as the case may be,
pursuant to this Section 3 until the completion of the period of
distribution of the registration contemplated thereby.
4. Incidental Registration. Each time the Company shall determine to
-----------------------
file a Registration Statement in connection with the proposed offer and sale for
money of any of its securities by it or any of its security holders, the Company
will give written notice thereof to all Holders. Upon the written request of one
or more Holder(s) given within twenty (20) days after the giving of any such
notice by the Company, the Company will use its best efforts to cause all such
shares of Registrable Stock, the Holders of which have so requested registration
thereof, to be included in such Registration Statement, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Registrable Stock to be so registered. If the Registration
Statement is to cover an underwritten distribution, the Company shall use its
best efforts to cause the Registrable Stock requested for inclusion pursuant to
this Section 4 to be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters. If,
in the good faith judgment of the managing underwriter of such public offering,
the inclusion of all of the Registrable Stock requested for inclusion pursuant
to this Section 4 would interfere with the successful marketing of a smaller
number of
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 6 of 18
<PAGE>
shares to be offered, then the number of shares of Registrable Stock and other
securities to be included in the offering (except for shares to be issued (i) by
the Company in an offering initiated by the Company or (ii) by any other party
in an offering initiated by such party pursuant to registration rights granted
to such party) shall be reduced to the required level by reducing (down to zero
in the Company's Initial Public Offering, or to not less than thirty (30%)
percent thereafter, if so required) the participation of the Holders of
Registrable Stock in such offering (such reduction to be made to the amounts of
shares requested for inclusion in such offering by such Holders on a pro rata
basis among the Holders of Registrable Stock requesting such registration, based
upon the number of shares of Registrable Stock owned by such Holders).
5. Registration on Form S-3.
------------------------
(a) If at any time after the date hereof, (i) a Holder or Holders
request that the Company file a registration statement on Form S-3 or any
successor thereto for a public offering of all or any portion of the shares
of Registrable Stock held by such requesting Holder or Holders, the
reasonably anticipated aggregate price to the public of such shares would
exceed $500,000 and (ii) the Company is a registrant entitled to use Form
S-3 or any successor form thereto to register such shares, then the Company
shall use its best efforts to register under the Securities Act on Form S-3
or any successor thereto, for public sale in accordance with the method of
disposition specified in such notice, the number of shares of Registrable
Stock specified in such notice. Whenever the Company is required by this
Section 5 to use its best efforts to effect the registration of Registrable
Stock, each of the procedures, requirements and limitations of Section 3
(including but not limited to the requirement that the Company notify all
Holders from whom notice has not been received and provide them with the
opportunity to participate in the offering and the requirements of
subparagraph (b)) shall apply to such registration; provided, however, that
-------- -------
there shall be no limitation on the number of registrations on Form S-3
which may be requested and obtained under this Section 5, except that the
Company shall not be obligated to effect more than two registrations under
this Section 5 in any twelve (12) month period; and provided, further, that
-------- -------
the $2,000,000 minimum dollar amount set forth in the first sentence of
Section 3(a) shall not apply to any registration on Form S-3 which may be
requested and obtained under this Section 5.
(b) If the Company is a registrant entitled to use Form S-3 or any
successor form thereto to register shares of Registrable Stock, then the
Company shall use its best efforts to register under the Securities Act on
Form S-3 or any successor thereto, for public sale in accordance with any
method of disposition specified by any Holder or Holders, all of the shares
of Registrable Stock. The Company agrees to maintain the registration
effective as a shelf-registration for a period of twelve (12) months,
except: (i) within 90 days after the effective date of a Registration
Statement filed by the Company (except for Registration Statements on Form
S-4, S-8 or any successors thereto) or (ii) 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
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 7 of 18
<PAGE>
Directors it would be seriously detrimental to the Company stockholders for
a Form S-3 Registration Statement to be effective due to pending Company
events, or that keeping such Statement effective at such time would require
disclosure of material non-public information relating to the Company
which, in the reasonable opinion of the Board of Directors, should not be
disclosed, or if the Company intends to file a Registration Statement
within sixty (60) days and agrees to register shares of the Holders'
Registrable Stock therein, provided, however, that the Company shall not
-------- -------
utilize these rights more than once in any 12-month period, nor for a
period of more than sixty (60) days, and further provided that the shelf
registration shall be kept effective for an additional period equal to the
period of time during which the shelf registration was not kept effective
pursuant hereto.
6. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Section 3, 4 or 5 hereof to effect the registration of shares
of Registrable Stock under the Securities Act, the Company will, at its expense,
as expeditiously as possible:
(a) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission a
Registration Statement with respect to the Registrable Stock and use its
best efforts to cause such Registration Statement to become and remain
effective until the Registrable Stock covered by such Registration
Statement has been sold, but for no longer than twelve (12) months
subsequent to the effective date of such registration, and prepare and file
with the Commission such amendments to such Registration Statement and
supplements to the prospectus contained therein as may be necessary to keep
such Registration Statement effective and such Registration Statement and
prospectus accurate and complete until the Registrable Stock covered by
such Registration Statement has been sold, but for no longer than twelve
(12) months subsequent to the effective date of such registration;
(b) If the offering is to be underwritten in whole or in part, enter
into a written underwriting agreement, in usual and customary form, with
the managing underwriter, if any, of the public offering and each Holder
participating in such offering shall also enter into and perform its
obligations under such an agreement;
(c) Furnish to the participating Holders and to the underwriters such
reasonable number of copies of the Registration Statement, preliminary
prospectus, final prospectus and such other documents as such underwriters
and participating Holders may reasonably request in order to facilitate the
public offering of such securities;
(d) Use its best efforts to register or qualify the Registrable Stock
covered by such Registration Statement under such state securities or blue
sky laws of such jurisdictions (i) as shall be reasonably appropriate for
the distribution of the Registrable Stock covered by such Registration
Statement or (ii) as such participating Holders and underwriters may
reasonably request within ten (10) days following the original filing of
such Registration Statement, except that the Company shall not for any
purpose be
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 8 of 18
<PAGE>
required to execute a general consent to service of process, to subject
itself to taxation, or to qualify to do business as a foreign corporation
in any jurisdiction where it is not so qualified;
(e) Notify the Holders participating in such registration, promptly
after it shall receive notice thereof, of the date and time when such
Registration Statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such
Registration Statement has been filed;
(f) Notify the Holders participating in such registration promptly of
any request by the Commission or any state securities commission or agency
for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(g) Prepare and file with the Commission, promptly upon the request
of any such participating Holders, any amendments or supplements to such
Registration Statement or prospectus which, in the opinion of counsel
representing the Company in such Registration (and which counsel is
reasonably acceptable to such participating Holders), is required under the
Securities Act or the rules and regulations thereunder in connection with
the distribution of the Registrable Stock by such participating Holders,
but for no longer than twelve (12) months subsequent to the effective date
of such registration;
(h) Prepare and promptly file with the Commission, and promptly
notify such participating Holders of the filing of, such amendments or
supplements to such Registration Statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such Registrable Stock is required to be delivered
under the Securities Act, any event has occurred as the result of which any
such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(i) In case any of such participating Holders or any underwriter for
any such Holders is required to deliver a prospectus at a time when the
prospectus then in circulation is not in compliance with the Securities Act
or the rules and regulations of the Commission, prepare promptly upon
request such amendments or supplements to such Registration Statement and
such prospectus as may be necessary in order for such prospectus to comply
with the requirements of the Securities Act and such rules and regulations;
(j) Advise such participating Holders, promptly after it shall
receive notice or obtain knowledge of the issuance of any stop order by the
Commission or any state securities commission or agency suspending the
effectiveness of such Registration Statement or the initiation or
threatening of any proceeding for that purpose and
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 9 of 18
<PAGE>
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued;
(k) At the request of any such participating Holder (i) furnish to
such Holder, if such registration includes an underwritten public offering,
at the closing provided for in the underwriting agreement, copies of any
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if any,
covering such matters with respect to the registration statement, the
prospectus and each amendment or supplement thereto, proceedings under
state and Federal securities laws, other matters relating to the Company,
the securities being registered and the offer and sale of such securities
as are customarily the subject of opinions of issuer's counsel provided to
underwriters in underwritten public offerings and (ii) use its best efforts
to furnish to such Holder letters dated each such effective date and such
closing date, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to the Holder or
Holders making such request, stating that they are independent certified
public accountants within the meaning of the Securities Act and dealing
with such matters as are customarily subject of letters of issuer's
independent certified public accountants to underwriters in underwritten
public offerings, or, if the offering is not underwritten, that in the
opinion of such accountants the financial statements and other financial
data of the Company included in the Registration Statement or the
prospectus or any amendment or supplement thereto comply in all material
respects with the applicable accounting requirements of the Securities Act,
and additionally covering such other financial matters, including
information as to the period ending not more than five (5) business days
prior to the date of such letter with respect to the Registration Statement
and prospectus, as such requesting Holder or Holders may reasonably
request;
(l) Apply for listing and use its best efforts to list the
Registrable Stock being registered on any national securities exchange on
which a class of the Company's equity securities is listed or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its best efforts to
qualify the Registrable Stock being registered for inclusion on the
automated quotation system of the NASD.
7. Expenses.
--------
(a) With respect to each registration effected pursuant to Section 3,
4 or 5 hereof, all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith shall be borne
by the Company; provided, however, (i) that Holders and other holders of
-------- -------
the Company's stock participating in any such registration shall bear their
pro rata share of the underwriting discounts, selling commissions and fees
and disbursements of special counsel, (ii) any such fee, cost or expense
which does not constitute a fee, cost or expense customary in such a
registration and which is attributable solely to one (1) Holder or other
holder of the Company's stock participating
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 10 of 18
<PAGE>
in any such registration shall be borne by that Holder or holder and (iii)
in the event of any special audit required in connection with a
registration pursuant to Section 3, the Company shall not be responsible
for expenses exceeding $15,000 and the Holders and other holders of the
Company's stock participating in any such registration shall bear their pro
rata share of any such expenses exceeding $15,000.
(b) The fees, costs and expenses of registration to be borne as
provided in paragraph (a) above, shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such
securities (if the Company and/or selling security holders are otherwise
required to bear such fees and disbursements), fees and disbursements of
one counsel for the selling security holders collectively, all legal fees
and disbursements and other expenses of complying with state securities or
blue sky laws of any jurisdictions in which the securities to be offered
are to be registered or qualified and the premiums and other costs of
policies of insurance insuring the Company against liability arising out of
such public offering.
8. Indemnification and Contribution
--------------------------------
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder whose shares of Registrable Stock
are included in a Registration Statement pursuant to the provisions of this
Agreement, and, in the Company's Initial Public Offering, each Holder
whether or not such Holder's shares of Registrable Stock are included in
any such Registration Statement, and any underwriter (as defined in the
Securities Act) for such Holder, and any Person who controls such Holder or
such underwriter within the meaning of the Securities Act, and each of
their successors, from and against, and will reimburse such Holder and each
such underwriter and controlling Person with respect to, any and all
claims, actions, demands, losses, damages, liabilities, costs and expenses
to which such Holder or any such underwriter or controlling Person may
become subject under the Securities Act or otherwise, insofar as such
claims, actions, demands, losses, damages, liabilities, costs or expenses
arise out of or are based upon any untrue statement or allegedly untrue
statement of any material fact contained in such Registration Statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading or arise out of any violation by the Company of any
rule or regulation under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with
such registration; provided, however, that the Company will not be liable
-------- -------
in any such case to the extent that any such claim, action, demand, loss,
damage, liability, cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so
made in reliance upon and in conformity with information furnished by or on
behalf of any such
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 11 of 18
<PAGE>
Holder, such underwriter or controlling Person in writing specifically for
use in the preparation thereof; and provided, further, that this indemnity
-------- -------
shall not be deemed to relieve any underwriter of any of its due diligence
obligations; and provided, further, that if any claim, action, demand,
-------- -------
loss, damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission contained in any preliminary prospectus which did not appear in
the final prospectus and if the Holder delivered a copy of the preliminary
prospectus to the person alleging damage and failed to deliver a copy of
the final prospectus to such persons, the Company shall not be liable with
respect to the claims of such person.
(b) Each Holder of shares of Registrable Stock which are included in
a Registration Statement pursuant to the provisions of this Agreement will,
severally and not jointly, indemnify and hold harmless the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such registration, each person who controls the
Company or such underwriter within the meaning of the Securities Act, and
each other Holder of shares of Registrable Stock which are included in the
registration, each of the officers, directors and partners of each such
other Holder and each person controlling such other Holder, from and
against, and will reimburse such parties with respect to, any and all
losses, damages, liabilities, costs or expenses to which such parties may
become subject under the Securities Act or otherwise, to the extent that
any such loss, damage, liability, cost or expense arises out of or is based
upon any untrue of any material fact contained therein or any amendment or
supplement thereto, or arises out of or is based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in
reliance upon and in conformity with written information furnished by or on
behalf of such Holder for use in the preparation thereof, provided that the
--------
liability of each Holder hereunder shall be limited to the proportion of
any such loss, claim, damage, liability or expense which is equal to the
proportion that the public offering price of the shares sold by such Holder
under such Registration Statement bears to the total public offering price
of all securities sold thereunder, but not in any event to exceed the net
proceeds received by such Holder from the sale of shares of Registrable
Stock covered by a Registration Statement; and provided, further that this
-------- -------
indemnity shall not be deemed to relieve any underwriter of any of its due
diligence obligations.
(c) Promptly after receipt by a party to be indemnified pursuant to
the provisions of paragraph (a) or (b) of this Section 8 (an "indemnified
party") of actual knowledge or notice of the commencement of any action
involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of paragraph (a) or (b),
notify the indemnifying party of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve the indemnifying party
from any liability which it may have to an indemnified party otherwise than
under this Section 8 and shall not
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 12 of 18
<PAGE>
relieve the indemnifying party from liability under this Section 8 unless
such indemnifying party is prejudiced by such omission. In case such action
is brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party pursuant to the provisions of such
paragraph (a) and (b) for any legal or other expense subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding the foregoing, an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests, as
reasonably determined by either party, between such indemnified party and
any other party represented by such counsel in such proceeding. No
indemnifying party shall be liable to an indemnified party for any
settlement of any action or claim made without the consent of the
indemnifying party; no indemnifying party may unreasonably withhold its
consent to any such settlement. No indemnifying party will consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim
or litigation.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any
Holder exercising rights under this Agreement, or any controlling Person of
any such Holder, makes a claim for indemnification pursuant to this Section
8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this Section
8 provides for the indemnification in such case, (ii) contribution under
the Securities Act may be required on the part of any such selling Holder
or any such controlling Person in circumstances for which indemnification
was provided under this Section 8; then, and in each case, the Company and
each such Holder will contribute to the aggregate losses, claims, damages
or liabilities to which they may be subject (after contribution from
others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Stock offered by the Registration Statement bears to the public
price of all securities offered by such Registration Statement, and the
Company is responsible for the remaining portion; provided, however, that,
-------- -------
in any such case, (A) no Person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Securities
Act) will be entitled to contribution from any Person or entity that was
not guilty of such fraudulent misrepresentation and (B) no Holder will be
required to contribute any amount in excess
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 13 of 18
<PAGE>
of the net proceeds of such Holder of such Registrable Stock offered by it
pursuant to such Registration Statement.
9. Reporting Requirements Under Securities Exchange Act of 1934. When it
------------------------------------------------------------
becomes first legally required to do so, the Company shall register its Common
Stock under Section 12 of the Exchange Act and shall keep effective such
registration and shall timely file such information, documents and reports as
the Commission may require or prescribe under Section 13 of the Exchange Act.
From and after the effective date of the first Registration Statement filed by
the Company, the Company shall use its best efforts to (whether or not it shall
then be required to do so) timely file such information, documents and reports
as the Commission may require or prescribe under Section 13 or 15(d) (whichever
is applicable) of the Exchange Act. Immediately upon becoming subject to the
reporting requirements of either Section 13 or 15(d) of the Exchange Act, the
Company shall forthwith upon request furnish any Holder (a) a written statement
by the Company that it has complied with such reporting requirements, (b) a copy
of the most recent annual or quarterly report of the Company and (c) such other
reports and documents filed by the Company with the Commission as such Holder
may reasonably request in availing itself of an exemption for the sale of
Registrable Stock without registration under the Securities Act. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 9 are (i) to enable any such Holder to comply with the current public
information requirement contained in Paragraph (c) of Rule 144 under the
Securities Act should such Holder ever wish to dispose of any of the securities
of the Company acquired by it without registration under the Securities Act in
reliance upon Rule 144 (or any other similar or successor exemptive provision)
and (ii) to qualify the Company for the use of Registration Statements on Form
S-3. In addition, the Company shall take such other measures and file such other
information, documents and reports, as shall hereafter be required by the
Commission as a condition to the availability of Rule 144 under the Securities
Act (or any similar or successor exemptive provision hereafter in effect) and
the use of Form S-3. The Company also covenants to use its best efforts, to the
extent that it is reasonably within its power to do so, to qualify for the use
of Form S-3. From and after the effective date of the first Registration
Statement filed by the Company, the Company agrees to use its best efforts to
facilitate and expedite transfers of Registrable Stock pursuant to Rule 144
under the Securities Act (or any similar or successor exemptive provision
hereafter in effect), which efforts shall include timely notice to its transfer
agent to expedite such transfers of Registrable Stock.
10. Stockholder Information. The Company may require each Holder of
-----------------------
Registrable Stock as to which any registration is to be effected pursuant to
this Agreement to furnish the Company in a timely manner such information with
respect to such Holder and the distribution of such Registrable Stock as the
Company may from time to time reasonably request in writing and as shall be
required by law or by the Commission in connection therewith.
11. Lock-Up Agreements.
------------------
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 14 of 18
<PAGE>
(a) Restrictions on Public Sale by the Company. The Company agrees not
------------------------------------------
to effect any public sale or other distribution of its equity securities,
or any securities convertible into or exchangeable or exercisable for such
equity securities, during the period, not to exceed one hundred eighty
(180) days (as requested by the managing underwriter), following the
effective date of the Initial Public Offering, or ninety (90) days
following the effective date of any other underwritten public offering of
securities of the Company, except in connection with any such underwritten
offering and except for equity securities issued pursuant to employee stock
option or employee stock purchase plans or in conjunction with any merger
or consolidation with, or acquisition of the stock or assets of, any other
entity.
(b) Restrictions on Public Sale by the Holders. Each Holder agrees
------------------------------------------
that it will not, to the extent requested by the managing underwriter of
such offering, sell or otherwise dispose of any equity securities of the
Company, including any sale pursuant to Rule 144, during a period specified
by the Company and such underwriter (not to exceed one hundred eighty (180)
days after the effective date of the Initial Public Offering or ninety (90)
days after any other underwritten offering), except in conjunction with
such underwritten offering; provided that each officer, director and holder
--------
of at least one percent of the Company's outstanding Common Stock shall
enter into similar each lock-up agreements; provided, further, that the
-------- -------
provisions of this Section 11(b) shall not apply to shares of Company's
Common Stock purchased or acquired by such Investor in the Initial Public
Offering, pursuant to the warrants issued to such Investor in connection
with the transactions contemplated by the Series D Purchase Agreement, or
on the open market after the date of the Initial Public Offering.
(c) Restrictions on Public Sale by Subsequent Holders. Except in a
-------------------------------------------------
public offering registered under the Securities Act, the Company shall not
issue or sell any equity security unless each recipient thereof agrees in
writing with the Company (i) not to offer to sell or sell such equity
security during a period specified by the Company and the underwriter
thereof (not to exceed one hundred eighty (180) days after the effective
date of the Initial Public Offering or ninety (90) days after any other
underwritten public offering of securities of the Company registered under
the Securities Act), except in conjunction with such underwritten offering
and (ii) to execute and deliver the underwriting agreement in connection
with any such underwritten offering.
12. Notices. Any notice required or permitted to be given hereunder
-------
shall be in writing and shall be deemed to be properly given when sent by
registered or certified mail, return receipt requested, by Federal Express, DHL
or other guaranteed overnight delivery service or by facsimile transmission,
addressed as follows:
If to the Company: Rob Schultz
DigitalWork.com, Inc.
230 West Monroe
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 15 of 18
<PAGE>
Suite 1950
Chicago, Illinois 60606
Telecopier: (312) 261-2010
With copies to: Craig Bradley
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, Illinois 60606-6677
Telecopier: (312) 360-6574
If to any Investor: To the address of such Investor set forth on
the signature pages hereto.
With copies to: Rick Cohen, Esq.
Buchalter, Nemer, Fields & Younger
601 South Figeroa Street
Suite 2400
Los Angels, California 90017
and if to any other Holder at such Holder's address for notice as set forth in
the register maintained by the Company, or, as to any of the foregoing, to such
other address as any such party may give the others notice of pursuant to this
Section, provided that a change of address shall only be effective upon receipt.
--------
All notices, requests, consents and other communications hereunder shall be
deemed to have been received (i) if by hand, at the time of delivery thereof to
the receiving party at the address of such party set forth above or as so
designated, (ii) if made by telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the third business day following the day such mailing is
made.
13. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware (without regard to conflict
of laws provisions).
14. Waivers; Amendments. No waiver of any right hereunder by any party
-------------------
shall operate as a waiver of any other right, or of the same right with respect
to any subsequent occasion for its exercise, or of any right to damages. No
waiver by any party of any breach of this Agreement shall be held to constitute
a waiver of any other breach or a continuation of the same breach. All remedies
provided by this Agreement are in addition to all other remedies provided by
law. This Agreement may not be amended except by a writing executed by the
Company and the Holders of at least two-thirds of the then outstanding
Registrable Stock and
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 16 of 18
<PAGE>
the securities convertible into, exchangeable for or exercisable for Registrable
Stock (calculated on an as converted, exchanged or exercised basis).
Additionally, this Agreement may not be amended in a manner that detrimentally
or adversely affects the rights of the Holders of Series D Registrable Stock
except by a writing executed by the Company and the Holders of at least two-
thirds of the then outstanding Series D Registrable Stock and the securities
convertible into, exchangeable for or exercisable for Series D Registrable Stock
(calculated on an as converted, exchanged or exercised basis); provided,
--------
however, that any amendment or waiver that is detrimental to a holder of Series
- -------
D Preferred in a manner different than any other holder of the Company's
preferred stock shall require the written consent of such holder.
15. Other Registration Rights. The Company shall not grant to any third
-------------------------
party any registration rights more favorable than any of those contained herein,
or which would interfere with or delay the exercise by the Holders of their
registrations rights hereunder, so long as any of the registration rights under
this Agreement remains in effect, unless approved by each of (a) Holders of
Series C Preferred Stock holding at least two-thirds of the then outstanding
shares Series C Preferred Stock, and (b) the Holders of Series D Preferred Stock
holding at least two-thirds of the then outstanding shares of Series D Preferred
Stock, which approval may require that such rights be granted only pursuant to
an amendment or restatement of this Agreement.
16. Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the respective legal representatives, successors
and assigns of the parties; provided, however, that no expansion of the
-------- -------
definition of Holders set forth above shall be effected by this Section 16.
17. Transfer of Rights. All of the rights of an Investor in this Agreement
------------------
may only be transferred by the Investor to the following: (i) if the Investor is
a partnership, any partner or retired partner of such Purchaser, (ii) if the
Investor is an individual, any family member of or trust for the benefit of such
Investor, (iii) if the Investor is a corporation, any shareholder of such
Investor, (iv) if the Investor is a limited liability company, to members of
such Investor, or (v) any transferee who acquires at least $500,000 of Series D
Preferred; provided, that, such transfer otherwise complies with all applicable
state and federal securities laws.
18. Aggregation. For purposes of determining the availability of any
-----------
rights under this Agreement, all shares of Series D Preferred held or acquired
by affiliated persons or persons under common management shall be aggregated
together and treated as one such holder.
19. 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.
20. Prior Understanding and Agreements. This Agreement constitutes the
----------------------------------
sole and entire agreement of the parties with respect to the subject matter
hereof.
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 17 of 18
<PAGE>
21. Headings. Headings in this Agreement are included for reference only
--------
and shall have no effect upon the construction or interpretation of any part of
this Agreement.
22. Severability. If any provision of this Agreement shall be held to be
------------
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
[Signatures on Following Pages]
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page 18 of 18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized officer, and each Investor has duly executed this Agreement
(or has caused it to be executed by a duly authorized officer, partner, trustee
or agent, as the case may be), as of the date first above recited.
DIGITALWORK.COM, INC.,
a Delaware corporation
By: /s/ Craig A. Terrill
-------------------------------------
Name: Craig A. Terrill
Title: President
[Additional Signatures on Following Pages]
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-1
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
INVESTORS:
- ---------
Draper Fisher Jurvetson Fund V, LP,
a ____________ Limited Partnership
By: /S/ Warren Packard
________________________________
Warren Packard
Its: Director
________________________________
Address: 400 Seaport Court
Suite 250
Redwood City, California 94063
Draper Fisher Jurvetson Partners V, LLC,
a _____________ Limited Partnership
By: /S/ Warren Packard
________________________________
Warren Packard
Its: Director
________________________________
Address: 400 Seaport Court
Suite 250
Redwood City, California 94063
* * *
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-2
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
INVESTORS:
- ---------
TL VENTURES IV L.P.
By: TL Ventures IV Management L.P.,
its general partner
By: TL Ventures IV LLC,
its general partner
By: /S/ Robert E. Keith
________________________________
Name: Robert E. Keith
Title: Managing Director
Address: c/o TL Ventures LLC
The 700 Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attn: Chief Financial Officer
TL VENTURES IV Interfund L.P.
By: TL Ventures IV LLC,
its general partner
By: /S/ Robert E. Keith
_________________________________
Name: Robert E. Keith
Title: Managing Director
Address: c/o TL Ventures LLC
The 700 Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attn: Chief Financial Officer
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-3
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
INVESTOR:
- --------
ATTRACTOR INSTITUTIONAL LP
By: /S/ Harvey Allison
______________________
Harvey Allison
Managing Member of Attractor Ventures LLC,
its General Partner
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
ATTRACTOR VENTURES LLC
By: /S/ Harvey Allison
_______________________________
Harvey Allison, Managing Member
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
ATTRACTOR LP
By: /S/ Harvey Allison
______________________
Harvey Allison
Managing Member of Attractor Ventures LLC,
its General Partner
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-4
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
ATTRACTOR QP LP
By: /s/ Harvey Allison
_________________________
Harvey Allison
Managing Member of Attractor Ventures LLC,
its General Partner
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
Attractor Offshore Ltd.
By: /s/ Harvey Allison
_________________________
Harvey Allison
President, Attractor Investment
Management, Inc., Investment Manager of
Attractor Offshore Ltd.
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-5
<PAGE>
INVESTOR:
- --------
INFORMATION TECHNOLOGY VENTURES II, L.P.,
a California limited partnership
By: ITV MANAGEMENT II, LLC
a California limited liability company
Title: General Partner
By: /s/ Virginia M. Turezyn
___________________________________
Virginia M. Turezyn
Title: Managing Member
Address: 3000 Sand Hill Road
Building 1
Menlo Park, California 94025
ITV AFFILIATES FUND II, L.P.,
a California limited partnership
By: ITV MANAGEMENT II, LLC
a California limited liability company
Title: General Partner
By: /s/ Virginia M. Turezyn
_____________________________________
Virginia M. Turezyn
Title: Managing Member
Address: 3000 Sand Hill Road
Building 1
Menlo Park, California 94025
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-6
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Office Depot, Inc.,
a Delaware corporation
By:/s/ Barry J. Goldstein
___________________________________________
Name: Barry J. Goldstein,
Title: Executive Vice President & CFO
Address: 2200 Old Germantown Road
Delray Beach, Florida 33445
Mail Boxes Etc.,
a California corporation
By:/s/ Thomas K. Herskowitz
_______________________________________
Name: Thomas K. Herskowitz
Title: Ex P
Address: 6060 Cornerstone Court West
San Diego, California 92121
PurchasePro.com, Inc.,
a Nevada corporation
By:/s/ Christopher P. Carton
________________________________________
Name: Christopher P. Carton
Title: President/COO
Address: 3291 North Buffalo Drive, Suite 2
Las Vegas, Nevada 89129
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-7
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Reckson Service Industries, Inc.
By:/s/ Jeffrey D. Neumann
_______________________________________
Name: Jeffrey D. Neumann
Title: Executive Vice President
smalloffice.com LLC
By:/s/ William J. Curtis
_______________________________________
Name: William J. Curtis
Title: CEO
Winstar Interactive Ventures I Inc.
By:/s/ Stuart B. Reheint
_______________________________________
Name: Stuart B. Reheint
Title: President
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-8
<PAGE>
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors
By: /s/ Marc Benoiff
-----------------------------------
Marc Benoiff
95 Telegraph Hill Blvd.
San Francisco, CA 94133
By: /s/ Ken Johnson /s/ Deborah Johnson
-----------------------------------
Ken and Deborah Johnson
5821 Lakehurst Avenue
Dallas, TX 75230
By: /s/ Michael A. Coppola
-----------------------------------
Michael A. Coppola
4521 Fleur Drive, Suite C
Des Moines, IA 50321
By: /s/ Arthur M. Coppola
-----------------------------------
Arthur M. Coppola
401 Wilshire Boulevard, Suite 700
Santa Monica, CA 90401
By: /s/ James S. Cownie
-----------------------------------
James S. Cownie IRA
1601 22/nd/ Street
West Des Moines , IA 50266
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-9
<PAGE>
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
By: /s/ David L. Miller
-----------------------------------
David L. Miller
1601 22/nd/ Street
West Des Moines , IA 50266
By: /s/ James Kubik
-----------------------------------
James Kubik
418 Caesar Drive
Barrington Hills, IL 60010
By: /s/ Kathleen Kubik
-----------------------------------
Kathleen Kubik
418 Caesar Drive
Barrington Hills, IL 60010
By: /s/ William J. Steding
-----------------------------------
William J. Steding
2515 McKinney Ave., Ste. 1350
Dallas, TX 75201
By: /s/ Fred S. Hubbell
-----------------------------------
Fred S. Hubbell
Strawinskylaan 2631
P.O. Box 810
1000 AV Amsterdam
Amsterdam, The Netherlands
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-10
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
By: /s/ William Schmuhl, Jr.
----------------------------------
William Schmuhl, Jr. Trust
1421 Honan Drive
South Bend, IN 46614
By: /s/ David E. Simon
----------------------------------
David E. Simon
115 West Washington St., Suite 1465
Indianapolis, IN 46204
By: /s/ H. Spencer Kenderick
----------------------------------
H. Spencer Kenderick
2515 McKinney Avenue, Suite 1350
Dallas, TX 75225
By: /s/ William P. Beatson
----------------------------------
William P. Beatson
170 Jennifer Road, Suite 300
Annapolis, MD 21401
By: /s/ Marshall B. Tycher
----------------------------------
Marshall B. Tycher
233 Canoe Brook Road
Short Hills, NJ 07078
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-11
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
By: /s/ James M. Hoak
--------------------------------------
James M. Hoak
13355 Noel Road, Suite 1050
Dallas, TX 75240
By: /s/ Eric D. Van den Branden
--------------------------------------
Eric D. Van den Branden
13355 Noel Road, Suite 1050
Dallas, TX 75240
By: /s/ J. Hale Hoak
--------------------------------------
J. Hale Hoak
13355 Noel Road, Suite 1050
Dallas, TX 75240
By: /s/ Anthony Kamin
--------------------------------------
Anthony Kamin
350 W. Belden, #606
Chicago, IL 60614
By: /s/ Ira S. Rimmerman
--------------------------------------
Ira S. Rimmerman
3 World Financial Center
200 Vesey Street, 6/th/ Floor
New York, NY 10285
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-12
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
By: /s/ Edward C. Coppola
--------------------------------------
Edward C. Coppola
13455 Noel Road, Suite 1480
Dallas, TX 75240
E.C. Coppola Famila Ltd. Partnership, L.C.
By ECC Ventures, L.C., its General Partner
By: /s/ Edward C. Coppola
--------------------------------------
By: /s/ Richard Dickey
--------------------------------------
Richard Dickey
36 Keofferam
Old Greenwick, CT 06870
By: /s/ Todd J. Zelek
--------------------------------------
Todd J. Zelek
601 South Figueroa Street, #4425
Los Angeles, CA 90017
By: /s/ Donough P. McDonough
--------------------------------------
Donough P. McDonough
3 World Financial Center
200 Vesey Street, 6/th/ Floor
New York, NY 10285
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-13
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
By: /s/ M. Bradley Smith
--------------------------------------
M. Bradley Smith
3 World Financial Center
200 Vesey Street, 6/th/ Floor
New York, NY 10285
By: /s/ David S. Erickson
--------------------------------------
David S. Erickson
3 World Financial Center
200 Vesey Street, 6/th/ Floor
New York, NY 10285
By: /s/ Brian P. Wade
--------------------------------------
Brian P. Wade
216 Forest Ave.
Glen Ridge, NJ 07028-2416
By: /s/ Timothy B. Gould
--------------------------------------
Timothy B. Gould
3 World Financial Center
200 Vesey Street, 6/th/ Floor
New York, NY 10285
By: /s/ John W. Mason, M.D.
--------------------------------------
John W. Mason, M.D.
1 Beach Drive SE
Bayfront Tower 2702
St. Petersburg, FL 33701-3963
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-14
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
By: /s/ illegible
--------------------------------------
JPSJC Partnership
Trust Account - lolta
4311 Oak Lawn Ave., Suite 600
Dallas, TX 75219
By: /s/ Tom Unis
--------------------------------------
Tom Unis
Two Galleria Tower
13455 Noel Road, Suite 400
Dallas, TX 75240
Cyprus Partners, LLC
By: /s/ Raj Atluru
--------------------------------------
Name: Raj Atluru
Title: President
------------------------------------
Address: c/o Raj Atluru
The 700 Building
435 Devon Park Drive
Wayne, PA 19087-1945
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Pages S-15
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
By: /s/ Mark Boyce
--------------------------------------
Mark Boyce
P.O. Box 390590
Cambridge, MA 02139
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-16
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
Flynn/Gallagher Fund I
By: /s/ Ronald B. Booth
---------------------------------------
Name: Ronald B. Booth
-------------------------------------
Title: Manager
------------------------------------
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-17
<PAGE>
DIGITALWORK.COM, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
--------------------------
Individual Investors (Continued)
Dell USA L.P1
By: Dell Gen. P. Corp.
Its General Partner
By: /s/ Alex C. Smith
---------------------------------------
Name: Alex C. Smith
-------------------------------------
Title: Vice President
------------------------------------
DigitalWork.com, Inc.
Amended and Restated Registration Rights Agreement
Page S-18
<PAGE>
Exhibit 10.1
- ------------
FORM OF
DIGITALWORK.COM, INC.
AMENDED AND RESTATED 1998 STOCK PLAN
1. Establishment and Purpose.
-------------------------
(a) Establishment. The DigitalWork, Inc. Amended and Restated 1998
--------------
Stock Option Plan, initially adopted and effective on __________, 1998, is
amended and restated in its entirety hereby and is renamed the
DigitalWork.com, Inc. Amended and Restated 1998 Stock Option Plan. Options
granted under this Plan may be "incentive stock options" intended to
satisfy the requirements of Section 422 of the Code, or "nonqualified
options."
(b) Purpose. The purposes of this Plan are to attract and retain
-------
the best available personnel for positions of substantial responsibility,
to provide additional incentive to employees, directors and consultants and
to promote the success of the Company's business. Options granted under
the Plan may be Incentive Stock Options or Nonqualified Stock Options, as
determined by the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board of Directors of the Company
and/or Committee appointed by the Board pursuant to Section 4 of the Plan.
(b) "Affiliate" means a parent or subsidiary corporation as defined
in the applicable provisions (currently Section 424(e) and (f),
respectively) of the Code.
(c) "Agreement" means the written agreement between the Company and
an Optionee evidencing the grant of an Option and setting forth the terms
and conditions thereof.
(d) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any other country or jurisdiction where Options are
granted under the Plan.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
(g) "Committee" means a committee appointed by the Board to
administer the Plan in accordance with Section 4 hereof, and to perform the
functions set forth herein.
(h) "Common Stock" means the common stock of the Company, par value
($0.05).
(i) "Company" means DigitalWork.com, Inc., a Delaware corporation.
(j) "Consultant" means any person who is engaged by the Company or
any Affiliate to render consulting or advisory services and is compensated
for such services.
(k) "Director" means a member of the Board of Directors of the
Company or any of its Affiliates.
(l) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate designated by the Administrator as
eligible to receive Options subject to the conditions set forth herein.
For purposes hereof, "Employee" shall also include individuals who have not
commenced employment with the Company but have received an offer of
employment with the Company. A person shall not cease to be an Employee in
the case of (i) any leave approved by the Company or (ii) transfers between
locations of the Company or between the Company and its Affiliates. For
purposes of ISOs, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence as
provided by the Company is not so guaranteed, on the 181st day of such
leave any ISO held by the Optionee shall cease to be treated as an ISO and
shall be treated for tax purposes as a NQO. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Fair Market Value" means, as of any date, the value of 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 or SmallCap Market of The Nasdaq Stock Market, 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 exchange
or
2
<PAGE>
system 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;
(ii) if the Common Stock is 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 on the last market trading day prior to the day of
determination; 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.
(p) "Incentive Stock Option" or "ISO" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Administrator
as an Incentive Stock Option.
(q) "Nonqualified Stock Option" or "NQO" means an Option that is not
an Incentive Stock Option.
(r) "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.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option.
(w) "Optionee" means a person to whom an Option has been granted
under the Plan.
(x) "Parent" means a "parent corporation" within the meaning of
Section 424(e) of the Code, whether now or hereafter existing.
(y) "Plan" means the DigitalWork.com, Inc. 1998 Stock Option Plan, as
amended and restated hereby.
(z) "Plan Year" shall be a calendar year.
3
<PAGE>
(aa) "Section 16(b)" means Section 16(b) of the Exchange Act.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation" within the meaning
of Section 424(f) of the Code, whether now or hereafter existing.
(dd) "Ten-Percent Stockholder" means an Employee, who, at the time an
ISO is to be granted to him or her, owns (within the meaning of Section
422(b) (6) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company, or
any Affiliate.
3. Stock Subject to the Plan. Subject to Section 11 of the Plan, the
-------------------------
maximum aggregate number of Shares which may be subject to options and sold
under the Plan is [Number of Shares] [(000,000) Shares.
If an Option expires, is canceled, surrendered (without exercise)
pursuant to an Option Exchange Program, or otherwise become unexercisable for
any reason, the Shares allocable to the canceled, surrendered or otherwise
terminated Option may again be the subject of Options granted hereunder (unless
the Plan has terminated). However, Shares that have actually been issued under
the Plan, upon exercise of an Option, shall not be returned to the Plan and
shall not become available for future distribution under the Plan. Shares that
are retained by the Company upon exercise of an Option in order to satisfy the
exercise price for such Option 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.
4. Administration.
--------------
(a) Administrator. The Plan shall be administered by the Board and/or
-------------
by a duly appointed Committee of the Board having such powers as shall be
specified by the Board. A majority of a quorum of the Board or Committee,
as the case may be, may authorize any action.
(b) Compliance with Section 162(m) of the Code. In the event that the
------------------------------------------
Company is a "publicly held corporation" as defined in paragraph (2) of
section 162(m) of the Code, as amended, and the regulations promulgated
thereunder ("Section 162(m)"), the Company may establish a committee of
outside directors meeting the requirements of Section 162(m) to approve the
grant of Options which might reasonably be anticipated to result in the
payment of employee remuneration that would otherwise exceed the limit on
employee remuneration deductible for income tax purposes pursuant to
Section 162(m).
4
<PAGE>
(c) 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, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select Employees, Directors and/or Consultants to whom
Options may from time to time be granted hereunder;
(iii) to determine the terms and conditions of any Option
granted hereunder. Such terms and conditions include, without
limitation, the exercise price, the time when Options may be
exercised, any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option
or the Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
(iv) to determine the number of shares of Common Stock to be
covered by each such Option 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 Option granted hereunder;
(vii) to initiate an Option Exchange Program;
(viii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(e) instead of Common
Stock;
(ix) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to participants who are
foreign nationals or employed outside of the United States in order to
recognize differences in local law, tax policies customs;
(x) to allow Optionees to satisfy withholding tax obligations
as contemplated by Section 10 hereof;
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan and to establish, amend and revoke rules
and regulations for the administration of the Plan, including, but
without limitation, correcting any defect or supplying any omission,
or reconciling any inconsistency in the Plan or in any Agreement, in
the manner and to
5
<PAGE>
the extent it shall deem necessary or advisable to make the Plan fully
effective;
(xii) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee on an individual basis
without constituting a termination of employment or service for
purposes of the Plan;
(xiii) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan; and
(xiv) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best
interests of the Company with respect to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final, binding and
conclusive upon the Company and its Affiliates, the Optionees and all other
persons having any interest therein.
(e) Indemnification. The Administrator shall not be liable for any
---------------
action, failure to act, determination or interpretation made in good faith
with respect to this Plan or any transaction hereunder, except for
liability arising from his or her own willful misfeasance, gross negligence
or reckless disregard of his or her duties. The Company hereby agrees to
indemnity the Administrator for all costs and expenses and, to the extent
permitted by applicable law, any liability incurred in connection with
defending against, responding to, negotiation for the settlement of or
otherwise dealing with any claim, cause of action or dispute of any kind
arising in connection with any actions in administering this Plan or in
authorizing or denying authorization to any transaction hereunder.
5. Eligibility.
-----------
(a) NQOs may be granted to Employees, Directors or Consultants. ISOs
may be granted only to Employees.
(b) Each Option shall be designated in the Option Agreement as either
an ISO or a NQO. However, notwithstanding such designation, to the extent
that the aggregate Fair Market Value of the Shares with respect to which
ISOs are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Affiliate) exceeds $100,000,
such Options shall be treated as NQOs. For purposes of this Section 5(b),
ISOs shall be taken into account in the order in which they were granted.
The Fair Market Value of the Shares shall be determined as of the time the
Option with respect to such Shares is granted.
6
<PAGE>
(c) The aggregate number of Options that may be granted to any
Optionee under the Plan shall not exceed fifty percent (50%) of the
aggregate number of Shares referred to in Section 3 hereof.
(d) Neither the Plan nor any Option shall not confer upon any
Optionee any right with respect to continuing the Optionee's relationship
as an Employee, Director or Consultant with the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate such relationship at any time, with or without cause.
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 (10) years unless
sooner terminated under Section 14 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
(10) years from the date it is granted (five (5) years in the case of an ISO
granted to a Ten-Percent Stockholder), or such shorter term as the Administrator
may, subsequent to the granting of any Option, provide.
8. Option Exercise Price and Consideration.
----------------------------------------
(a) Exercise Price. 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, but shall be subject to the following:
(i) In the case of an ISO
(aa) granted to an Employee who is a Ten-Percent
Stockholder, the exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(bb) 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 NQO granted to an Employee, Director or
Consultant, the per Share exercise price shall be [no less than 85% of
the Fair Market Value per Share][as determined by the Administrator]
on the date of grant.
(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.
7
<PAGE>
(b) Payment of Option Price. 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
ISO, shall be determined at the time of grant). Such consideration may
consist of: (i) cash, by check, or cash equivalent, (ii) promissory note,
(iii) by tender to the Company of other Shares owned by the Optionee which
(A) in the case of Shares acquired upon exercise of an Option have been
owned by the Optionee for more than six months on the date of surrender,
and (B) have a Fair Market Value, as determined by the Administrator (but
without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company), of not less than the option price of the
Shares as to which such Option shall be exercised (provided such tender of
stock would not constitute a violation of the provisions of any law,
regulation and/or agreement restricting the redemption of the Common
Stock), (iv) consideration received by the Company under a cashless
exercise program, (v) 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, or (vi) such other consideration and method of payment for the
issuance of Shares that may be permitted under Applicable Laws.
The Administrator may at any time or from time to time grant
Options which do not permit all of the foregoing forms of consideration to
be used in payment of the option price and/or which otherwise restrict one
or more forms of consideration.
(c) Promissory Note. To the extent that the Administrator so
---------------
provides, all or a portion of the Option Price may be paid with a full-
recourse promissory note. The Shares shall be pledged as security for
payment of the principal amount of the promissory note and interest
thereon. The interest rate payable under the terms of the promissory note
shall not be less than the minimum rate (if any) required to avoid the
imputation of additional interest under the Code. Subject to the
foregoing, the Administrator (at its sole discretion) shall specify the
term, interest rate, amortization requirements (if any) and other
provisions of such note.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan. An Option may not be exercised
for a fraction of a Share.
An Option shall be deemed to be exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with
the Option Agreement) from the person entitled to exercise the Option and
(ii) full
8
<PAGE>
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 authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise
of an Option shall be issued in the name of the Optionee or, if requested
by the Optionee, in the name of the Optionee and his or her spouse. Until
the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no
right to vote or receive dividends or any other rights as a stockholder
shall exist with respect to the Optioned Stock, notwithstanding 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 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares thereafter 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 Relationship as Employee, Director or Consultant.
---------------------------------------------------------------
If an Optionee ceases to be an Employee, Director or Consultant, as the
case may be, such Optionee may exercise his or her Option within such
period of time as is specified in the Option Agreement to the extent that
the Option is vested on the date of termination (but in no event later than
the expiration of the term of the Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement,
the Option shall remain exercisable for three (3) months following the
Optionee's termination. If, on the date of termination, the Optionee is
not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the
time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan. No termination
shall be deemed to occur if (i) the Optionee is a Consultant or Director
who becomes an Employee within the time specified herein; or (ii) the
Optionee is an Employee who becomes a Consultant or Director who is not
also an employee, within the time specified herein.
(c) Disability of Optionee. If an Optionee ceases to be an Employee,
----------------------
Director or Consultant as a result of Optionee's Disability, the Optionee
may within six (6) months 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 an Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent
that Optionee is not entitled to exercise the Option on the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
9
<PAGE>
(d) Death of Optionee. If an Optionee dies while an Employee,
-----------------
Director or Consultant, the Option may be exercised at any time within six
(6) 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), to the extent the Optionee was vested on the date of death.
If, at the time of death, Optionee is not vested as to the entire Option,
the Shares covered by the unvested portion of the Option shall revert to
the Plan. The Option may be exercised by the executor or administrator of
the Optionee's estate or, if none, by the person(s) entitled to exercise
the Option under the Optionee's will or under the laws of descent and
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Withholding to Satisfy Tax Obligations.
---------------------------------------
(a) Permitted Methods. At the discretion of the Administrator,
-----------------
Optionees may satisfy withholding obligations as provided in this Section
10. When an Optionee incurs tax liability in connection with an Option,
which tax liability is subject to tax withholding under applicable tax
laws, and the Optionee is obligated to pay the Company an amount required
to be withheld under applicable tax laws, the Optionee may satisfy the
withholding tax obligation by one or some combination of the following
methods: (i) by cash payment; (ii) out of Optionee's current compensation;
(iii) if permitted by the Administrator, in its discretion, by surrendering
to the Company Shares that (A) in the case of Shares previously acquired
from the Company, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized; or (iv) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option, if any,
that number of Shares having a Fair Market Value equal to the amount of
withholding due. 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.
(b) Procedures for Stock Withholding. All elections by an Optionee
--------------------------------
to have Shares withheld to satisfy tax withholding obligations shall be
made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions: (i) the election must be made on or
prior to the applicable tax withholding date; (ii) once made, the election
shall be irrevocable as to the particular Shares of the Option as to which
the election is made; (iii) all elections shall be subject to the consent
or disapproval of the Administrator; (iv) if the
10
<PAGE>
Optionee is an Officer, Director or greater than Ten-Percent Stockholder
within the meaning of Rule 16a-2 under the Exchange Act ("Reporting
Person"), the election must comply with the applicable provisions of Rule
16b-3 and shall be subject to such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions.
11. Adjustments upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number and class of shares of Common Stock
with respect to which Options may be granted under the Plan, the number and
class of Shares of Common Stock which are subject to outstanding Options
granted under the Plan, and the purchase price per Share of Common Stock ,
if applicable, 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 or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued Shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt
of consideration." Any such adjustment in the Shares subject to
outstanding ISOs (including any adjustments in the purchase price) shall be
made in such manner as not to constitute a modification as defined by
Section 424(h)(3) of the Code and only to the extent otherwise permitted by
Sections 422 and 424 of the Code. Adjustments shall be made by the
Administrator, whose determination in that respect shall be final, binding
and conclusive. If, by reason of a change in Capitalization, an Optionee
shall be entitled to exercise an Option with respect to new, additional or
different shares of stock, such new, additional or different shares shall
thereupon be subject to all of the conditions which were applicable to the
Shares subject to the Option, as the case may be, prior to such Change in
Capitalization.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed action. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until fifteen (15)
days prior to such transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. To the extent it has not been previously exercised, an Option
will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Sale of Assets. If the Company is to be consolidated
------------------------
with or acquired by another entity in a merger or other reorganization in
which the holders of the outstanding voting stock of the Company
immediately preceding
11
<PAGE>
the consummation of such event, shall, immediately following such event,
hold, as a group, less than a majority of the voting securities of the
surviving or successor entity, or in the event of a sale of all or
substantially all of the Company's assets or otherwise (each, a "Change-of-
Control"), then all outstanding Options, whether or not then vested or
exercisable, shall be deemed to be vested and exercisable immediately prior
to the Change-of-Control.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders 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 to reflect the effect of such
distribution.
12. Non-Transferability of Options. Except as otherwise provided in this
------------------------------
Section, Options may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised or purchased during the lifetime of the
Optionee, only by the Optionee. Notwithstanding the foregoing, the
Administrator may, in its discretion, authorize all or a portion of the Options
to be granted to an Optionee to be transferred by such Optionee to (i) the
spouse, children or grandchildren of such Optionee ("Immediate Family Members"),
(ii) a trust of trusts for the benefit of an Immediate Family Member, or (iii) a
partnership in which Immediate Family Members are the only partners, provided,
that (x) there is no consideration for such transfer, (y) the Option Agreement
expressly provides for the transfer of the Options in accordance with this
Section, and (z) subsequent transfers of such Options are prohibited except by
or in accordance with the laws of descent or distribution.
13. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee, Director or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board or the Administrator may at
-------------------------
any time amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. To the extent necessary and desirable to
--------------------
comply with Applicable Laws, the Company shall obtain stockholder approval
of any Plan amendment in such a manner and to such a degree as required.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator,
12
<PAGE>
which agreement must be in writing and signed by the Optionee and the
Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to
Options granted under the Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any Stock Exchange.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant to the Company in writing 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, and will
not be sold or transferred other than pursuant to an effective registration
thereof under the Exchange Act or pursuant to an exemption applicable under
the Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder. The certificates evidencing any such Shares shall
be appropriately legended to reflect their status as restricted securities.
16. Regulations and Other Approvals; Governing Law.
----------------------------------------------
(a) This Plan and the rights of all persons claiming hereunder shall
be construed and determined in accordance with the laws of the State of
Illinois.
(b) The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all
Applicable Laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Administrator.
(c) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(d) The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Administrator shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith.
Any
13
<PAGE>
provisions inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
(e) The Administrator may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Employees granted ISOs the tax benefits under
the applicable provisions of the Code and regulations promulgated
thereunder.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall 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 shall be evidenced by written agreements in such
----------
form as the Administrator shall approve from time to time.
19. Effective Date; Stockholder Approval. This Plan, as amended and
------------------------------------
restated, shall become effective upon the date the registration statement, as
amended, on Form S-1 (the "Registration Statement") is filed by the Company with
the Securities and Exchange Commission with respect to the initial public
offering of shares of Common Stock, subject to approval by the stockholders of
the Company within twelve (12) months after the date the Plan is so amended and
restated. Such stockholder approval shall be obtained in the degree and manner
required under Applicable Law. All Options issued under the Plan shall become
void in the event such approval is not obtained.
14
<PAGE>
Exhibit 10.2
- ------------
FORM OF
DIGITALWORK.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
1. Purpose.
-------
The purpose of this Plan is to provide Employees of the Company and its
subsidiaries with an opportunity to acquire a proprietary interest in the
Company through the purchase of shares of Common Stock of the Company and
thereby provide Employees with an additional incentive to contribute to the
prosperity of the Company. It is the intention of the Company that 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 Section 423
of the Code.
2. Definitions.
-----------
"Administrator" means the Board of Directors of the Company and/or
Committee appointed by the Board.
"Affiliate" shall mean a parent or subsidiary corporation as defined in the
applicable provisions (currently Section 424(e) and (f), respectively) of
the Code.
"Applicable Laws" means the requirements relating to the administration of
stock purchase plans under U.S. state corporate laws, U.S. federal and
state securities laws, the Code, any stock exchange or quotation system on
which the Common Stock is listed or quoted and the applicable laws of any
other country or jurisdiction where Shares are issued under the Plan.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Committee appointed by the Board to administer
the Plan.
"Common Stock" shall mean the Common Stock of the Company.
"Company" shall mean DigitalWork.com, Inc., a Delaware corporation.
"Employee" shall mean any individual who is an employee of the Company, or
of any Affiliate designated by the Administrator as eligible to participate
in the Plan, for purposes of tax withholding under the Code whose customary
employment with the Company is at least twenty (20) hours per week and more
than five (5) months in any calendar year. For purposes of the Plan, the
employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the
Company or Affiliate. Where the period of leave exceeds ninety (90) days
and the
1
<PAGE>
individual's right to reemployment is not guaranteed by statute or by
contract, the employment relationship will be deemed to have terminated on
the ninety first (91) day of such leave.
"Five-Percent Stockholder" shall mean an Employee who owns (or is deemed to
own pursuant to Section 424(d) of the Code, or would own upon the exercise
of any option extended hereunder or any other option, whether qualified or
nonqualified, held by such employee) shares of capital stock possessing
five percent (5%) or more of the total combined voting power or value of
all classes of stock of the Company, or any subsidiary of the Company.
"Offering Date" shall mean the first business day of each Purchase Period.
"Fair Market Value" means, as of any date, the 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 or SmallCap Market of The Nasdaq Stock Market,
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 exchange or system 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;
(ii) if the Common Stock is 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 on the last market trading day
prior to the day of determination; 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.
"Participant" shall mean an Employee who is a participant in the Plan.
"Pay" shall mean an Employee's total compensation paid by the Company,
exclusive of any payment in cash or kind under any stock option plan,
deferred compensation plan, or other employee benefit plan or program of
the Company.
"Plan" shall mean this DigitalWork.com, Inc. 1999 Employee Stock Purchase
Plan.
"Plan Year" shall mean a calendar year.
"Purchase Date" shall mean the last business day of each Purchase Period.
"Purchase Period" shall mean a six-month period that commences on the
Offering Date and ends on the Purchase Date. The initial period shall
commence on the date the
2
<PAGE>
Company's Registration Statement respecting its public offering is declared
effective by the Securities and Exchange Commission and ending on December
31, 1999, and subsequent six-month periods thereafter commencing on January
1, 2000, during which options granted pursuant to the Plan may be
exercised.
"Share" shall mean a share of the Common Stock, as adjusted in accordance
with Section 8 of the Plan.
"Stockholder" shall mean a record holder of shares entitled to vote shares
of Common Stock.
"Subsidiary" shall mean a subsidiary corporation of the Company within the
meaning of Section 424(f) of the Code, whether now or hereafter existing.
3. Administration.
--------------
The Board shall appoint an Administrator who will serve for such period of
time as the Board may specify and who may be removed by the Board at any time.
The Administrator will have the authority and responsibility for the day-to-day
administration of the Plan, the authority and responsibility specifically
provided in this Plan and any additional duties, responsibility and authority
delegated by the Board. The Administrator may delegate to one or more
individuals the day-to-day administration of the Plan. The Administrator shall
have full power and authority to promulgate any rules and regulations which it
deems necessary for the proper administration of the Plan, to interpret the
provisions and supervise the administration of the Plan, to make factual
determinations relevant to Plan entitlements, and to take all action in
connection with administration of the Plan as it deems necessary or advisable,
consistent with the delegation from the Board, provided, however, the
administration of the Plan shall be consistent with Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, The administration, interpretation
or application of the Plan by the Administrator shall be final and binding upon
all Participants. The Company shall pay all expenses incurred in the
administration of the Plan. No Board or Committee member shall be liable for
any action or determination made in good faith with respect to the Plan or any
option granted thereunder.
4. Eligibility.
-----------
Any Employee employed by either the Company, or by any Affiliate designated
by the Administrator as eligible to participate in the Plan, on a given Offering
Date shall be eligible to participate in the Plan with respect to the Purchase
Period commencing on such Offering Date. Any provisions of the Plan to the
contrary notwithstanding, no Employee shall be granted an option under the Plan
if such Employee is a Five Percent Stockholder.
5. Participation and Withdrawal.
----------------------------
(a) Payroll Deduction Authorization and Plan Enrollment. An eligible
---------------------------------------------------
Employee may become a Participant by completing and filing, on a date
prescribed by the Administrator prior to an applicable Offering Date,
a payroll deduction
3
<PAGE>
authorization and Plan enrollment form provided by the Company. Once
properly made, an eligible Employee's election to participate shall be
automatically renewed for each subsequent Offering Period, subject to
any termination or withdrawal as provided in Section 5(c). Payroll
deductions for a Participant shall commence on the first payroll
following the Offering Date and shall end on the last payroll in
Purchase Period to which such authorization is applicable, unless
sooner terminated by the Participant as provided in Section 5(c). An
eligible Employee may authorize payroll deductions at the rate of any
whole percentage of the Employee's Pay, in an amount not exceeding ten
percent (10%) of Pay received by Employee on each payday during the
Purchase Period, and the aggregate of such payroll deductions during
the Purchase Period shall not exceed ten percent (10%) of the
Employee's Pay during the Purchase Period. All payroll deductions made
for a Participant shall be credited to his account under the Plan and
will be withheld in whole percentages only. A Participant may not make
any additional payments into such account.
(b) Modification of Payroll Deduction. A Participant may decrease his or
---------------------------------
her rate of payroll deductions at any time in accordance with
procedures prescribed by the Administrator. A Participant may
increase his or her rate of payroll deductions only effective on the
first payroll date following the next Purchase Date by filing a new
payroll deduction authorization and Plan enrollment form.
(c) Discontinuance of Participation. A Participant may discontinue
-------------------------------
participation in the Plan at any time during a Purchase Period by
completing and filing a new payroll deduction authorization and Plan
enrollment form with the Company.
If a Participant discontinues participation during a Purchase Period,
his or her accumulated payroll deductions will remain in the Plan for
purchase of shares as specified in Section 7 on the following Purchase
Date, but the Participant will not again participate until he or she
re-enrolls in the Plan. Alternatively, participants may request a cash
distribution of monies accumulated but not yet distributed by
following procedures specified by the Administrator. The Administrator
may (1) establish rules limiting the frequency with which Participants
may discontinue and resume payroll deductions under the Plan and may
impose a waiting period on Participants wishing to resume payroll
deductions following discontinuance, and (2) change the rules
regarding discontinuance of participation or changes in participation
in the Plan.
In the event any Participant terminates employment with the Company
for any reason (including death) prior to the expiration of a Purchase
Period, the Participant's participation in the Plan shall terminate
and all accumulated payroll deductions credited to the Participant's
account shall be paid to the Participant or the Participant's estate
without interest (except where required by local law).
(d) Failure to Follow Procedures. If a Participant has not followed
----------------------------
procedures prescribed by the Administrator to change the rate of
payroll deductions or to discontinue the payroll deductions, the rate
of payroll deductions shall continue at
4
<PAGE>
the originally elected rate throughout the Purchase Period and future
Purchase Periods (or any lower maximum rate then in effect).
(e) Tax Withholding. At the time the option is exercised, or at the time
---------------
the Company's Common Stock issued under the Plan is disposed of, the
Participant must make adequate provision for the Company's federal,
state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but will not be obligated to, withhold from
the Participant's Pay the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by the
Employee.
6. Offering.
--------
(a) Maximum Number of Shares. The maximum number of Shares that may be
------------------------
sold under the Plan is [Number of Shares] [(000,000)], subject to
adjustment upon changes in capitalization of the Company as provided
in Section 9. Shares sold under the Plan may be either authorized and
unissued Shares or issued Shares heretofore or hereafter acquired and
held as treasury Shares, as the Administrator may from time to time
determine. If on a given Purchase Date the number of shares with
respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to
be equitable.
(b) Purchase Periods. The Plan will operate with successive semi-annual
----------------
Purchase Periods after the initial Purchase Period with a new Purchase
Period commencing on the first business day of July and January of
each year, or on such other date as the Administrator shall determine,
and continuing thereafter until terminated in accordance with Sections
12 or 13 hereof. The Administrator shall have the power to change the
duration of the Purchase Periods with respect to future offerings
without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first
Purchase Period to be affected.
(c) Option to Purchase. With respect to each Purchase Period, each
------------------
eligible Employee who has elected to participate as provided in
Section 5(a) shall be granted an option to purchase the number of
shares of Common Stock which may be purchased with the payroll
deductions accumulated in an account maintained on behalf of such
Employee during each Purchase Period at the purchase price specified
in subparagraph (d) below, subject to the limitation contained in this
subparagraph (c). No Participant shall have the right to purchase more
than an aggregate of $25,000 of Shares under the Plan and any other
employee stock purchase plan of the Company described in Section 423
of the Code, in any calendar year, based upon the Fair Market Value
per Share of such Common Stock (determined at the time
5
<PAGE>
such option is granted). The foregoing sentence shall be interpreted
so as to comply with Code Section 423(b)(8).
(d) Option Price. The option price under each option shall be the lower
------------
of: (i) a percentage (not less than eighty-five percent (85%))
established by the Administrator ("Designated Percentage") of the Fair
Market Value of the Common Stock on the Offering Date on which an
option is granted, or (ii) the Designated Percentage of the Fair
Market Value of the Common Stock on the Purchase Date. The
Administrator may change the Designated Percentage with respect to any
future Purchase Period, but not below eighty-five percent (85%), and
the Administrator may determine with respect to any prospective
Purchase Period that the option price shall be the Designated
Percentage of the Fair Market Value of the Common Stock on the
Purchase Date.
7. Purchase of Stock.
-----------------
Upon the expiration of each Purchase Period, a Participant's option shall
be exercised automatically for the purchase of that number of full and
fractional shares of Common Stock which the accumulated payroll deductions
credited to the Participant's account at that time shall purchase at the
applicable price specified in Section 6(d), subject to Section 6(c).
8. Payment and Delivery.
--------------------
Upon the exercise of an option on each Purchase Date, the Company or
Affiliate shall deliver to the Participant a record of the Common Stock
purchased, except as specified below. Shares to be delivered to a Participant
under the Plan will be registered in the name of the Participant or, if the
Participant so directs by written notice to the Administrator prior to the
Purchase Date, in the names of the Participant and one such other person as may
be designated by the Participant, as joint tenants with rights of survivorship,
to the extent permitted by the Applicable Laws. The Administrator may permit or
require that shares be deposited directly with a broker designated by the
Administrator (or a broker selected by the Administrator) or to a designated
agent of the Company, and the Administrator may utilize electronic or automated
methods of share transfer. The Administrator may require that shares be
retained with such broker or agent for a designated period of time (and may
restrict dispositions during that period) and/or may establish other procedures
to permit tracking of disqualifying dispositions of such shares or to restrict
transfer of such shares. The Administrator may require that shares purchased
under the Plan shall automatically participate in a dividend reinvestment plan
or program maintained by the Company. The Company shall retain the amount of
payroll deductions used to purchase Common Stock as full payment for the Common
Stock and the Common Stock shall then be fully paid and non-assessable. No
Participant shall have any voting, dividend, or other stockholder rights with
respect to shares subject to any option granted under the Plan until the shares
subject to the option have been purchased and delivered to the Participant as
provided in Section 8.
9. Recapitalization.
----------------
6
<PAGE>
(a) If after the grant of an option, but prior to the purchase of Common
Stock under the option, there is any increase or decrease in the
number of outstanding shares of Common Stock because of a stock split,
stock dividend, combination or recapitalization of shares subject to
options, the number of shares to be purchased pursuant to an option,
the share limit of Section 6(c) and the maximum number of shares
specified in Section 6(a) shall be proportionately increased or
decreased, the terms relating to the purchase price with respect to
the option shall be appropriately adjusted by the Administrator, and
the Administrator shall take any further actions which, in the
exercise of its discretion, may be necessary or appropriate under the
circumstances.
(b) The Administrator, if it so determines in the exercise of its sole
discretion, also may adjust the number of shares specified in Section
6(a), as well as the price per share of Common Stock covered by each
outstanding option and the maximum number of shares subject to any
individual option, in the event the Company effects one or more
reorganizations, recapitalizations, spin-offs, split-ups, rights
offerings or reductions of shares of its outstanding Common Stock.
(c) The Administrator's determinations under this Section 9 shall be
conclusive and binding on all parties.
10. Merger, Liquidation, Other Corporation Transactions.
---------------------------------------------------
(a) In the event of the proposed liquidation or dissolution of the
Company, the Purchase Period then in progress will terminate
immediately prior to the consummation of such proposed liquidation or
dissolution, unless otherwise provided by the Administrator in its
sole discretion, and all outstanding options shall automatically
terminate and the amounts of all payroll deductions will be refunded
without interest to the Participants.
(b) In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger or consolidation of the Company
with or into another corporation, then in the sole discretion of the
Administrator, (1) each option shall be assumed or an equivalent
option shall be substituted by the successor corporation or parent or
subsidiary of such successor corporation, (2) a date established by
the Administrator on or before the date of consummation of such
merger, consolidation or sale shall be treated as an Exercise Date,
and all outstanding options shall be deemed exercisable on such date
or (3) all outstanding options shall terminate and the accumulated
payroll deductions shall be returned to the Participants, without
interest.
11. Transferability.
---------------
Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of an option or to receive Shares under the
Plan may be voluntarily or involuntarily assigned, transferred, pledged, or
otherwise disposed of in any way other than by
7
<PAGE>
will or the laws of descent and distribution or by a "qualified domestic
relations order" under the Code, and any other attempted assignment, transfer,
pledge, or other disposition shall be null and void and without effect. If a
Participant in any manner attempts to transfer, assign or otherwise encumber his
or her rights or interest under the Plan, other than as permitted by the Code,
such act shall be treated as an election by the Participant to discontinue
participation in the Plan pursuant to Section 5(c). Any option granted to a
Participant under the Plan may be exercised only by the Participant during his
or her lifetime.
12. Term of Plan.
------------
The Plan shall continue for a ten year term measured from its Effective
Date, unless previously terminated in accordance with Section 13.
13. Amendment or Termination of the Plan.
------------------------------------
The Administrator may, in its sole discretion, insofar as permitted by law,
terminate or suspend the Plan or revise or amend it in any respect whatsoever.
No such termination shall affect options previously granted and exercised, nor
shall any amendment make any change in any option theretofore granted which
would adversely affect the rights of any Participant. No revision or amendment
shall be made without prior approval of the stockholders if such amendment
would:
(a) materially increase the number of shares subject to the Plan, other
than an adjustment under Section 9 of the Plan;
(b) materially modify the requirements as to eligibility for participation
in the Plan, except as otherwise specified in this Plan;
(c) reduce the purchase price specified in Section 6(d), except as
specified in Section 9; or
(d) extend the term of the Plan beyond the date specified in Section 12.
14. Use of Funds.
------------
All payroll deductions received or held by the Company or Affiliate under
the Plan may be used by the Company or by the Affiliate for any corporate
purpose, and may be commingled with its other corporate funds. No interest shall
be paid or credited to the Participant with respect to such payroll deductions
except where required by local law as determined by the Administrator.
15. Local Law.
---------
The Administrator may adopt rules or procedures relating to the operation
and administration of the Plan to accommodate the specific requirements of local
laws and procedures. Without limiting the generality of the foregoing, the
Administrator is specifically
8
<PAGE>
authorized to adopt rules and procedures regarding handling of payroll
deductions, payment of interest, payroll tax, withholding procedures and
handling of stock certificates which vary with local requirements.
16. Securities Laws Compliance.
--------------------------
The Company shall not be under any obligation to issue Common Stock upon
the exercise of any option unless and until the Company has determined that: (i)
it and the Participant have taken all actions required to register the Common
Stock under the Securities Act of 1933, or to perfect an exemption from the
registration requirements thereof; (ii) any applicable listing requirement of
any stock exchange on which the Common Stock is listed has been satisfied; and
(iii) all other applicable provisions of state and federal law have been
satisfied.
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 such a representation is
required by Applicable Law.
17. Notices.
-------
All notices or other communications by a Participant to the Company or
Affiliate under or in connection with the Plan shall be deemed to have been
given when received by the Administrator or when received in the form specified
by the Administrator at the location, or by the person, designated by the
Administrator for the receipt thereof.
18. No Enlargement of Employee Rights.
---------------------------------
Nothing contained in this Plan shall be deemed to give any Employee the
right to be retained in the employ of the Company or of the Affiliate or to
interfere with the right of the Company or Affiliate to discharge any Employee
at any time.
19. Regulations and Other Approvals; Governing Law.
----------------------------------------------
(a) This Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of
Illinois.
(b) This Plan and the Company's obligation to sell and deliver Shares
under the Plan shall be subject to all Applicable Laws, and the
obtaining of such approvals by governmental agencies required in
connection with the Plan or the authorization, issuance, sale, or
delivery of stock hereunder.
20. Notice of Disqualifying Disposition.
-----------------------------------
The Administrator may require, as a condition of participation in the Plan,
that a Participant agree to promptly notify the Company of any disposition of
Shares acquired pursuant to an option granted under the Plan within two years of
the grant date of the applicable option or
9
<PAGE>
within one year of the transfer of the Shares to him or her (a "disqualifying
disposition"), and the number of Shares disposed of.
21. Effective Date; Stockholder Approval.
------------------------------------
This Plan shall become effective upon the effective date of the S-1
registration statement filed by the Company pursuant to an initial public
offering of its Shares, subject to approval by the stockholders of the Company
within twelve (12) months after the date the Plan is adopted by the Board of
Directors ("Effective Date"). Such stockholder approval shall be obtained in
the degree and manner required under Applicable Law. All Shares issued under
the Plan shall become void in the event such approval is not obtained. No
options shall be granted under the Plan prior to such effective date.
10
<PAGE>
Exhibit 10.3
- ------------
Grant No._______
DigitalWork.com, Inc.
1998 Stock Option Plan
(As Amended and Restated March 1, 2000)
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the DigitalWork.com,
Inc. 1998 Stock Option Plan (As Amended and Restated March 1, 2000) (the "Plan")
shall have the same defined meanings in this Stock Option Agreement (the
"Agreement").
I. NOTICE OF STOCK OPTION GRANT
[OPTIONEE'S NAME AND ADDRESS]
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Date of Grant ____________________
Vesting Commencement Date ____________________
Exercise Price per Share ____________________
Total Number of Shares Granted ____________________
Type of Option ____ Incentive Stock Option
____ Nonqualified Stock Option
Term/Expiration Date: ____________________
Vesting Schedule See Paragraph 3 below.
II. AGREEMENT
1. Grant of Option. DigitalWork.com, Inc., a Delaware corporation (the
---------------
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase the number of Shares set forth
in the Notice of Grant, at the exercise price per Share set forth in the Notice
of Grant (the "Exercise Price"), and subject to the terms and conditions of the
Plan, which is incorporated herein by reference. Subject to Section 14(c) of
the Plan (Effect of Amendment or Termination), in the event of a conflict
between the terms and conditions of the Plan and this Option Agreement, the
terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds $100,000
during any calendar year, this Option shall be treated as a Nonqualified Stock
Option ("NQO").
2. Exercise Price. The exercise price per Share for the Optioned Stock
--------------
shall be as set forth in Section I.
3. Vesting Schedule. The period or periods of time only after which the
----------------
Option, or portions thereof, become "vested" (i.e., may be acquired by
exercising that portion of the Option) shall be: [(i) twenty-five percent (25%)
of the shares subject to the Option shall vest and may be acquired upon exercise
on the first anniversary of the vesting commencement date, provided that
Optionee remains an Employee, Director or Consultant through and including such
date (ii) twenty-five percent (25%) of the Shares subject to the Option shall
vest and may be
1
<PAGE>
acquired upon exercise on the second anniversary of the vesting commencement
date, provided that Optionee remains an Employee, Director or Consultant through
and including such date (iii) twenty-five percent (25%) of the Shares subject to
the Option shall vest and may be acquired upon exercise on the third anniversary
of the vesting commencement date, provided that Optionee remains an Employee,
Director or Consultant through and including such date and (iv) twenty-five
percent (25%) of the Shares subject to the Option shall vest and may be acquired
upon exercise on the fourth anniversary of the vesting commencement date,
provided that Optionee remains an Employee, Director or Consultant through and
including such date.]
4. Exercise of Option. The Options shall be exercisable during their term
------------------
in accordance with the vesting schedule described in Section 3 above and with
the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) Options may not be exercised for a fraction of a Share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Options are
governed by Sections 9, 10, 11 and 12 below, subject to the limitation
contained in subsection 4(a)(iii).
(iii) In no event may Options be exercised after the date of
expiration of the term of the respective Option as provided in Section
13 hereof.
(b) Method of Exercise. This Option shall be exercisable by delivery
------------------
of written notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise an Option, the number of Shares
with respect to which the Option is being exercised, and such other
representations and agreements as may be required by the Company. This
Option shall be deemed to be exercised upon receipt by the Company of such
written notice accompanied by payment in the amount of the applicable
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all Applicable
Laws. Assuming such compliance, for income tax purposes the Shares shall
be considered transferred to the Optionee on the date on which the Option
is exercised with respect to such Shares.
5. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Agreement have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
this Option, deliver to the Company his Investment Representation Statement in
the form attached hereto as Exhibit B (the "Investment Representation
Statement").
6. Method of Payment. Payment of the applicable Exercise Price shall be
-----------------
by cash or, at the election of the Administrator, by any of the following:
(a) cash, check or cash equivalent;
(b) promissory note;
(c) consideration received by the Company under a cashless exercise
program;
(d) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of an Option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (ii) have a Fair Market Value, as determined by the
Administrator
2
<PAGE>
(but without regard to any restrictions on transferability applicable to
such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company), of not less than the option price of the
Shares as to which such Option shall be exercised (provided such tender of
stock would not constitute a violation of the provisions of any law,
regulation and/or agreement restricting the redemption of the Company's
stock);
(e) 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; or
(f) such other consideration and method of payment for the issuance
of Shares that may be permitted under Applicable Laws.
7. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Laws. As a condition to the exercise of an Option, the Company may require
Optionee to make any representation and warranty to the Company as may be
required by any Applicable Law.
8. Termination of Relationship. In the event of termination of Optionee's
---------------------------
status as an Employee, Director or Consultant for any reason, Optionee may, but
only within three (3) months after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth herein),
exercise Optionee's Options to the extent that Optionee was entitled to exercise
them at the date of such termination. To the extent that Optionee was not
entitled to exercise an Option at the date of such termination, or if Optionee
does not exercise an Option within the time specified herein, the Options shall
terminate, and the Shares covered by such Option shall revert to the Plan.
9. Disability of Optionee. Notwithstanding the provisions of Section 8
----------------------
above, in the event of termination of Optionee's status as an Employee, Director
or Consultant as a result of his or her disability, Optionee may, but only
within six (6) months from the date of termination of employment (but in no
event later than the date of expiration of the term of the Option as set forth
herein), exercise Optionee's Options to the extent otherwise so entitled at the
date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Options shall terminate, and the Shares covered by such Option shall revert to
the Plan.
10. Death of Optionee. Notwithstanding the provisions of Section 8 above,
-----------------
in the event of the death of Optionee while such Optionee was an Employee,
Director or Consultant, Optionee's Options may be exercised at any time within
six (6) months following the date of death (but in no event later than the date
of expiration of the term of the Options as set forth herein), by Optionee's
estate or by a person who acquired the right to exercise the Options at the date
of death. To the extent that Optionee was not entitled to exercise the Options
at the date of death or termination, as the case may be, or if Optionee does not
exercise the Options to the extent so entitled within the time specified herein,
the Options shall terminate, and the Shares covered by such Option shall revert
to the Plan.
11. Non-Transferability of Option. No right or interest in this
-----------------------------
Agreement, nor any Option granted hereby, may be assigned, transferred or
disposed of in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by such
Optionee. The terms of the Plan and this Option Agreement and the Options shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
12. Term of Option. This Option may be exercised only within ten (10)
--------------
years after the date of grant of such Option, and may be exercised during such
term only in accordance with the Plan and the terms of this Option Agreement.
Notwithstanding the foregoing, the limitations set forth in Section 7 of the
Plan regarding
3
<PAGE>
Options designated as Incentive Stock Options and Options granted to Ten Percent
Stockholders shall apply to all Options granter hereunder.
13. Tax Consequences. Optionee acknowledges that he or she has been given
----------------
the opportunity to consult with his or her own tax advisor with respect to the
tax consequences of the Options and the exercise thereof and the disposition of
Shares, and that Optionee is not relying upon the Company for any tax advice.
14. Tax Withholding for Nonqualified Stock Options.
----------------------------------------------
The following shall apply with respect to any Nonqualified Stock
Options or if for any other reason Optionee is required to satisfy a withholding
obligation arising upon exercise of an Option:
(a) Methods. Optionee shall satisfy his or her tax withholding
--------
obligation arising upon the exercise of an Option by one of the following
methods: (i) by cash payment; (ii) out of Optionee's current compensation;
or (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (B) have a Fair
Market Value on the date of surrender equal to or less than Optionee's
marginal tax rate times the ordinary income recognized; or (iv) by electing
to have the Company withhold from the Shares to be issued upon exercise of
the Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld.
(b) Rule 16b-3. If the Optionee is subject to Section 16 of the
----------
Exchange Act (an "Insider"), any surrender of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of an Option must
comply with the applicable provisions of Rule 16b-3 promulgated under the
Exchange Act ("Rule 16b-3") and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(c) Procedures. All elections by an Optionee to have Shares withheld
----------
to satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions: (i) the election must be made on or prior to the applicable
tax withholding date; (ii) once made, the election shall be irrevocable as
to the particular Shares of the Option as to which the election is made;
(iii) all elections shall he subject to the consent or disapproval of the
Administrator; (iv) if the Optionee is a Reporting Person, the election
must comply with the applicable provisions of Rule 16b-3 and shall be
subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
15. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of the State of Illinois.
16. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF OPTIONS PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS AN EMPLOYEE, DIRECTOR OR CONSULTANT AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED ANY OPTIONS OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
4
<PAGE>
ENGAGEMENT AS AN EMPLOYEE, DIRECTOR OR CONSULTANT FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP WITH THE COMPANY AT
ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Option Agreement. Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions arising under the Plan,
this Agreement or any Option.
DIGITALWORK.COM, INC.,
a Delaware corporation
By: __________________________________
Title: _______________________________
***OPTIONEE SIGNATURE PAGE FOLLOWS***
5
<PAGE>
OPTIONEE:
Dated as of: ______________, 1999 _____________________________________
(sign name)
______________________________
(print name)
6
<PAGE>
EXHIBIT A
---------
DigitalWork.com, Inc.
1998 Stock Option Plan
(As Amended and Restated March 1, 2000)
---------------------------------------
EXERCISE NOTICE
DigitalWork.com, Inc.
230 West Monroe Street, Suite 1950
Chicago, Illinois 60606
Attention: Stock Option Plan Administrator
1. Exercise of Option. Effective as of today, _______________, ____, the
------------------
undersigned ("Optionee") hereby elects to exercise pursuant to this Exercise
Notice (this "Agreement") Optionee's option to purchase _____ shares of the
Common Stock (the "Shares") of DigitalWork.com, Inc., a Delaware corporation
(the "Company") under and pursuant to the DigitalWork.com, Inc. 1998 Stock
Option Plan (As Amended and Restated March 1, 2000) (the "Plan") and the Stock
Option Agreement dated as of _________, ____ (the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and Option Agreement and agrees to abide
by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 11 of the
Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Option on Termination of Employment
hereunder and delivers payment for such Shares. Upon such exercise, Optionee
shall forthwith cause the certificate(s) evidencing the Shares so purchased to
be surrendered to the Company for transfer or cancellation upon delivery of
payment thereafter, after which transfer or cancellation Optionee shall have no
further rights as a holder of the Shares.
4. Company's Option Upon Certain Events.
------------------------------------
The Company shall have the right to purchase all, but not less than all, of
the Shares owned by Optionee, if during the two year period following the
termination of the employment (for any reason or no reason) of Optionee,
Optionee:
(a) owns, manages, operates, controls, or participates in, or becomes
associated in any manner whatsoever, directly or indirectly, with, or
becomes connected as an officer, employee, manager, partner, director,
consultant, or otherwise with, or has any financial interest in, or aids or
assists anyone in the conduct of, or otherwise engages in, any business
(whether it be a sole proprietorship, partnership, corporation, limited
liability company, or any other entity), that provides services that are
similar to those provided by the Company, including, but not limited to,
insurance agencies, brokerage offices or
1
<PAGE>
prospective policy lead referral services (by way of clarification and not
in limitation to the foregoing, "similar" products or services as used in
this paragraph would be the provision, via electronic means such as the
Internet or other networks, of services or products relating to insurance
quotes or policies or substantially similar or competing financial or other
services and products) (provided, however, that, ownership of not more than
one percent of the voting securities of any publicly-held corporation, in
and of itself, shall not constitute a violation of this paragraph);
(b) solicits or otherwise encourages any employee or independent
contractor of the Company to (a) terminate his or her employment or other
relationship with the Company, or (b) with respect to employees of the
Company, enter into employment with any other person or entity;
(c) in any way slanders, libels, or through any other means, takes
any action that is intended to be detrimental to the Company or its
personnel, operations, or products and services; or
(d) without limitation to the foregoing, breaches any obligation
similar to the foregoing and then effective agreement between Optionee and
the Company.
In the event that the Company becomes aware that Optionee has engaged in
any of the foregoing activities, the Company may elect to redeem all, but not
less than all, of the Shares owned by Optionee by delivering written notice of
such election to Optionee. The purchase price shall be equal to the applicable
Exercise Price for each of such Shares. Such right shall be effective for a
period of ninety (90) days from the date the Company became aware of such
activities. The redemption shall be consummated within thirty (30) days of the
date of the Company's election notice, at a time and place reasonably determined
by the Company.
5. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
7. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator of the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on the Company and on Optionee.
8. Governing Law; Severability. This Agreement is governed by the
---------------------------
internal substantive laws but not the choice of law rules of the State of
Illinois.
9. Entire Agreement. The Plan and Option Agreement are incorporated
----------------
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
2
<PAGE>
Submitted by: Accepted by:
DIGITALWORK.COM, INC.
___________________________
(print name)
By:_______________________________
(sign name)
___________________________ _______________________________
(signature) (print name)
Its: ________________________
Address: _______________________
_______________________
_______________________
3
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: __________________________
COMPANY: DIGITALWORK.COM, INC.
SECURITY: COMMON STOCK
AMOUNT: ___________________________
DATE: ___________________________
In connection with the purchase of the above-listed Securities, I, the
Optionee, represent to DigitalWork.com, Inc., a Delaware corporation (the
"Company") the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. I
am purchasing these Securities for my own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Securities Act").
(b) I understand that the Securities have not been registered under
the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. In this connection, I understand
that, in the view of the Securities and Exchange Commission (the "SEC"),
the statutory basis for such exemption may be unavailable if my
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other
fixed period in the future.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available. Moreover, I
understand that the Company is under no obligation to register the
Securities. In addition, I understand that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not
required in the opinion of counsel for the Company.
(d) I am familiar with the provisions of Rule 701 and Rule 133, each
promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly,
from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of issuance of the Securities, such
issuance will be exempt from registration under the Securities Act. In the
event the Company later becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90)
days thereafter the securities exempt under Rule 701 may be resold, subject
to the satisfaction of certain of the conditions specified by Rule 144,
including among other things: (1) the sale being made through a broker in
an unsolicited "broker's transaction" or in transaction directly with a
case of an affiliate, (2) the availability of certain public information
about the Company, and the amount of securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), if
applicable. Notwithstanding this paragraph (d), I acknowledge and agree to
the restrictions set forth in paragraph (e) hereof.
4
<PAGE>
In the event that the Company does not qualify under Rule 701 at
the time of issuance of the Securities, then the Securities may be resold
in certain limited circumstances subject to the provisions of Rule 144,
which requires among other things: (1) the availability of certain public
information about the Company, (2) the resale occurring not less than one
year after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the case of an
Affiliate, or of a non-affiliate who has held the securities less than two
years, (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transaction directly with a market maker (as said term
is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the
specified limitations stated therein, if applicable.
(e) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rule 144 and Rule 701 are not exclusive, the Staff of the SEC has
expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant
to Rule 144 or Rule 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such
offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
Signature of Optionee:
____________________________________
(sign name)
____________________________________
(print name)
5
<PAGE>
Exhibit 10.5
- ------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND HAVE BEEN
--------------
SOLD IN RELIANCE ON THE EXEMPTION FROM REGISTRATION PROVIDED FROM REGULATIONS
UNDER THE SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE OFFERED OR SOLD, EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT
OR IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE SECURITIES ACT OR ANOTHER
AVAILABLE EXEMPTION THEREFROM, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
Date of Issuance: December 2, 1999
DIGITALWORK.COM, INC.
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, __________________________________
(the "Holder") is entitled, upon the terms and subject to the conditions
------
hereinafter set forth, at any time or from time to time, during the Term (as
defined in Section 1 below), to subscribe for and purchase from DigitalWork.com,
Inc., a Delaware corporation (the "Company"), fully paid and non-assessable
shares of its common stock, par value $.005 per share ("Common Stock"), for the
number of shares as shall be determined by applying the formula set forth in
Section 2 below.
1. Term of the Warrant. This Warrant shall be exercisable by Holder from
-------------------
(A) the day after the Securities and Exchange Commission (the "Commission")
declares effective (the "Effective Date") a registration statement on Form S-1
(or any successor form thereto) filed by the Company to register shares of
Common Stock in an initial public offering of Common Stock by the Company
("IPO") to (B) 5:00 p.m., Pacific Standard Time, on the one year anniversary of
---
the Effective Date. The time between A and B above shall be referred to herein
as the "Term".
----
2. Number of Shares of Common Stock. The number of shares of Common Stock
--------------------------------
the Holder shall be entitled to purchase from the Company pursuant to this
Warrant shall equal WS as determined below, where:
WS = [(W/X) times (Y)] - Z;
Where
WS = Number of shares of Common Stock covered by this Warrant.
W = Number of shares of Common Stock that have been issued or are
issuable to Holder upon conversion of its Series D Convertible
Preferred Stock, par value $.005 per share ("Series D Preferred")
at the Effective Date.
X = Total number of shares of Common Stock that have been issued or
are issuable to holders of Series D Preferred upon conversion of
its Series D Preferred Stock at the Effective Date.
<PAGE>
Y = Ten percent (10%) of the total number of shares of Common Stock
issued by the Company in its IPO (exclusive of any over-allotment
option that the Company may grant to the underwriters of such
IPO).
Z = Number of shares of Common Stock to be issued to the Holder in
the IPO.
The formula above shall be applied using numbers as of the Effective Date.
Hereinafter, (i) the Common Stock of the Company, together with any other equity
securities which may be issued by the Company in substitution therefor, is
referred to as the "Common Stock," (ii) the shares of the Common Stock
------------
purchasable hereunder are referred to as the "Warrant Shares," (iii) the
--------------
aggregate exercise price payable for all of the Warrant Shares is referred to as
the "Aggregate Exercise Price," and (iv) the price payable hereunder for each of
------------------------
the Warrant Shares is referred to as the "Per Share Exercise Price," which shall
------------------------
be the price per share of the common stock in the IPO (without regard to
underwriting commission and discounts).
3. Exercisability.
--------------
(a) Exercise of Warrant. This Warrant may be exercised, in whole at
-------------------
any time or in part from time to time, during the Term, by the Holder by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the principal office of the Company, which is currently located at
230 West Monroe Street, Suite 1950, Chicago, Illinois 60606, together with
proper payment of the Per Share Exercise Price for each of the Warrant Shares as
to which the Warrant is being exercised. Payment for Warrant Shares shall be
made by certified or bank cashier's check, payable to the order of the Company.
If this Warrant is exercised in part, this Warrant must be exercised
for a number of whole shares of the Common Stock and the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares with
respect to which this Warrant has not been exercised. Upon such surrender of
this Warrant, together with the subscription form at the end hereof duly
executed and proper payment of the Per Share Exercise Price for each of the
Warrant Shares as to which the Warrant is being exercised, the Company will (i)
issue, or cause the Company's transfer agent to issue, a certificate or
certificates in the name of the Holder for the largest number of whole shares of
the Common Stock to which the Holder shall be entitled and, if this Warrant is
exercised in whole, in lieu of any fractional share of the Common Stock to which
the Holder shall be entitled, cash equal to the Fair Market Value of such
fractional share (as hereinafter defined), and (ii) deliver the other securities
and properties receivable upon the exercise of this Warrant, if any, or the
proportionate part thereof if this Warrant is exercised in part, pursuant to the
provisions of this Warrant.
(b) Net Issue Exercise. Notwithstanding provisions herein to the
------------------
contrary, in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant or such
portion to the Company with the net issue election notice annexed hereto duly
executed (or the portion thereof being cancelled) by surrender of this Warrant
at the principal office of the Company, in which event the Company shall issue
to the Holder such number of shares of Common Stock computed using the following
formula:
X = Y (A - B);
--------
A
X = The number of shares of Common Stock to be
issued to the Holder;
<PAGE>
Y = The number of Warrant Shares or, if only a
portion of the Warrant is being exercised, the
portion of the Warrant being cancelled at the
date on which the net issue election is
delivered to the Company (the "Net Exercise
Date");
A = The Fair Market Value (as hereinafter defined)
of one share on the Net Exercise Date; and
B = The Per Share Exercise Price.
(c) Fair Market Value means:
-----------------
(i) If shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system, the average of the daily closing prices for the five (5) trading days
before such date, excluding any trades which are not bona fide, arm's length
transactions. The closing price for each day shall be the last sale price on
such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices on such date, in each case as officially reported
on the principal national securities exchange or national market system on which
such shares are then listed, admitted to trading or traded;
(ii) If no shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system for at least five (5) days, the average of the reported closing bid and
asked prices thereof on such date in the over-the-counter market as shown by the
National Association of Securities Dealers automated quotation system or, if
such shares are not then quoted in such system, as published by the National
Quotation Bureau, Incorporated or any similar successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected by Holder;
(iii) If no shares of Common Stock are then listed or admitted to
trading on any national exchange or traded on any national market system, if no
closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market for at least five (5) days, the Fair Market Value of a
share of Common Stock shall be a determined in good faith by the mutual
agreement of the parties.
4. Reservation of Warrant Shares. The Company agrees that, prior to the
-----------------------------
expiration of the Term, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock and other securities
and properties as from time to time shall be receivable upon the exercise of
this Warrant.
5. Adjustments.
-----------
(a) Distribution With Respect to Common Stock. If, at any time or
-----------------------------------------
from time to time after the date of this Warrant, the Company shall distribute
to the holders of the Common Stock, without payment therefor, (i) securities,
other than shares of the Common Stock, or (ii) property, other than cash, with
respect to the Common Stock, then, and in each such case, the Holder, upon the
exercise of this Warrant, shall be entitled to receive the securities and
properties which the Holder would hold on the date of such exercise if, on the
date of such distribution, the Holder had been the holder of record of the
number of shares of the Common
<PAGE>
Stock subscribed for upon such exercise and, during the period from the date of
such distribution to and including the date of such exercise, had retained such
shares and the securities and properties receivable by the Holder during such
period.
(b) Stock Splits, Etc. If, at any time or from time to time after the
------------------
Effective Date, the Company shall issue to the holders of the Common Stock
shares of the Common Stock by way of a stock dividend or stock split, then, and
in each such case, the Per Share Exercise Price shall be adjusted, or further
adjusted, to a price (to the nearest whole cent) determined by dividing (i) an
amount equal to the number of shares of the Common Stock outstanding immediately
prior to such issuance multiplied by the Per Share Exercise Price as it existed
immediately prior to such issuance by (ii) the total number of shares of Common
Stock outstanding immediately after such issuance. Upon each such adjustment in
the Per Share Exercise Price, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Exercise Price by the Per Share Exercise Price in effect
immediately after such adjustment.
(c) Reverse Splits, Etc. If, at any time or from time to time after
--------------------
the Effective Date, the number of shares of Common Stock outstanding is
decreased by way of combination of shares or reverse split, then, and in each
such case, the Per Share Exercise Price shall be adjusted, or further adjusted,
to a price (to the nearest whole cent) determined by dividing (i) an amount
equal to the number of shares of the Common Stock outstanding immediately prior
to such event multiplied by the Per Share Exercise Price as it existed
immediately prior to such event by (ii) the total number of shares of the Common
Stock outstanding immediately after such event. Upon each such adjustment in
the Per Share Exercise Price, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Exercise Price by the Per Share Exercise Price in effect
immediately after such adjustment.
6. Notice of Change of Control. The Company shall provide advance notice
---------------------------
to the Holder of this Warrant of any reorganization, consolidation, merger or
other such transaction as soon as practicable, but in no event less than 10 days
prior to the consummation of any such transaction in order to allow the Holder
to exercise this Warrant prior to such consummation.
7. Fully Paid Stock; Taxes. The Company agrees that the shares of the
-----------------------
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non-assessable. The Company
further covenants and agrees that it will pay, when due and payable, any and all
federal and state stamp, original issue or similar taxes which may be payable in
respect of the issue of any Warrant Share or certificate therefor; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance of any certificate
for Warrant Shares in a name other than that of the Holder upon any exercise of
this Warrant.
8. Restrictions on Transferability of Securities; Compliance with
--------------------------------------------------------------
Securities Act.
- --------------
(a) Restrictions on Transferability. The transferability of this
-------------------------------
Warrant and the Warrant Shares (as well as any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event) shall be subject to
the conditions specified in this Section 8, which conditions are intended to
ensure compliance with the provisions of the Securities Act of 1933 (the "Act")
and applicable state securities laws. The Holder, and any transferee of this
Warrant or the Warrant Shares, by its
<PAGE>
acceptance hereof or thereof, agrees that this Warrant and the Warrant Shares
will be taken and held subject to the provisions and upon the conditions
specified in this Section 8. All of the rights of a holder of this Warrant may
only be transferred by the holder to the following: (i) if holder is a
partnership, any partner or retired partner of such Purchaser, (ii) if the
holder is an individual, any family member of or trust for the benefit of such
holder, (iii) if the holder is a corporation, any shareholder of such holder,
(iv) if the holder is a limited liability company, to a member of such holder,
or (v) any transferee who acquires at least $500,000 of the Common Stock of the
Company; provided, that, such transfer otherwise complies with all applicable
state and federal securities laws. For purposes of determining the availability
of any rights under this Warrant, all shares of capital stock of the Company
held or acquired by affiliated persons or persons under common management shall
be aggregated together and treated as one such holder.
(b) Restrictive Legend. This Warrant and each certificate
------------------
representing (i) the Warrant Shares or (ii) any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted or unless the securities evidenced by such certificate shall
have been registered under the Act) be stamped or otherwise imprinted with a
legend substantially in the following form, and shall be subject to the
provisions thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND HAVE BEEN SOLD IN
---------------
RELIANCE ON THE EXEMPTION FROM REGISTRATION PROVIDED FROM
REGULATIONS UNDER THE SECURITIES ACT. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR IN COMPLIANCE WITH
RULE 144 PROMULGATED UNDER THE SECURITIES ACT OR ANOTHER
AVAILABLE EXEMPTION THEREFROM, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED."
8. Registration Rights. The Warrant Shares shall be deemed to be
-------------------
Registrable Stock and Series D Registrable Stock as provided in that certain
Amended and Restated Registration Rights Agreement, dated as of December 2,
1999, among the Company and each of the persons listed as an Investor on the
signature pages hereto, for the purpose of registration rights of the Holders.
9. Warrant Register. This Warrant is transferable only upon the books of
----------------
the Company, which it shall cause to be maintained for such purpose. The
Company may treat the registered holder of this Warrant as he, she or it appears
on the Company's books at any time as the Holder for all purposes,
notwithstanding the Company's receipt of any notice to the contrary.
10. Loss, Etc., of Warrant. Upon receipt of evidence satisfactory to the
----------------------
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant
<PAGE>
if mutilated, and upon reimbursement of the Company's reasonable incidental
expenses, the Company shall execute and deliver to the Holder a new Warrant of
like date, tenor and denomination.
11. Notices. Any notice required in connection with this Agreement shall
-------
be conclusively deemed to have been duly given (i) when hand delivered to the
other party; or (ii) when received when sent by telex or facsimile at the
address and number set forth below (provided, that notices given by facsimile
shall not be effective unless either (a) a duplicate copy of such facsimile
notice is promptly given by depositing same in a United States post office with
first-class postage prepaid and addressed to the parties as set forth below, or
(b) the receiving party delivers a written confirmation of receipt for such
notice either by facsimile or any other method permitted under this paragraph;
additionally, any notice given by telex or facsimile shall be deemed received on
the next business day if such notice is received after 5:00 p.m. (recipient's
time) or on a nonbusiness day); or three (3) business days after the same have
been deposited in a United States post office with first class or certified mail
return receipt requested postage prepaid and addressed to the parties as set
forth below; or (iii) the next business day after same have been deposited with
a national overnight delivery service reasonably approved by the parties
(Federal Express and DHL WorldWide Express being deemed approved by the
parties), postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider.
To the Company: DigitalWork.com, Inc.
230 West Monroe Street, Suite 1950
Chicago, Illinois 60606
Attn: Craig Terrill, President
To Holder: at the last known address provided to the Company
With a Copy to: Buchalter, Nemer, Fields & Younger
601 South Figueroa Street, Suite 2400
Los Angeles, California 90017
Attn: Rick Cohen, Esq.
The Company and the Holder may change the address to which such
notices are to be addressed to them by giving the other party notice in the
manner set forth herein.
12. Headings. The headings of this Warrant have been inserted as a matter
--------
of convenience and shall not affect the construction hereof.
13. Severability. If any part, term or provision of this Warrant shall
------------
for any reason be found invalid, illegal or in conflict with any valid
controlling law by the Commission or a court or other tribunal of competent
jurisdiction, such term or conflict shall be separated from this Warrant and
such invalidity, illegality, unenforceability or conflict shall not affect any
other term or provision hereof and this Agreement shall be interpreted and
construed as if such term or
<PAGE>
provision, to the extent the same shall have been held invalid, illegal,
enforceable or in conflict, had never been contained herein.
14. Applicable Law. This Warrant shall be governed by and construed in
--------------
accordance with the internal laws of the State of Delaware.
IN WITNESS WHEREOF, DigitalWork.com, Inc. has caused this Warrant to be
executed by its officers thereunto authorized.
DIGITALWORK.COM, INC.
By:_____________________________
Name: Craig A Terrill
Title: President
ATTEST:
By:_______________________________
Name: Robert A. Schultz
Title: Secretary
<PAGE>
FORM OF ASSIGNMENT
------------------
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________ the right to purchase _____________ shares of
Common Stock evidenced by the within Warrant, and hereby appoints
_____________________ to transfer the same on the books of DigitalWork.com, Inc.
with full power of substitution in the premises.
Date: _____________, _____
___________________________________
(Signature)
Note: Signature must conform in all respects to the name of the Warrant
Holder as specified on the face of this Warrant in every particular,
without alteration or enlargement or any change whatsoever, and the
signature must be guaranteed in the usual manner.
Signature Guaranteed:______________
<PAGE>
EXERCISE FORM
-------------
(To Be Executed By The Warrant Holder If The Holder Desires
To Exercise The Warrant In Whole Or In Part)
TO: DigitalWork.com, Inc.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the Warrant for, and for purchase thereunder,
______________________ shares of Common Stock provided for therein and tenders
payment herewith to the order of DigitalWork.com, Inc. in the amount of $
___________. The undersigned requests that certificates for such shares of
Common Stock be issued as follows:
Name: _____________________________
Address: __________________________
___________________________________
Attention: ________________________
Date: _____________________________
By: ___________________________________
<PAGE>
NET ISSUE ELECTION NOTICE
-------------------------
To: DigitalWork.com, Inc.
The undersigned hereby elects, pursuant to Section 3(b) of the attached
Warrant, to surrender the right to purchase ___________ shares of Common Stock.
The Certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.
Date:
_____________________________________
Signature
_____________________________________
Name for Registration
_____________________________________
Mailing Address
<PAGE>
Exhibit 10.9
- ------------
DIGITALWORK.COM, INC.
EMPLOYMENT, CONFIDENTIAL INFORMATION,
INVENTION ASSIGNMENT, AND ARBITRATION AGREEMENT
As a condition of my employment with DigitalWork.com, Inc., its
subsidiaries, affiliates, successors or assigns (together the "Company"), and in
consideration of the compensation now and hereafter paid to me by Company, I
agree to the following:
1. At-Will Employment. I UNDERSTAND AND ACKNOWLEDGE THAT MY
EMPLOYMENT WITH THE COMPANY IS FOR AN UNSPECIFIED DURATION AND CONSTITUTES "AT-
WILL" EMPLOYMENT. I ALSO UNDERSTAND THAT ANY REPRESENTATION TO THE CONTRARY IS
UNAUTHORIZED AND NOT VALID UNLESS OBTAINED IN WRITING AND SIGNED BY AN OFFICER
OF THE COMPANY. I ACKNOWLEDGE THAT THIS EMPLOYMENT RELATIONSHIP MAY BE
TERMINATED AT ANY TIME, WITH OR WITHOUT GOOD CAUSE OR FOR ANY OR NO CAUSE, AT
THE OPTION EITHER OF THE COMPANY OR MYSELF, WITH OR WITHOUT NOTICE.
2. Confidential Information.
------------------------
(a) Company Information. I agree at all times during the term of
-------------------
my employment and thereafter, to hold in strictest confidence, and not to use,
except for the benefit of the Company, or to disclose to any person, firm or
corporation without written authorization of the Board of Directors of the
Company, any Confidential Information of the Company. I understand that
"Confidential Information" means any Company proprietary information, technical
data, trade secrets or know-how, including, but not limited to, research,
product plans, products, services, customer lists and customers (including, but
not limited to, customers of the Company on whom I called or with whom I became
acquainted during the term of my employment), markets, software, developments,
inventions, processes, formulas, technology, designs, drawings, engineering,
hardware configuration information, marketing, finances or other business
information disclosed to me by the Company either directly or indirectly in
writing, orally or by drawings or observation of parts or equipment. I further
understand that Confidential Information does not include any of the foregoing
items which has become publicly known and made generally available through no
wrongful act of mine or of others who were under confidentiality obligations as
to the item or items involved.
(b) Former Employer Information. I agree that I will not, during
---------------------------
my employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and that I will not bring onto the premises of the Company any
unpublished document or proprietary information belonging to any such employer,
person or entity unless consented to in writing by such employer, person or
entity.
(c) Third Party Information. I recognize that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on
<PAGE>
the Company's part to maintain the confidentiality of such information and to
use it only for certain limited purposes. I agree to hold all such confidential
or proprietary information in the strictest confidence and not to disclose it to
any person, firm or corporation or to use it except as necessary in carrying out
my work for the Company consistent with the Company's agreement with such third
party.
3. Inventions.
----------
(a) Inventions Retained and Licensed. I have attached hereto, as
--------------------------------
Exhibit A, a list describing all inventions, original works of authorship,
- ---------
developments, improvements, and trade secrets which were made by me prior to my
employment with the Company (collectively referred to as "Prior Inventions"),
which belong to me, which relate to the Company's proposed business, products or
research and development, and which are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of my employment with the Company, I incorporate
into a Company product, process or machine a Prior Invention owned by me or in
which I have an interest, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make,
have made, modify, use and sell such Prior Invention as part of or in connection
with such product, process or machine.
(b) Assignment of Inventions. I agree that I will promptly make
------------------------
full written disclosure to the Company, will hold in trust for the sole right
and benefit of the Company, and hereby assign to the Company, or its designee,
all my right, title, and interest in and to any and all inventions, original
works of authorship, developments, concepts, improvements, designs, discoveries,
ideas, trademarks or trade secrets, whether or not patentable or registrable
under copyright or similar laws, which I may solely or jointly conceive or
develop or reduce to practice, or cause to be conceived or developed or reduced
to practice, during the period of time I am in the employ of the Company
(collectively referred to as "Inventions"), except as provided in Section 3(f)
below. I further acknowledge that all original works of authorship which are
made by me (solely or jointly with others) within the scope of and during the
period of my employment with the Company and which are protectible by copyright
are "works made for hire," as that term is defined in the United States
Copyright Act. I understand and agree that the decision whether or not to
commercialize or market any invention developed by me solely or jointly with
others is within the Company's sole discretion and for the Company's sole
benefit and that no royalty will be due to me as a result of the Company's
efforts to commercialize or market any such invention.
(c) Inventions Assigned to the United States. I agree to assign
----------------------------------------
to the United States government all my right, title, and interest in and to any
and all Inventions whenever such full title is required to be in the United
States by a contract between the Company and the United States or any of its
agencies.
(d) Maintenance of Records. I agree to keep and maintain adequate
----------------------
and current written records of all Inventions made by me (solely or jointly with
others) during the term of my employment with the Company. The records will be
in the form of notes, sketches, drawings, and any other format that may be
specified by the Company. The records will be available to and remain the sole
property of the Company at all times.
-2-
<PAGE>
(e) Patent and Copyright Registrations. I agree to assist the
----------------------------------
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors, assigns, and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers shall
continue after the termination of this Agreement. If the Company is unable
because of my mental or physical incapacity or for any other reason to secure my
signature to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Inventions or original works
of authorship assigned to the Company as above, then I hereby irrevocably
designate and appoint the Company and its duly authorized officers and agents as
my agent and attorney in fact, to act for and in my behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by me.
(f) Exception to Assignments. I understand that the provisions of
------------------------
this Agreement requiring assignment of Inventions to the Company do not apply to
any invention which qualifies as follows: (a) Any provision in an employment
agreement which provides that an employee shall assign, or offer to assign, any
of his or her rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time without
using the employer's equipment, supplies, facilities, or trade secret
information except for those inventions that either: (1) Relate at the time of
conception or reduction to practice of the invention to the employer's business,
or actual or demonstrably anticipated research or development of the employer;
or (2) Result from any work performed by the employee for the employer. (b) To
the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable. I will advise the Company promptly in writing
of any inventions that I believe meet the above criteria and are not otherwise
disclosed on Exhibit A.
---------
4. Conflicting Employment. I agree that, without prior written
----------------------
consent from DigitalWork.com Senior Management, during the term of my employment
with the Company, I will not engage in any other employment, occupation,
consulting or other business activity directly related to the business in which
the Company is now involved or becomes involved during the term of my
employment, nor will I engage in any other activities that conflict with my
obligations to the Company.
5. Returning Company Documents. I agree that, at the time of leaving
---------------------------
the employ of the Company, I will immediately deliver to the Company (and will
not keep in my possession, recreate or deliver to anyone else) any and all
devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings blueprints, sketches, materials, equipment, other
documents or property, or reproductions of any aforementioned items developed by
me pursuant to my employment with the Company or otherwise belonging to the
Company, its successors or assigns.
-3-
<PAGE>
6. Notification of New Employer. In the event that I leave the
----------------------------
employ of the Company, I hereby consent to notification by the Company to my new
employer about my rights and obligations under this Agreement.
7. Non-Compete. I agree that, during the term of my employment with
-----------
the Company and for a period of twelve (12) months immediately following the
termination of my relationship with the Company for any reason, whether with or
without cause, I shall not directly or indirectly work for a competing on-line
service provider. A competing on-line service provider is considered to be any
company that would be considered a competitive threat to DigitalWork.com's
market position if they hired away key DigitalWork.com employees that had a
working knowledge of DigitalWork.com's key strategies.
8. Solicitation of Employees. I agree that, during the term of my
-------------------------
employment with the Company and for a period of twenty-four (24) months
immediately following the termination of my relationship with the Company for
any reason, whether with or without cause, I shall not either directly or
indirectly solicit, induce, recruit or encourage any of the Company's employees
to leave their employment, or take away such employees, or attempt to solicit,
induce, recruit, encourage or take away employees of the Company, either for
myself or for any other person or entity.
9. Conflict of Interest Guidelines. It is the policy of
-------------------------------
DigitalWork.com, Inc. to conduct its affairs in strict compliance with the
letter and spirit of the law and to adhere to the highest principles of business
ethics. Accordingly, all officers, employees and independent contractors must
avoid activities which are in conflict, or give the appearance of being in
conflict with the interests of the Company.
10. Representations. I agree to execute any proper oath or verify
---------------
any proper document required to carry out the terms of this Agreement. I
represent that my performance of all the terms of this Agreement will not breach
any agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any oral or written agreement
in conflict herewith.
11. Arbitration and Equitable Relief.
--------------------------------
(a) Arbitration. EXCEPT AS PROVIDED IN SECTION 10(b) BELOW, I
-----------
AGREE THAT ANY DISPUTE OR CONTROVERSY ARISING OUT OF, RELATING TO, OR CONCERNING
ANY INTERPRETATION, CONSTRUCTION, PERFORMANCE OR BREACH OF THIS AGREEMENT, SHALL
BE SETTLED BY ARBITRATION TO BE HELD IN ILLINOIS, IN ACCORDANCE WITH THE
EMPLOYMENT DISPUTE RESOLUTION RULES THEN IN EFFECT OF THE AMERICAN ARBITRATION
ASSOCIATION. THE ARBITRATOR MAY GRANT INJUNCTIONS OR OTHER RELIEF IN SUCH
DISPUTE OR CONTROVERSY. THE DECISION OF THE ARBITRATOR SHALL BE FINAL,
CONCLUSIVE AND BINDING ON THE PARTIES TO THE ARBITRATION. JUDGMENT MAY BE
ENTERED ON THE ARBITRATOR'S DECISION IN ANY COURT HAVING JURISDICTION. THE
COMPANY AND I SHALL EACH PAY ONE-HALF OF THE COSTS AND EXPENSES OF SUCH
ARBITRATION, AND EACH OF US SHALL SEPARATELY PAY OUR COUNSEL FEES AND EXPENSES.
-4-
<PAGE>
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS
OF THE EMPLOYER/EMPLOYEE RELATIONSHIP (EXCEPT AS PROVIDED IN SECTION 10(b)
BELOW), INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
i. ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION;
ii. ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL, STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, AND THE FAIR LABOR
STANDARDS ACT;
iii. ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
(b) Equitable Remedies. I AGREE THAT IT WOULD BE IMPOSSIBLE OR
------------------
INADEQUATE TO MEASURE AND CALCULATE THE COMPANY'S DAMAGES FROM ANY BREACH OF THE
COVENANTS SET FORTH IN SECTIONS 2, 3, AND 5 HEREIN. ACCORDINGLY, I AGREE THAT IF
I BREACH ANY OF SUCH SECTIONS, THE COMPANY WILL HAVE AVAILABLE, IN ADDITION TO
ANY OTHER RIGHT OR REMEDY AVAILABLE, THE RIGHT TO OBTAIN AN INJUNCTION FROM A
COURT OF COMPETENT JURISDICTION RESTRAINING SUCH BREACH OR THREATENED BREACH AND
TO SPECIFIC PERFORMANCE OF ANY SUCH PROVISION OF THIS AGREEMENT. I FURTHER AGREE
THAT NO BOND OR OTHER SECURITY SHALL BE REQUIRED IN OBTAINING SUCH EQUITABLE
RELIEF AND I HEREBY CONSENT TO THE ISSUANCE OF SUCH INJUNCTION AND TO THE
ORDERING OF SPECIFIC PERFORMANCE.
(c) Consideration. I UNDERSTAND THAT EACH PARTY'S PROMISE TO RESOLVE
-------------
CLAIMS BY ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT,
RATHER THAN THROUGH THE COURTS, IS CONSIDERATION FOR OTHER PARTY'S LIKE PROMISE.
I FURTHER UNDERSTAND THAT I AM OFFERED EMPLOYMENT IN CONSIDERATION OF MY PROMISE
TO ARBITRATE CLAIMS.
12. General Provisions.
------------------
(a) Governing Law; Consent to Personal Jurisdiction. This Agreement
-----------------------------------------------
will be governed by the laws of the State of Illinois. I hereby expressly
consent to the personal jurisdiction of the state and federal courts located in
Illinois for any lawsuit filed there against me by the Company arising from or
relating to this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Company and me relating to the subject matter
herein and merges all prior discussions between us. No modification of or
amendment to this Agreement, nor any waiver of any
-5-
<PAGE>
rights under this Agreement, will be effective unless in writing signed by the
party to be charged. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement.
(c) Severability. If one or more of the provisions in this Agreement
------------
are deemed void by law, then the remaining provisions will continue in full
force and effect.
(d) Employment. As used herein, my employment includes any time
----------
during which I may be retained by the Company as a consultant. I agree and
understand that nothing in this Agreement shall confer any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with my right or the Company's right to terminate my employment at any time,
with or without cause.
(e) Successors and Assigns. This Agreement will be binding upon my
----------------------
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.
(f) Survival. The provisions of this Agreement shall survive the
--------
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
(g) Waiver. No failure or delay by either of the parties in
------
exercising any right, power or privilege under this Agreement will operate as a
waiver thereof. The waiver by either of the parties of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
other or subsequent breach.
Date: _________________, 199___
______________________________________
Signature
______________________________________
Name of Employee (typed or printed)
AGREED AND ACCEPTED BY:
DIGITALWORK.COM, INC.
By:____________________________
Print Name:____________________
Title:_________________________
-6-
<PAGE>
Exhibit A
---------
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Title Date Identifying Number or Brief Description
- --------------------------------------------------------------------------------
_______ No inventions or improvements
_______ Additional Sheets Attached
Signature of Employee:____________________________
Print Name of Employee:___________________________
Date:________________________
<PAGE>
Exhibit 10.18
FORM OF
-------
DIGITALWORK.COM, INC.
---------------------
DIRECTORSHIP INDEMNIFICATION AGREEMENT
--------------------------------------
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this ____ day of
__________, 1999 by and between DIGITALWORK.COM, INC., a Delaware corporation
(the "Company"), and ________________ ("Indemnitee").
WHEREAS, Indemnitee is currently serving as a director, officer, employee
and/or agent of the Company and/or, at the Company's request, as a director,
officer, employee and/or agent of another corporation, partnership, joint
venture, trust or other enterprise, and the Company wishes Indemnitee to
continue his or her service in such capacity(ies) without concern of unwarranted
personal liability;
WHEREAS, the Company and Indemnitee recognize that litigation against
corporations has increased over past decades and increasingly has subjected
officers and directors personally to the risks and expenses of such litigation;
and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals such as Indemnitee to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection against personal liability permitted by law; and
WHEREAS, the Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation") authorizes the Corporation to provide
indemnification and to advance expenses to the full extent not prohibited by
Delaware law and the Amended and Restated By-Laws (the "By-Laws") of the Company
provide that the Company shall indemnify its directors and officers, in the
manner and to the fullest extent permitted by the Delaware General Corporation
Law (the "DGCL"); and
WHEREAS, DGCL Section 145(f) expressly recognizes that the indemnification
provisions of the DGCL are not exclusive of any other rights to which a person
seeking indemnification may be entitled under the Restated Certificate of
Incorporation or By-Laws of the Company, or an agreement providing for
indemnification, or a resolution of stockholders or directors, or otherwise; and
both the Restated Certificate of Incorporation and By-Laws each also expressly
recognize that the indemnification provisions of the Restated Certificate of
Incorporation and By-Laws shall not be deemed exclusive of, and shall not
affect, any other rights to which a person seeking indemnification may be
entitled under any agreement;
WHEREAS, the By-Laws also permit the Company to provide directors and
officers liability insurance and other forms of insurance protection to its
directors, officers, employees and agents; and
WHEREAS, the Company and Indemnitee recognize that the cost and
availability of directors' and officers' liability insurance has not only
fluctuated widely over time, but
<PAGE>
frequently that such insurance frequently contains express or implied
limitations on coverage of specific risks and may involve protracted claims
procedures that prevent the timely payment or reimbursement of losses incurred
by directors and officers in their own defense, or by the Company on their
behalf; and
WHEREAS, the Company wishes therefore to provide Indemnitee with an
independent contractual right to indemnification and advancement of defense
expenses in addition to that provided in the Restated Certificate of
Incorporation and the By-Laws of the Company, in a form generally approved and
authorized by the stockholders of the Company:
NOW THEREFORE, in consideration of the promises, conditions and
representations set forth herein, including without limitation the Indemnitee's
service in his or her capacity as a director, officer, employee, or agent of the
company and/or, at the Company's request, as a director, officer, employee
and/or agent of another corporation, partnership, joint venture, trust or other
enterprise, and in consideration for Indemnitee's services in such capacity, 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, proceeding of any kind,
including without limitation any alternative dispute resolution mechanism, in
each case, 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, 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,
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld), costs of
investigation, and costs of attachment or similar bonds, and 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 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
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 suit 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
<PAGE>
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) costs of
investigation, and, to the fullest extent permitted by law, amounts paid in
settlement 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, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.
(c) Mandatory Payment of Expenses. To the extent the Indemnitee
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Subsections (a) and (b) of this Section 1, or in
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. Agreement to Serve. In consideration of the protection afforded by this
Agreement, if Indemnitee is a director of the Company, he or she agrees to serve
at least for six months after the effective date of this Agreement as a director
and not to resign voluntarily during such period without the written consent of
a majority of the Board of Directors. If Indemnitee is an officer of the Company
not serving under an employment contract, he or she agrees to serve in such
capacity at least for the balance of the current fiscal year of the Company and
not to resign voluntarily during such period without the written consent of a
majority of the Board of Directors. Following the applicable period set forth
above, Indemnitee agrees to continue to serve in such capacity at the will of
the Company (or under separate agreement, if such agreement exists) so long as
he or she is duly appointed or elected and qualified in accordance with the
applicable provisions of the By-Laws of the Company or any subsidiary of the
Company or until such time as he or she tenders his or her resignation in
writing. Nothing contained in this Agreement is intended to create in Indemnitee
any right to continued employment.
<PAGE>
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
referenced in Section 1(a) or (b) hereof (but not 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. The advances to be made hereunder shall be
paid by the Company to Indemnitee with thirty (30) days following delivery of a
written request therefor by Indemnitee to the Company.
(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 writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under his
Agreement. Notice to the Company shall be directed to the President of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). Notice
shall be deemed received three business days after the date postmarked if sent
by domestic certified or registered mail, properly addressed; or five business
days if sent by airmail to a country outside of North America; otherwise notice
shall be deemed received when such notice is actually received by the Company.
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 payment of indemnification under Section 1 of
this agreement, or any advancement of expenses under Section 3(a) of this
Agreement shall be made no later than thirty (30) days after receipt of the
written request of Indemnitee therefore. If a claim for indemnification or for
advancement of expenses under this Agreement or under any statute, provision of
the Company's Certificate of Incorporation or By-Laws, resolution of the board
of directors or otherwise providing for such indemnification is not paid in full
by the Company within thirty (30) days after a written request for payment
thereof has first been received by the Company, Indemnitee may, at any time
thereafter, bring an action against the Company to recover the unpaid amount of
the claim. Subject to Section 13 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. However, Indemnitee
shall be entitled to receive interim payments of expenses pursuant to Subsection
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
<PAGE>
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 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 advance 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 to request that the
Company assume the defense of such proceeding. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company shall 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 his or
her own 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
material 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 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 By-Laws 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, ipso facto, within
the purview of Indemnitee's rights and 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
<PAGE>
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 By-Laws, any agreement,
any vote of stockholders or disinterested 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 as any action taken or
not taken by Indemnitee while serving in an indemnified capacity shall continue
even though the Indemnitee may have ceased to serve in such capacity at the time
of any such action, suit or other proceeding covered by this agreement.
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 by him
or her 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 Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission 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 a 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 the most favorably insured of the Company's
officers, if Indemnitee is not a director of the Company but is an officer.
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
<PAGE>
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent 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 obligation under this Agreement shall not constitute a breach of
this Agreement. If the provisions of 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 fullest 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
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such suit; or
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the 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 the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(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, its parent or any of its subsidiaries; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of "short swing profits" arising from the purchase and sale or
the sale and purchase by Indemnitee of securities in violation of Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any similar successor
statute.
(e) Public Policy. To indemnify Indemnitee to the extent that a court
of competent jurisdiction has finally determined that such indemnification would
be prohibited as contrary to public policy.
<PAGE>
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 with the Company, which constituent corporation, 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; 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. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Successor and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. Attorneys' Fees. In the event that an 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 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.
<PAGE>
14. Notice. Except as provided in Section 3(b), all notices, requests,
demands and other communications under this Agreement shall be in writing and
shall be deemed duly given (i) if delivered by hand and receipted for by the
party addressee on the date of such receipt, or (ii) if mailed by domestic
certified or registered mail with postage prepaid, on the third business day
after the date postmarked. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the Delaware Court of Chancery, unless
jurisdiction for such action shall be found to lie in another Delaware court.
16. Choice of Law. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware without regard to the conflict of law principles thereof.
17. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
18. 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 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
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such wavier constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
DIGITALWORK.COM, INC.
By:________________________
Name: Robert
Title: Chairman of the Board of Directors
Executive Officer
Address: 230 West Monroe Street
Suite 1950
Chicago, IL 60610
AGREED TO AND ACCEPTED:
INDEMNITEE:
____________________________
____________________________
(signature)
Address:
_____________________________
_____________________________
_____________________________
<PAGE>
Exhibit 10.19
- -------------
* * * * * * * * * * * * * * * * * * * *
---------------------------------------
Lease
-----
230 West Monroe
---------------
Chicago, Illinois
-----------------
* * * * * * * * * * * * * * * * * * * *
---------------------------------------
Between
-------
Digital Work, Inc.
------------------
(Tenant)
--------
and
---
TIAA Realty, Inc.
-----------------
(Landlord)
----------
<PAGE>
LEASE
-----
230 WEST MONROE
---------------
CHICAGO, ILLINOIS
-----------------
THIS LEASE (the "Lease") is made and is effective as of ,
--------------------------------------------------------------------
19____ between TIAA REALTY, INC., a Delaware corporation (the "Landlord") and
the Tenant as named in the Schedule below. The term "Project" means the
building (the "Building") known as "230 West Monroe" and the land (the "Land")
located at the northeast corner of Monroe and Franklin Streets, Chicago,
Illinois. "Premises" means that part of the Project leased to Tenant described
in the Schedule and outlined on Appendix A.
The following schedule (the "Schedule") is an integral part of this Lease.
Terms defined in this Schedule shall have the same meaning throughout the Lease.
SCHEDULE
1. Tenant: Digital Work, Inc., a _____________ _______________
2. Premises: A portion of the 19th Floor of the Building, known as Suite
_____
3. Rentable Square Feet of the Premises: Approximately 10,254 rentable
square feet
4. Tenant's Proportionate Share: 1.7878% (based upon a total of 573,550
rentable square feet in the Building)
5. Rent Abatement, if any: N/A
6. Security Deposit: See Section 20 of the Lease
7. Tenant's address for notices before possession date:
__________________
8. Tenant's Real Estate Broker for this Lease: Julien J. Studley, Inc.
9. Tenant Improvements, if any: See the Tenant Improvement Agreement
attached hereto as Appendix D.
10. Commencement Date: July 1, 1999
but if the Premises are subject to new construction pursuant to
Appendix D, then the Completion Date, as defined therein, if it is
later.
11. Termination Date/Term: Five (5) years after the Commencement Date, or
if the Commencement Date is not the first day of a month, then after
the first day of the following month.
12. Base Rent:
Annual Monthly
Period Base Rent Base Rent
-------------------------------------------------------------------
First Lease Year $146,119.50 $12,176.63
($14.25 per rentable square foot)
Second Lease Year $150,528.72 $12,544.06
($14.68 per rentable square foot)
Third Lease Year $155,040.48 $12,920.04
($15.12 per rentable square foot)
<PAGE>
Fourth Lease Year $159,654.78 $13,304.57
($15.57 per rentable square foot)
Fifth Lease Year $164,474.16 $13,706.18
($16.04 per rentable square foot)
For purposes of this Lease, "Lease Year" shall mean each consecutive
twelve-month period beginning with the Commencement Date, except that if
the Commencement Date is other than the first day of a calendar month, then
the first Lease Year shall be the period from the Commencement Date through
the date twelve months after the last day of the calendar month in which
the Commencement Date occurs, and each subsequent Lease Year shall be the
period of twelve months following the last day of the prior Lease Year.
13. Guarantor: N/A
I. LEASE AGREEMENT. On the terms stated in this Lease, Landlord
leases the Premises to Tenant, and Tenant leases the Premises from Landlord, for
the Term beginning on the Commencement Date and ending on the Termination Date
unless extended or sooner terminated pursuant to this Lease.
I. RENT.
A. Types of Rent. Tenant shall pay the following Rent in the form
-------------
of a check to Landlord's building manager at the office of the Building, or in
such other manner as Landlord may notify Tenant:
1. Base Rent in monthly installments in advance on or before the
---------
first day of the Lease and the first day of each month of the Term thereafter in
the amount set forth on the Schedule.
1. Operating Cost Share Rent in an amount equal to the Tenant's
-------------------------
Proportionate Share of the Operating Costs for the applicable fiscal year of the
Lease, paid monthly in advance in an estimated amount. Definitions of Operating
Costs and Tenant's Proportionate Share, and the method for billing and payment
of Operating Cost Share Rent are set forth in Sections 2B, 2C and 2D.
1. Tax Share Rent in an amount equal to the Tenant's Proportionate
--------------
Share of Taxes for the applicable fiscal year of this Lease, paid monthly in
advance in an estimated amount. A definition of Taxes and the method for
billing and payment of Tax Share Rent are set forth in Sections 2B, 2C and 2D.
1. Additional Rent in the amount of all costs, expenses,
---------------
liabilities, and amounts which Tenant is required to pay under this Lease,
excluding Base Rent, Operating Cost Share Rent, and Tax Share Rent, but
including any interest for late payment of any item of Rent.
1. Rent as used in this Lease means Base Rent, Operating Cost
----
Share Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay Rent
is an independent covenant, with no right of setoff, deduction or counterclaim
of any kind.
<PAGE>
A. Payment of Operating Cost Share Rent and Tax Share Rent.
-------------------------------------------------------
a) Payment of Estimated Operating Cost Share Rent and Tax Share Rent.
-----------------------------------------------------------------
Landlord shall estimate the Operating Costs and Taxes of the Project each
fiscal year, generally after the beginning of the year. Landlord may revise
these estimates whenever it obtains more accurate information, such as the final
real estate tax assessment or tax rate for the Project.
Within ten (10) days after notice from Landlord setting forth an
estimate of Operating Costs for a particular fiscal year, Tenant shall pay
Landlord an amount equal to one-twelfth (1/12th) of Tenant's Proportionate
Share of such estimated Operating Costs for such fiscal year, multiplied by
the number of months that have elapsed in the applicable fiscal year to the
date of such payment including the current month, minus payments previously
made by Tenant for the months elapsed. Thereafter on the first day of each
month, Tenant shall pay monthly until a new estimate of Operating Costs is
applicable, one-twelfth (1/12th) of Tenant's Proportionate Share of the
estimated Operating Costs.
Within ten (10) days after notice from Landlord setting forth an
estimate of Taxes for a particular fiscal year, Tenant shall pay Landlord
an amount equal to one-twelfth (1/12th) of Tenant's Proportionate Share of
such estimated Taxes, multiplied by the number of months that have elapsed
in the applicable fiscal year to the date of such payment, including the
current month, minus payments previously made by Tenant for the months
elapsed. Thereafter on the first day of each month, Tenant shall pay
monthly until a new estimate of Taxes is applicable, one-twelfth (1/12th)
of Tenant's Proportionate Share of the estimated Taxes.
a) Correction of Operating Cost Share Rent. As soon as reasonably
---------------------------------------
possible after the end of each fiscal year, Landlord shall deliver to Tenant a
report for such year (the "Operating Cost Report") setting forth (a) the actual
Operating Costs incurred, (b) the amount of Operating Cost Share Rent due from
Tenant, and (c) the amount of Operating Cost Share Rent paid by Tenant. Within
thirty (30) days after such delivery, Tenant shall pay to Landlord the amount
due minus the amount paid. If the amount paid exceeds the amount due, Landlord
shall apply the excess to Tenant's next month's payment of Operating Cost Share
Rent, refunding any overage directly to Tenant. The provisions of this Section
2B(2) shall survive the termination of this Lease.
a) Correction of Tax Share Rent. As soon as reasonably possible
----------------------------
after the end of each fiscal year, Landlord shall deliver to Tenant a report for
such fiscal year (the "Tax Report") setting forth (a) the actual Taxes, (b) the
amount of Tax Share Rent due from Tenant, and (c) the amount of Tax Share Rent
paid by Tenant. Within thirty (30) days after such delivery, Tenant shall pay
to Landlord the amount due from Tenant minus the amount paid by Tenant. If the
amount paid exceeds the amount due, Landlord shall apply any the excess as a
credit against Tenant's next month's payment of Tax Share Rent, refunding any
overage to Tenant. The provisions of this Section 2B(3) shall survive the
termination of this Lease.
<PAGE>
A. Definitions.
-----------
a) Taxes. "Taxes" means any and all taxes, assessments and
-----
charges of any kind, general or special, ordinary or extraordinary, levied by
any governmental entity, which Landlord shall pay or become obligated to pay in
connection with the ownership, leasing, renting, management, control or
operation of the Project or of the personal property, fixtures, machinery,
equipment, systems and apparatus used in connection therewith. Taxes shall
include real estate taxes, personal property taxes, sewer rents, water rents,
special or general assessments, transit taxes, ad valorem taxes, and any tax
levied on the rents hereunder or the interest of Landlord under this Lease (the
"Rent Tax"). Taxes shall also include all legal fees and other costs and
expenses paid by Landlord in seeking a refund or reduction of any Taxes, whether
or not the Landlord is ultimately successful.
For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the
installments (with any interest) due and payable during such year, and (b)
from all other Taxes, shall at Landlord's election be the amount accrued,
assessed, or otherwise imposed for such year or the amount due and payable
in such year. Any refund or other adjustment to any Taxes by the taxing
authority, shall apply during the year in which the adjustment is made.
Taxes shall not include any net income (except Rent Tax), capital,
stock, succession, transfer, franchise, gift, estate or inheritance tax,
except to the extent that such tax shall be imposed in lieu of any portion
of Taxes.
a) Operating Costs. "Operating Costs" means any expenses, costs
---------------
and disbursements of any kind other than Taxes, paid or incurred by Landlord in
connection with the ownership, leasing, management, maintenance, operation and
repair of any part of the Project and of the personal property, fixtures,
machinery, equipment, systems and apparatus used in connection therewith,
including the cost of providing those services required to be furnished by
Landlord under this Lease. Operating Costs shall not include (a) costs of
alterations of tenant premises; (b) costs of capital improvements, except those
intended to reduce Operating Costs, and those made to keep the Project in
compliance with governmental requirements applicable from time to time,
amortized by Landlord in accordance with sound accounting and management
principles; (c) interest and principal payments on mortgages or any other debt
costs, or rental payments on any ground lease of the Project ("Ground Lease");
(d) real estate brokers' leasing commissions; (e) any cost or expenditure for
which Landlord is reimbursed, by insurance proceeds or otherwise, except by
Operating Cost Share Rent; (f) the cost of any service furnished to any office
tenant of the Project which Landlord does not make available to Tenant; (g)
executives' salaries above the grade of building manager; (h) legal and auditing
fees which are for the benefit of Landlord such as collecting delinquent rents,
preparing tax returns and other financial statements, and audits other than
those incurred in connection with the preparation of statements required
pursuant to Section 2B above; and (i) costs of correcting defects in
construction of the Building (as opposed to the cost of normal repair,
maintenance and replacement expected with the construction materials and
equipment installed in the Building in light of their specifications).
If the Project is not fully leased during any portion of any fiscal
year, Landlord may adjust (an "Equitable Adjustment") Operating Costs to
equal what would have been incurred by Landlord had the Project been fully
leased. For
<PAGE>
example, assume (i) the Building has ten floors; (ii) the Tenant occupies
one floor and Tenant's Proportionate Share is ten percent (10%); (iii) the
other nine floors are vacant; (iv) the cost of providing a particular
service for Tenant's floor is $1,000. If Tenant paid Tenant's Proportionate
Share of that cost, Tenant would pay $100. Instead, Landlord shall estimate
the cost of such service for the Building if it were one hundred percent
(100%) leased. Landlord would take into account any economies of scale; for
example, the cost for the entire Building might be $9,000. The Landlord's
estimate ($9,000) minus the actual cost incurred by the Landlord ($1000)
equals the Equitable Adjustment ($8000). The Equitable Adjustment is added
to the actual cost and Tenant pays Tenant's Proportionate Share of the
total; in this example, Tenant would pay $9,000 times 10% or $900. This
Equitable Adjustment shall apply only to Operating Costs which are variable
and therefore increase as leasing of the Project increases. Landlord may
incorporate the Equitable Adjustment in its estimates of Operating Costs.
If Landlord does not furnish any particular service whose cost would
have constituted an Operating Cost to a tenant who has undertaken to
perform such service itself, Operating Costs shall be increased by the
amount which Landlord would have incurred if it had furnished the service
to such tenant.
"Lease Year" means each consecutive twelve-month period beginning with
the Commencement Date, except that if the Commencement Date is not the
first day of a calendar month, then the first Lease Year shall be the
period from the Commencement Date through the final day of the twelve
months after the first day of the following month, and each subsequent
Lease Year shall be the twelve months following the prior Lease Year.
a) Fiscal Year. "Fiscal Year" means the calendar year, except
-----------
that the first fiscal year and the last fiscal year of the Term may be a partial
calendar year.
A. Computation of Base Rent and Rent Adjustments.
- -- ---------------------------------------------
a) Prorations. If this Lease begins on a day other than the first
----------
day of a month, the Base Rent, Operating Cost Share Rent and Tax Share Rent
shall be prorated for such partial month. If this Lease begins on a day other
than the first day, or ends on a day other than the last day, of the fiscal
year, Operating Cost Share Rent and Tax Share Rent shall be prorated for the
applicable fiscal year.
a) Default Interest. Any sum due from Tenant to Landlord not
----------------
paid when due ("Late Payment") shall bear interest from the date due until paid
at the annual rate equal to twelve percent (12%), provided, that if Tenant pays
such Late Payment prior to the expiration of any applicable cure period, if any,
no default interest shall be charged on such Late Payment.
a) Rent Adjustments. If the number of rentable square feet in
----------------
either the Premises or the Building shall be changed, Tenant's Proportionate
Share shall be appropriately recalculated as of the date of the change,
provided, that in no event shall Tenant's Proportionate Share be increased as a
result of such change. If any Operating Cost paid in one fiscal year relates to
more than one fiscal year, Landlord may proportionately allocate such Operating
Cost among the related fiscal years.
<PAGE>
a) Books and Records. Landlord shall maintain books and records
-----------------
reflecting the Operating Costs and Taxes in accordance with sound accounting and
management practices. Tenant, and its agents and representatives, may inspect
Landlord's records at Landlord's office upon one day's prior notice during
normal business hours during the forty-five (45) days following delivery of
either the Operating Cost Report or the Tax Report. Tenant and any agent or
representative must agree, in their contract for such services, that the results
of any such inspection shall be kept entirely confidential and shall
specifically not be made available to any other tenant of the Building. Unless
Tenant sends to Landlord any written exception to either such report within said
forty-five (45) day period, such report shall be deemed final and accepted by
Tenant. Tenant shall pay the amount shown on both reports in the manner
prescribed in this Lease, whether or not Tenant takes any such written
exception, without any prejudice to such exception. If Tenant makes a timely
exception, Landlord shall cause its independent certified public accountant to
issue a final and conclusive resolution of Tenant's exception (the "Audit
Resolution"). If, after the Audit Resolution, it is determined the amount paid
by Tenant exceeded the amount due, Landlord shall refund any overage to Tenant.
Tenant shall pay the cost of such certification unless Landlord's original
determination of annual Operating Costs or Taxes was in error by more than five
percent (5%).
a) Miscellaneous. So long as Tenant is in default of any
-------------
obligation under this Lease, Tenant shall not be entitled to any refund of any
amount from Landlord. If this Lease is terminated for any reason prior to the
annual determination of Operating Cost Share Rent or Tax Share Rent, either
party shall pay the full amount due to the other within fifteen (15) days after
Landlord's notice to Tenant of the amount when it is determined. Landlord may
commingle any payments made with respect to Operating Cost Share Rent or Tax
Share Rent, without payment of interest.
I. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER
OF PREMISES.
A. Condition of Premises. Except (1) for latent defects, and (2)
---------------------
to the extent of the Tenant Improvements item on the Schedule, Landlord is
leasing the Premises to Tenant "as is," without any representations or
warranties, including any express or implied warranties of merchantability,
fitness or habitability, and without any obligation to alter, remodel, improve,
repair, decorate or clean any part of the Premises. Tenant acknowledges that
there are two supplemental heating, ventilating and air conditioning systems
presently located in the Premises, one of which is a 15 ton Trane Air-Cooled
Unit, and the other is a 5 ton Trane Air-Cooled Unit (collectively, the
"Supplemental Units"). Tenant further acknowledges that Landlord has made no
representation or warranty as to the condition of the Supplemental Units, and
that the Supplemental Units are included in the Premises in an "as is"
condition, without any representations or warranties, including any express or
implied warranties of merchantability or fitness, and without any obligation to
repair or maintain any part of the Supplemental Units. Landlord acknowledges
that Tenant has no obligation to remove the Supplemental Units from the Premises
upon the termination of this Lease. If the Tenant Improvements item on the
Schedule applies, Landlord shall cause the Premises to be completed in
accordance with the Tenant Improvement Agreement attached as Appendix D.
A. Tenant's Possession. Tenant's taking possession of any portion
-------------------
of the Premises shall be conclusive evidence that such portion was in good
order, repair and condition. If Landlord authorizes Tenant to take possession
of any part of the Premises prior to the Commencement Date for purposes of doing
business, all terms of
<PAGE>
this Lease shall apply to such pre-Term possession, including Base Rent at the
rate set forth for the First Lease Year in Section 2A prorated for any partial
month.
A. Maintenance. Throughout the Term, Tenant shall maintain the
-----------
Premises (including without limitation, the Supplemental Units and all plumbing
fixtures and pipes used in connection with the bathroom located in the Premises)
in their condition as of the Completion Date, loss or damage caused by the
elements, ordinary wear, and fire and other casualty excepted, and at the
termination of this Lease, or Tenant's right to possession, Tenant shall return
the Premises to Landlord in broom-clean condition. To the extent Tenant fails
to perform either obligation, Landlord may, but need not, restore the Premises
to such condition and Tenant shall pay the cost thereof.
A. Ownership of Improvements. All Work as defined in Section 5,
-------------------------
partitions, hardware, and all fixtures except trade fixtures, constructed in the
Premises by either Landlord or Tenant, shall become Landlord's property upon
installation without compensation to Tenant, unless Landlord consents otherwise
in writing, or requires Tenant to remove any such item at the termination of the
Lease or of Tenant's right to possession.
A. Removal at Termination. Tenant shall remove its trade
----------------------
fixtures, furniture, moveable equipment and other personal property from the
Premises upon the termination of this Lease or Tenant's right of possession. If
Tenant does not, then Tenant shall be conclusively presumed to have, at
Landlord's election (i) conveyed such property to Landlord without compensation
or (ii) abandoned such property, and Landlord may dispose of any part thereof in
any manner without liability to Tenant or any other person. Landlord shall have
no duty to be a bailee of any such personal property. If Landlord elects
abandonment, Tenant shall pay to Landlord, upon demand, any expenses incurred
for disposition.
A. Landlord's Maintenance. Throughout the term, Landlord shall
----------------------
maintain the roof, the exterior walls of the Building and the heating,
ventilating and air conditioning systems of the Building in good condition.
I. PROJECT SERVICES.
Landlord shall furnish services as follows:
A. Heating and Air Conditioning. During the normal business hours
----------------------------
of 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on
Saturday, Landlord shall furnish heating and air conditioning to provide a
comfortable temperature, in Landlord's judgment, for normal business operations,
except to the extent Tenant installs equipment which adversely affects the
temperature maintained by the air conditioning system. If Tenant installs such
equipment, Landlord may install supplementary air conditioning units in the
Premises, and Tenant shall pay to Landlord upon demand as Additional Rent the
cost of installation, operation and maintenance thereof.
Landlord shall furnish heating and air conditioning after business
hours if Tenant provides Landlord at least twenty-four (24) hours' notice,
and pays Landlord all then current charges for such additional heating or
air conditioning.
<PAGE>
A. Elevators. Landlord shall provide passenger elevator service
---------
during normal business hours to Tenant in common with Landlord and all other
tenants. Landlord shall provide limited passenger service at other times,
except in case of an emergency. Landlord shall provide freight elevator service
at reasonable hours at Tenant's request, subject to scheduling by the Landlord
and payment for the service by Tenant.
A. Electricity. All the electricity used in the Premises shall be
-----------
supplied through a separate meter and be paid for by Tenant, provided that
Landlord shall pay for the electricity required for the operation of the heating
and air conditioning systems in the Premises during the hours specified in
Paragraph 4A above, and shall include such payment in Operating Costs. Any
decrease or discontinuance of electric service shall not affect the parties'
rights and obligations under this Lease. Tenant shall not use electricity at a
rate which causes the use by all tenants to exceed the capacity of the Building
or the risers or wiring to the Premises. Landlord shall at Tenant's expense
maintain the light fixtures and install lamps, bulbs, ballasts and starters in
the Premises.
Tenant shall pay for all electricity required for janitorial service,
for alterations and repairs to the Premises, and for the operation of any
supplementary air conditioning or ventilating system required for its
equipment.
A. Water. Landlord shall furnish cold water for drinking and
-----
toilet purposes, and cold and hot water for lavatory purposes. Tenant shall pay
Landlord for water furnished for any other purpose as Additional Rent at rates
fixed by Landlord, including without limitation, hot water for kitchenette
purposes. Tenant shall not permit water to be wasted.
A. Janitorial Service. Landlord shall furnish janitorial service
------------------
as set forth in Appendix B. Tenant may obtain supplementary janitorial service
only at its sole cost and responsibility, with employees or contractors
satisfactory to Landlord, and subject to Landlord's prior written consent, which
may be withheld in Landlord's discretion.
A. Telephone Service. Tenant shall arrange for telephone service
-----------------
in the Premises directly with the telephone company. Tenant shall pay the cost
of all charges for installation and service.
G. Interruption of Services. No interruption of services caused by
------------------------
repairs, replacements, or alterations to the service system, or by any
other cause beyond the reasonable control of Landlord, shall be deemed an
eviction or disturbance of Tenant's possession of any part of the Premises,
or render Landlord liable to Tenant for damages, or otherwise affect the
rights and obligations of Landlord and Tenant under this Lease, except as
provided below.
The Rent otherwise payable under this Lease shall abate in the manner
described in the last sentence of this paragraph if all of the following
conditions are met: (i) Landlord ceases to furnish any service in the
Building as a result of a condition which affects only the Building (i.e.
which does not affect office buildings in general in the vicinity of the
Building); (ii) Tenant notifies Landlord in writing within one (1) business
day after such cessation; (iii) such cessation is not caused by Force
Majeure (as defined in Section 23 below); (iv) such cessation is not the
result of an act or omission
<PAGE>
of Tenant; and (v) the Premises (or a material portion thereof) is rendered
untenantable (meaning that Tenant is unable to use such space in the normal
course of its business) and Tenant in fact ceases to use such space as a
result of such cessation. As Tenant's sole and exclusive remedy for such
cessation, on the sixth day after all of the foregoing conditions have been
met, the Rent payable hereunder shall be equitably abated based upon the
percentage of the space in the Premises so rendered untenantable and not
being so used by Tenant, and such abatement shall continue until the date
the Premises become fully tenantable again.
I. ALTERATIONS AND REPAIRS.
A. Landlord's Consent and Conditions. Tenant shall not make any
---------------------------------
improvements or alterations in or additions, changes or installations to the
Premises which (i) impact the base structural components or the heating, air
conditioning, ventilation, electrical, plumbing or mechanical systems
(collectively, the "Systems") of the Building, or (ii) impact any other tenant's
premises (collectively, the "Systems/Structure Work"), without submitting plans
and specifications to Landlord and obtaining Landlord's prior written consent
(which consent Landlord may withhold in its sole discretion). Tenant shall not
make any improvements or alterations in or additions, changes or installations
to the Premises which are not deemed Systems/Structure Work, without submitting
plans and specifications to Landlord and obtaining Landlord's prior written
consent (which consent shall not be unreasonably withheld), if (a) the cost
thereof is in excess of $10,000.00, or (b) such improvements, alterations,
additions, changes or installations are visible from outside the Premises
(collectively, the "Non-Systems Work"). Tenant shall be allowed to make any
improvements or alterations in or additions, changes or installations to the
Premises which are not deemed Systems/Structure Work or Non-Systems Work without
Landlord's consent (collectively, the "Non-Consent Work"). Systems/Structure
Work, Non-Systems Work and Non-Consent Work are sometimes collectively referred
to herein as the "Work." Landlord shall inform Tenant of its approval or
disapproval of any such Systems/Structure Work or Non-Systems Work within
fifteen (15) days after receipt of a complete set of plans and specifications
therefor. Tenant shall pay Landlord's standard charge for review of the plans
and all other items submitted by Tenant. Tenant shall pay for the cost of all
Work. At Landlord's option, the Work shall be performed by Landlord's employees
or contractors. All Work shall become the property of Landlord upon its
installation, except for Tenant's trade fixtures and for items which Landlord
requires Tenant to remove at Tenant's cost at the termination of the Lease. The
following requirements shall apply to all Work:
a) Prior to commencement, Tenant shall furnish to Landlord building
permits, certificates of insurance satisfactory to Landlord, and, at Landlord's
request, security for payment of all costs.
a) Tenant shall perform all Work so as to maintain peace and harmony
among other contractors serving the Project and shall avoid interference with
other work to be performed or services to be rendered in the Project.
a) The Work shall be performed in a good and workmanlike manner,
meeting the standard for construction and quality of materials in the Building,
and shall comply with all insurance requirements and all applicable laws,
ordinances and regulations.
<PAGE>
a) Tenant shall permit Landlord to supervise all Work. Landlord may
charge a supervisory fee not to exceed five percent (5%) of labor, material, and
all other costs of the Work, if Tenant's employees or contractors perform the
Work.
a) Upon completion, Tenant shall furnish Landlord with contractor's
affidavits and full and final statutory waivers of liens, as-built plans and
specifications, and receipted bills covering all labor and materials.
A. Electronic Systems. If Tenant notifies Landlord that Tenant
------------------
requires additional electrical or cable capacity for telegraph, telephone,
burglar alarm, computer, or signal service, Landlord shall direct how the
installation shall be done. Tenant shall make no installation of any kind
except in accordance with Landlord's direction. At Landlord's election,
Landlord may make the installation itself. Tenant shall pay for the entire cost
of both the installation and the service.
A. Damage to Systems. If any part of the mechanical, electrical
-----------------
or other systems in the Premises shall be damaged, Tenant shall promptly notify
Landlord, and Landlord shall repair such damage. Landlord may also at any
reasonable time make any repairs or alterations which Landlord deems necessary
for the safety or protection of the Project, or which Landlord is required to
make by any court or other governmental authority. Landlord shall, in
performing such repairs or alterations, take reasonable steps to avoid
interference with Tenant's normal business activities. Tenant shall at its
expense make all other repairs necessary to keep the Premises, and Tenant's
fixtures and personal property, in good order, condition and repair; to the
extent Tenant fails to do so, Landlord may make such repairs itself. The cost
of any repairs made by Landlord on account of Tenant's default, or on account of
the misuse or neglect by Tenant or its invitees, contractors or agents anywhere
in the Project, shall become Additional Rent payable on demand by Tenant.
A. No Liens. Tenant has no authority to cause or permit any lien
--------
or encumbrance of any kind to affect Landlord's interest in the Project; any
such lien or encumbrance shall attach to Tenant's interest only. If any
mechanic's lien shall be filed or claim of lien made for work or materials
furnished to Tenant, then Tenant shall at its expense within ten (10) days
thereafter either discharge or contest the lien or claim. If Tenant contests
the lien or claim, then Tenant shall (i) within such ten (10) day period,
provide Landlord adequate security for the lien or claim, (ii) contest the lien
or claim in good faith by appropriate proceedings that operate to stay its
enforcement, and (iii) pay promptly any final adverse judgment entered in any
such proceeding. If Tenant does not comply with these requirements, Landlord
may discharge the lien or claim, and the amount paid, as well as attorney's fees
and other expenses incurred by Landlord, shall become Additional Rent payable on
demand by Tenant.
I. USES OF PREMISES. Tenant shall use the Premises only for
executive and general administrative offices, which shall include the
development of software programs, the construction of web pages, the performance
of systems integration, consulting, sales and related uses. Tenant shall not
allow any use of the Premises which will negatively affect the cost of coverage
of Landlord's insurance on the Project. Tenant shall not allow any inflammable
or explosive liquids or materials to be kept on the Premises. Tenant shall not
allow any use of the Premises which would cause the value or utility of any part
of the Premises to diminish or would interfere with any other Tenant or with the
operation of the Project by Landlord. Tenant shall
<PAGE>
not permit any nuisance or waste upon the Premises, or allow any offensive noise
or odor in or around the Premises. Tenant shall not place vending or dispensing
machines of any kind in the Premises.
I. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Tenant shall
comply with all governmental laws or regulations applying to its use of the
Premises. Tenant shall also comply with all rules established for the Project
from time to time by Landlord. The present rules are contained in Appendix C.
Failure by another tenant to comply with the rules or failure by Landlord to
enforce them shall not relieve Tenant of its obligation to comply with the rules
or make Landlord responsible to Tenant in any way.
I. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
- --
A. Waiver of Claims. To the extent permitted by law, Tenant waives
- -- ----------------
any claims it may have against the Landlord or its officers, directors, agents,
contractors or employees for business interruption, damage to property, or any
other loss sustained by Tenant as the result of any accident or occurrence in
the Project or of any part of the Building becoming in disrepair.
To the extent permitted by law, Landlord waives any claims it may have
against Tenant or its officers, directors, agents, contractors, or employees for
rent loss, damage to the property, or any other loss sustained by Landlord as
the result of any accident or occurrence in the Premises or Project or of any
part of the Premises becoming in disrepair.
A. Indemnification. Tenant shall indemnify, defend and hold
---------------
harmless Landlord, the property manager of the Project and their respective
directors, officers, employees, agents and contractors against any claims by any
third party for injury to any person or damage to or loss of any property
occurring in the Project and arising from the use of the Premises or from any
other act or omission of Tenant or any of Tenant's employees, agents, invitees
or contractors.
Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, servants, agents and employees against any claims or
liability for damage to person or property (or for loss or misappropriation of
property) occurring in the Premises or Project, proximately caused by the
intentional misconduct or sole negligence of Landlord or of any employee, agent,
servant, invitee or contractor of Landlord during the Term, and from any costs
relating thereto (including, without limitation, attorneys' fees), but only to
the extent of the sum of (i) Landlord's deductibles under the insurance policy
required to be obtained by Landlord hereunder, and (ii) amounts of insurance
proceeds recoverable under such insurance policy.
A. Insurance Coverage. Tenant shall maintain insurance customary
------------------
for an office tenant, with such terms, coverages and insurers, as Landlord shall
reasonably require from time to time. Initially, such insurance shall include:
a) Commercial General Liability Insurance, with (a) Contractual
Liability including the indemnification provisions contained in this Lease, (b)
a severability of interest endorsement, (c) limits of not less than One Million
Dollars ($1,000,000) combined single limit per occurrence for bodily injury,
sickness or death, and property damage, and umbrella coverage of not less than
Five Million
<PAGE>
Dollars ($5,000,000), and (d) Landlord and Landlord's building manager named as
additional insureds.
a) Insurance against "All Risks" of physical loss covering the
replacement cost of all of Tenant's fixtures and personal property. Tenant's
property insurance shall include a waiver of subrogation. Tenant's insurance
shall be primary and not contributory.
A. Insurance Certificates. Tenant shall deliver to Landlord
----------------------
certificates and endorsements evidencing all required insurance no later than
five (5) days prior to the Commencement Date and each renewal date. Each
certificate will provide for the thirty (30) days prior written notice of
cancellation to Landlord and Tenant.
I. FIRE AND OTHER CASUALTY.
A. Termination. If a fire or other casualty causes substantial damage
-----------
to the Building or the Premises, Landlord shall engage a registered architect to
certify within one (1) month of the casualty to both Landlord and Tenant, the
amount of time needed to restore the Building and the Premises to tenantability,
using standard working methods. If the time needed exceeds eighteen (18) months
from the beginning of the restoration, or two (2) months therefrom if the
restoration would begin during the last eighteen (18) months of the Lease, then
in the case of the Premises, either Landlord or Tenant may terminate this lease,
and in the case of the Building, Landlord may terminate this Lease, by notice to
the other party within ten (10) days after the notifying party's receipt of the
architect's certificate. The termination shall be effective thirty (30) days
from the date of the notice and Rent shall be paid by Tenant to that date,
within an abatement for any portion of the space which has been untenantable
after the casualty.
B. Restoration. If a casualty causes damage to the Building or the
-----------
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises subject
to current governmental requirements. Tenant shall replace its damaged
personal property and fixtures. Rent shall be abated on a per diem basis during
the restoration for any portion of the Premises which is untenantable, except to
the extent that Tenant's negligence caused the casualty and Landlord's rent loss
insurance would not provide coverage if the Rent were abated.
I. EMINENT DOMAIN. If a part of the Project is taken by eminent
domain or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of the date of the taking. If any
substantial portion of the Project is taken without affecting the Premises, then
Landlord may terminate this Lease as of the date of such taking. Rent shall
abate from the date of the taking in proportion to any part of the Premises
taken. The entire award for a taking of any kind shall be paid to Landlord, and
Tenant shall have no right to share in the award. All obligations accrued to the
date of the taking shall be performed by each party.
I. RIGHTS RESERVED TO LANDLORD.
<PAGE>
Landlord may exercise at any time any of the following rights respecting
the operation of the Project without liability to the Tenant of any kind:
A. Name. To change the name or street address of the Building or
----
the suite numbers of the Premises; provided that if any of the foregoing is
voluntarily done by Landlord (as opposed to required by a governmental agency or
authority), Landlord shall reimburse Tenant for its reasonable actual out-of-
pocket expenses incurred as a result thereof to purchase stationary and business
cards, in an amount not to exceed $1,000.
A. Signs. To install and maintain any signs on the exterior and
-----
in the interior of the Building, and to approve at its discretion prior to
installation any of the Tenant's signs in the Premises visible from the common
areas or the exterior of the Building.
A. Window Treatments. To approve, at its discretion, prior to
-----------------
installation any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building.
A. Service Contracts. To enter into service contracts with all
-----------------
providers furnishing ice and drinking water, towels, toilet supplies, shoe
shines, sign painting, beverage or food services, or other services to the
Premises, provided that the rates charged are reasonably competitive for office
buildings in the Chicago area.
A. Keys. To retain and use at any time passkeys to enter the
----
Premises or any door within the Premises. Tenant shall not alter or add any
lock or bolt.
A. Access. To have access to inspect the Premises, and to perform
------
its obligations, or make repairs, alterations, additions or improvements, as
permitted by this Lease.
A. Preparation for Reoccupancy. To decorate, remodel, repair,
---------------------------
alter or otherwise prepare the Premises for reoccupancy at any time after Tenant
abandons the Premises, without relieving Tenant of any obligation to pay Rent.
A. Heavy Articles. To approve the weight, size, placement and
--------------
time and manner of movement within the Building of any safe or other heavy
article of Tenant's property. Tenant shall move its property entirely at its
own risk.
A. Show Premises. To show the Premises to prospective purchasers
-------------
or brokers at any reasonable time, and to prospective tenants during the final
year of the Term, provided that Landlord gives prior notice to Tenant and does
not materially interfere with Tenant's use of the Premises.
A. Restrict Access. To restrict access to the Project during such
---------------
hours as Landlord shall determine, provided access will normally be available on
a 24-hour basis, subject to the event of an emergency and appropriate regulation
by Landlord. Landlord agrees to use reasonable efforts to provide Tenant with
prior notice of any such restriction of access.
<PAGE>
A. Relocation of Tenant. To relocate the Tenant, upon thirty
--------------------
days' prior written notice, from all or part of the Premises (the "old
premises") to another area in the Project (the "new premises"), provided that:
1. the size of the new premises is at least equal to the size of the
old premises;
1. the purpose of the relocation is to put a major tenant into the
old premises;
1. Landlord pays the cost of moving the Tenant and improving the new
premises to the substantially same condition of the old premises. Tenant shall
cooperate with Landlord in all reasonable ways to facilitate the move, including
supervising the movement of files or fragile equipment, designating new
locations for furniture, equipment and new telephone and electrical outlets, and
determining the color of paint in the new premises; and
1. Tenant shall not be required to move into the new premises until
the new premises is in the substantially same condition of the old premises.
A. Use of Lockbox. To designate a lockbox collection agent for
--------------
collections of amounts due Landlord. In that case, the date of payment of Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment. However, if Tenant is in
default under this Lease, Landlord may reject any payment for all purposes as of
the date of receipt or actual collection by mailing to Tenant within 21 days
after such receipt or collection a check equal to the amount sent by Tenant.
A. Repairs and Alterations. To make repairs or alterations to the
-----------------------
Project and in doing so transport any required material through the Premises, to
close entrances, doors, corridors, elevators and other facilities in the
Project, to open any ceiling in the Premises, or to temporarily suspend services
or use of common areas in the Building. Landlord may perform any such repairs
or alterations during ordinary business hours, except that Tenant may require
any Work in the Premises to be done after business hours if Tenant pays Landlord
for overtime and any other expenses incurred. Landlord may do or permit any
work on any nearby building, land, street, alley or way.
A. Landlord's Agents. If Tenant is in default under this Lease,
-----------------
possession of Tenant's funds or negotiation of Tenant's negotiable instrument by
any of Landlord's agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.
A. Building Services. To install, use and maintain through the
-----------------
Premises, pipes, conduits, wires and ducts serving the Building, provided that
such installation, use and maintenance does not unreasonably interfere with
Tenant's use of the Premises.
A. Other Actions. To take any other action which Landlord deems
-------------
reasonable in connection with the operation, maintenance or preservation of the
Building.
<PAGE>
I. TENANT'S DEFAULT
Any of the following shall constitute a default by Tenant:
A. Rent Default. Tenant fails to pay any Rent when due, and, in
------------
the case of only the first such failure in any 12 consecutive months, this
failure continues for five days after written notice from Landlord;
A. Assignment/Sublease or Hazardous Substances Default. Tenant
---------------------------------------------------
defaults in its obligations under Section 17 Assignment and Sublease or Section
28 Hazardous Substances;
A. Other Performance Default. Tenant fails to perform any other
-------------------------
obligation to Landlord under this Lease, and, in the case of only the first such
failure in any twelve consecutive months, this failure continues for twenty days
after written notice from Landlord, except that if Tenant begins to cure its
failure within the twenty day period but cannot reasonably complete its cure
within such period, then the twenty day period shall be extended to ninety days,
or such lesser period as is reasonably necessary to complete the cure;
A. Credit Default. One of the following credit defaults occurs:
--------------
1. Tenant commences any proceeding under any law relating to
bankruptcy, insolvency, reorganization or relief of debts, or seeks appointment
of a receiver, trustee, custodian or other similar official for the Tenant or
for any substantial part of its property, or any such proceeding is commenced
against Tenant and either remains undismissed for a period of thirty days or
results in the entry of an order for relief against Tenant which is not fully
stayed within seven days after entry;
1. Tenant dissolve, liquidates or otherwise winds up its business,
becomes insolvent or bankrupt, does not generally pay its debts as they become
due, or admits in writing its inability to pay its debts, or makes a general
assignment for the benefit of creditors;
1. Any third party obtains a levy or attachment under process of law
against Tenant's leasehold interest.
I. LANDLORD REMEDIES.
A. Termination of Lease or Possession. If Tenant defaults, Landlord may
----------------------------------
elect by notice to Tenant either to terminate this Lease or to terminate
Tenant's possession of the Premises without terminating this Lease. In either
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may remove any of Tenant's
signs and any of its other property, without relinquishing its right to receive
Rent or any other right against Tenant.
B. Lease Termination Damages. If Landlord terminates the Lease, Tenant
-------------------------
shall pay to Landlord all Rent due on or before the date of termination, plus
Landlord's reasonable estimate of the aggregate Rent that would have been
payable from the date of termination through the Termination Date, reduced by
the rental value of the Premises calculated as of the date of termination for
the same period, taking into account reletting expenses and market concessions,
both discounted to
<PAGE>
present value at the rate of five (5) percent per annum. If Landlord shall relet
any part of the Premises for any part of such period before such present value
amount shall have been paid by Tenant or finally determined by a court, then the
amount of Rent payable pursuant to such reletting shall be deemed to be the
reasonable rental value for that portion of the Premises relet during the period
of the reletting.
C. Possession Termination Damages. If Landlord terminates Tenant's
------------------------------
right to possession without terminating the Lease and Landlord takes possession
of the Premises itself, Landlord may relet any part of the Premises for such
Rent, for such time, and upon such terms as Landlord in its sole discretion
shall determine, without any obligation to do so prior to renting other vacant
areas in the Building. Any proceeds from reletting the Premises shall first be
applied to the expenses of reletting, including redecoration, repair,
alteration, advertising, brokerage, legal, and other reasonably necessary
expenses. If the reletting proceeds after payment of expenses are insufficient
to pay the full amount of Rent under this Lease, Tenant shall pay such
deficiency to Landlord monthly upon demand as it becomes due. Any excess
proceeds shall be retained by Landlord.
D. Landlord's Remedies Cumulative. All of Landlord's remedies under
------------------------------
this Lease shall be in addition to all other remedies Landlord may have at law
or in equity. Waiver by Landlord of any breach of an obligation by Tenant shall
be effective only if it is in writing, and shall not be deemed a waiver of any
other breach, or any subsequent breach of the same obligation. Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect such
proceeding or judgment.
E. Waiver of Trial by Jury. Each party waives trial by jury in the
-----------------------
event of any legal proceeding brought by the other in connection with this
Lease. Each party shall bring any action against the other in connection with
this Lease in a federal or state courts located in Chicago, Illinois, consents
to the jurisdiction of such courts, and waives any right to have any proceeding
transferred from such courts on the ground of improper venue or inconvenient
forum.
F. Litigation Costs. The non-prevailing party in any lawsuit to enforce
----------------
this Lease shall pay the attorneys' fees and other costs of the prevailing
party.
I. SURRENDER. Upon termination of this Lease or Tenant's right to
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and casualty damage excepted. If Landlord requires
Tenant to remove any alterations, then Tenant shall remove the alterations in a
good and workmanlike manner and restore the Premises to its condition prior to
their installation.
I. HOLDOVER. If Tenant retains possession of any part of the
Premises after the Term, Tenant shall become a month-to-month tenant upon all of
the terms of this Lease as might be applicable to such month-to-month tenancy,
except that Tenant shall pay Base Rent at double the rate in effect immediately
prior to such holdover, computed on a monthly basis for each full or partial
month Tenant remains in possession. If Tenant holds over for more than one
month, Tenant shall also pay Landlord all of Landlord's direct and consequential
damages, and in addition, if Landlord so elects by notice to Tenant, such
holdover shall constitute a renewal of this Lease for one year at the then
current market rate as determined by Landlord but
<PAGE>
in no event less than the Rent payable immediately prior to such holdover. No
acceptance of Rent or other payments by Landlord under these holdover provisions
shall operate as a waiver of Landlord's right to regain possession or any other
of Landlord's remedies.
I. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. This Lease shall be subordinate to any present or
-------------
future ground lease or mortgage respecting the Project, and any amendments to
such ground lease or mortgage, at the election of the ground lessor or mortgagee
as the case may be, effected by notice to Tenant in the manner provided in this
Lease. The subordination shall be effective upon such notice, but at the
request of Landlord or ground lessor or mortgagee, Tenant shall within ten (10)
days of the request, execute and deliver to the requesting party any reasonable
documents provided to evidence the subordination.
At any time that any ground lease or mortgage is put in effect on the
Project, Landlord shall use reasonable efforts to cause the mortgagee or ground
lessor to deliver to Tenant a non-disturbance agreement, in form and substance
reasonably acceptable to Tenant, which agreement shall provide that so long as
Tenant is not in default under this Lease (after the expiration of any
applicable notice and cure periods), Tenant shall have the right to remain in
possession of the Premises and to exercise all of its option and rights on the
terms and conditions set forth herein, even if there is a default under any such
ground lease or if any such mortgagee forecloses its mortgage or accepts a deed
in lieu of foreclosure. At such time as any additional ground leases or
mortgages are placed on the Project, Landlord shall use reasonable efforts to
cause the additional ground lessor and/or mortgagee to deliver a non-disturbance
agreement to Tenant.
B. Termination of Ground Lease or Foreclosure of Mortgage. If any ground
------------------------------------------------------
lease is terminated or mortgage foreclosed or deed in lieu of foreclosure given
and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Project, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or
purchaser shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the owner of the Project. At the request of Landlord,
ground lessor or mortgagee, Tenant shall execute and deliver within ten (10)
days of the request any document furnished by the requesting party to evidence
Tenant's agreement to attorn.
C. Security Deposit. Any ground lessor or mortgagee shall be
----------------
responsible for the return of any security deposit by Tenant only to the extent
the security deposit is received by such ground lessor or mortgagee.
D. Notice and Right to Cure. The Project is subject to any ground
------------------------
lease and mortgage identified with name and address of ground lessor or
mortgagee in any Appendix to this Lease. Tenant agrees to send by registered or
certified mail to any ground lessor or mortgagee identified either in such
Appendix or in any later notice from Landlord to Tenant a copy of any notice of
default sent by Tenant to Landlord. If Landlord fails to cure such default
within the required time period under this Lease, but ground lessor or mortgagee
begins to cure within ten (10) days after such period and proceeds diligently to
complete such cure, then ground lessor or mortgagee shall have such additional
time as is necessary to complete such cure, including any
<PAGE>
time necessary to obtain possession if possession is necessary to cure, and
Tenant shall not begin to enforce its remedies so long as the cure is being
diligently pursued.
E. Definitions. As used in this Section 16, "mortgage" shall include
-----------
"trust deed" and "mortgagee" shall include "trustee", "mortgagee" shall include
the mortgagee of any ground lessee, and "ground lessor", "mortgagee", and
"purchaser at a foreclosure sale" shall include, in each case, all of its
successors and assigns, however remote.
I. ASSIGNMENT AND SUBLEASE.
- --
A. Consent Required. Tenant shall not, without the prior consent of
----------------
Landlord in each case, (i) make or allow any assignment or transfer, by
operation of law or otherwise, of any part of Tenant's interest in this Lease,
(ii) grant or allow any lien or encumbrance, by operation of law or otherwise,
upon any part of Tenant's interest in this Lease, (iii) sublet any part of the
Premises, or (iv) permit anyone other than Tenant and its employees to occupy
any part of the Premises. Landlord may withhold its consent to the assignment or
sublease if Tenant is in default under this Lease, if the proposed assignee or
sublessee is a tenant in the Project or an affiliate of such a tenant, or if the
financial responsibility, nature of business, and character of the proposed
assignee or subtenant are not all reasonably satisfactory to Landlord. Landlord
will not otherwise unreasonably withhold its consent on any other basis to such
an assignment or subletting. No consent granted by Landlord shall relieve Tenant
of any of its obligations under this Lease, nor shall it be deemed to be a
consent to any subsequent assignment or transfer, lien or encumbrance, sublease
or occupancy. Tenant shall pay all of Landlord's attorneys' fees and other
expenses incurred in connection with any consent requested by Tenant or in
reviewing any proposed assignment or subletting. Any assignment or transfer,
grant of lien or encumbrance, or sublease or occupancy without Landlord's prior
written consent shall be void.
A. Procedure. Tenant shall notify Landlord of any proposed
---------
assignment or sublease at least forty-five (45) days prior to its proposed
effective date. The notice shall include the name and address of the proposed
assignee or subtenant, its corporate affiliates in the case of a corporation and
its partners in a case of a partnership, an execution copy of the proposed
assignment or sublease, and sufficient information to permit Landlord to
determine the financial responsibility and character of the proposed assignee or
subtenant. As a condition to any effective assignment of this Lease, the
assignee shall execute and deliver in form satisfactory to Landlord at least
fifteen (15) days prior to the effective date of the assignment, an assumption
of all of the obligations of Tenant under this Lease. As a condition to any
effective sublease, subtenant shall execute and deliver in form satisfactory to
Landlord at least fifteen (15) days prior to the effective date of the sublease,
an agreement to comply with all of Tenant's obligations under this Lease, and at
Landlord's option, an agreement (except for the economic obligations which
subtenant will undertake directly to Tenant) to attorn to Landlord under the
terms of the sublease in the event this Lease terminates before the sublease
expires.
A. Change of Management or Ownership. Any transfer of the
---------------------------------
direct or indirect power to affect the management or policies of Tenant or
direct or indirect change in 40% or more of the ownership interest in Tenant
shall constitute an assignment of this Lease.
<PAGE>
A. Excess Payments. If Tenant shall assign this Lease or
---------------
sublet any part of the Premises for consideration in excess of the pro-rata
portion of Rent applicable to the space subject to the assignment or sublet,
then Tenant shall pay to Landlord as Additional Rent 50% of any such excess
immediately upon receipt.
I. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer
its interest in the Project or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit not delivered to its transferee, and Tenant shall
look solely to Landlord's successors for performance of such obligations. This
Lease shall not be affected by any such transfer.
I. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Lease as
amended to date is in full force and effect, that the Tenant is paying Rent and
other charges on a current basis, and that to the best of the knowledge of the
certifying party, the other party has committed no uncured defaults and has no
offsets or claims. The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
and such other matters as may be reasonably requested. Failure to deliver such
statement within the time required shall be conclusive evidence against the non-
certifying party that this Lease, with any amendments identified by the
requesting party, is in full force and effect, that there are no uncured
defaults by the requesting party, that not more than one month's Rent has been
paid in advance, and that the non-certifying party has no claims or offsets
against the requesting party.
I. SECURITY DEPOSIT.
A. Tenant shall deposit with Landlord on the date of this Lease security
for the performance of all of its obligations (the "Security Deposit") in the
amounts set forth in paragraph C of this Section 20 and in the form set forth
below. If Tenant defaults under this Lease, Landlord may use any part of the
Security Deposit to make any defaulted payment, to pay for Landlord's cure of
any defaulted obligation, or to compensate Landlord for any loss or damage
resulting from any default. To the extent any portion of the Security Deposit
is used, Tenant shall within five (5) days after demand from Landlord reinstate
the Letter of Credit (defined below). If Tenant shall perform all of its
obligations under this Lease and return the Premises to Landlord at the end of
the Term, Landlord shall return either all of the remaining Security Deposit or
the Letter of Credit to Tenant. The Security Deposit shall not serve as an
advance payment of Rent or a measure of Landlord's damages for any default under
this Lease.
B. The Security Deposit shall be in the form of an unconditional and
irrevocable letter of credit (the "Letter of Credit"), which Letter of Credit
shall (a) be in the initial amount of $220,000, (b) be in form and substance
satisfactory to Landlord, (c) name Landlord as its beneficiary, (d) expressly
allow Landlord to draw upon it at any time or from time to time by delivering to
the issuer written notice that Landlord is entitled to draw thereunder, (e) be
drawn on an FDIC-insured financial institution satisfactory to Landlord, (f) be
redeemable in the State of New York, (g) be freely assignable by Landlord to any
successor to Landlord's
<PAGE>
interest in the Project. If Landlord is not provided with a substitute Letter of
Credit complying with all of the requirements hereof at least ten (10) days
before the stated expiration date thereof, then Landlord shall have the right to
draw under such Letter of Credit then held by Landlord and hold such funds as a
Security Deposit in accordance with the terms of this Section 20.
C. Provided that Tenant is not in default under any of the terms,
covenants or conditions of the Lease, beginning with the start of the third
Lease Year, and at the start of each Lease Year thereafter, the amount of the
Letter of Credit to be delivered to Landlord may be decreased by $50,000, as
more specifically set forth in the following:
Lease Year Amount of Letter of Credit
----------------------------------------------
1 $220,000
2 $220,000
3 $170,000
4 $120,000
5 $ 70,000
D. If Landlord transfers its interest in the Project or this Lease,
Landlord may transfer the Security Deposit to its transferee. Upon such
transfer, Landlord shall have no further obligation to return the Security
Deposit to Tenant, and Tenant's right to the return of the Security Deposit
shall apply solely against Landlord's transferee.
I. EXTENSION. Subject to Sections 21B and 21C below, the Term of
this Lease may be extended, at the option of Tenant, for one additional period
of five (5) years (the "Renewal Term"). The Renewal Term shall be upon the same
terms, covenants and conditions contained in this Lease, excluding the
provisions of Section 22 and Appendix D of the Lease and except for the amount
of Base Rent payable during the Renewal Term, and any reference in the Lease to
the "Term" of the Lease shall be deemed to include the Renewal Term and apply
thereto, unless it is expressly provided otherwise. Tenant shall have no
extension option beyond the aforesaid five year extension option. Any
termination of this Lease during the initial Term of this Lease shall terminate
all rights under this Section 21.
A. The initial Base Rent during the Renewal Term for any space then
constituting a portion of the Premises shall be at a rate equal to the greater
of (i) the Base Rent (as escalated pursuant to Section 2A above) applicable to
the fifth Lease Year, and (ii) the then prevailing market rate for fully
creditworthy tenants for comparable space in the Building and other first class
office buildings in the vicinity of the Building as reasonably determined by
Landlord. Tenant's obligation to pay Operating Cost Share Rent and Tax Share
Rent pursuant to Section 2A of the Lease shall continue during the Renewal Term.
B. Such option to extend shall be exercised by Tenant delivering an
initial non-binding written notice to Landlord not less than twelve (12) full
calendar months prior to the expiration of the initial Term of this Lease.
Thereafter, Landlord shall calculate the prevailing market rate for the
Premises, which calculation shall reflect the market rate that would be payable
per annum for a term commencing on the first day of the Renewal Term, provided
that such calculation shall be final and shall not be recalculated at the actual
commencement of the Renewal Term (if any).
<PAGE>
Tenant shall give Landlord final binding written notice of intent to exercise
its option to extend, if at all, no later than nine (9) months prior to the
expiration of the initial Term.
C. Tenant's right to exercise its option to extend this Lease pursuant to
this Section 21, is subject to the following conditions: (i) that on the date
that Tenant delivers its final binding written notice of its election to
exercise its option to extend, Tenant is not in default under any of the terms,
covenants or conditions of the Lease, after the expiration of any applicable
notice and cure periods, and (ii) that Tenant shall not have assigned the Lease
or sublet the Premises at any time during the period commencing with the date
that Tenant delivers its final binding written notice to Landlord of its
exercise of such option to extend and ending on the commencement date of the
Renewal Term, or at any time prior to such period, if such assignment or
sublease extends into such period.
D. If Tenant fails to give its initial non-binding written notice of
intent or its final binding written notice of intent to exercise its option to
extend when due as provided in this Section 21, Tenant will be deemed to have
waived such option to extend.
I. RIGHT OF FIRST OFFER. Subject to Section 22B below, during the
Term of this Lease, Tenant shall have and is hereby granted a right of first
offer on any portion of the 19th floor of the Building contiguous to the Leased
Premises that is not originally demised to Tenant under this Lease,
(collectively, the "ROFO Space"), which right shall be exercised in accordance
with the procedures set forth in Section 22A below.
A. If at any time during the Term of this Lease any ROFO Space becomes
available for lease to anyone other than a prior tenant, Landlord shall give
written notice thereof to Tenant (the "Landlord's ROFO Notice") identifying that
portion of the ROFO Space that is available (the "Subject ROFO Space").
Landlord's ROFO Notice may be given at any time up to sixteen (16) months in
advance of such availability and shall contain the terms upon which Landlord
intends to offer the Subject ROFO Space for lease at a market rate to the
market. Tenant shall notify Landlord within ten (10) days of receipt of
Landlord's ROFO Notice whether it desires to lease the Subject ROFO Space on the
terms set forth in Landlord's ROFO Notice; provided, however, that failure to
notify Landlord within said 10-day period shall be deemed a refusal by Tenant.
After any such refusal or deemed refusal, Tenant shall have no further rights to
such Subject ROFO Space and Landlord shall be free to lease such space to any
person or entity for any term. If Tenant exercises its right of first offer
with respect to such Subject ROFO Space, such space shall be added to the
Premises for the remaining Term of the Lease (including the Renewal Term, if
any) on (a) all the terms, covenants and conditions specified in the Landlord's
ROFO Notice, and (b) the terms, covenants and conditions of this Lease to the
extent that such terms, covenants and conditions of this Lease do not conflict
with the terms, covenants and conditions specified in the Landlord's ROFO
Notice; provided, however, that notwithstanding anything herein to the contrary,
during the Renewal Term, if any, Base Rent, Operating Cost Share Rent, Tax Share
Rent and Additional Rent and all other economic terms applicable to any ROFO
Space shall be adjusted in the manner provided in Section 21 hereof, and the
rent and other economic terms described in the Landlord's ROFO Notice shall not
apply during any such Renewal Term, but shall be in accordance with Section 21
above. Any ROFO Space added to the Premises pursuant to this Section 22 shall
become a part of the Premises for all purposes of this Lease, and any reference
in this Lease to the term "Premises" shall be deemed to refer to
<PAGE>
and include such portion of the ROFO Space, except as expressly provided
otherwise in this Lease.
B. Tenant's right to exercise its right of first offer with respect to
any portion of the ROFO Space pursuant to this Section 22, is subject to the
following conditions: (i) that on the date that Tenant delivers its binding
written notice of its election to exercise its right of first offer, Tenant is
not in default under any of the terms, covenants or conditions of the Lease, and
an unmatured event of default has not occurred and is not continuing; and (ii)
that Tenant shall not have assigned the Lease or sublet any portion of the
Premises at any time during the period commencing with the date that Tenant
delivers its binding written notice to Landlord of its exercise of its right of
first offer and ending on the date on which such ROFO Space is available to be
added to the Premises, or at any time prior to such period, if such assignment
or sublease extends into such period.
C. Promptly after Tenant's exercise of its right of first offer pursuant
to this Section 22, Landlord shall prepare an amendment to the Lease to reflect
changes in the size of the Premises, Base Rent, Tenant's Proportionate Share and
any other appropriate terms, due to the addition of the ROFO Space. Tenant
shall execute and return such an amendment to the Lease within fifteen (15) days
after its submission to Tenant.
I. FORCE MAJEURE. Landlord shall not be in default under this
Lease to the extent Landlord is unable to perform any of its obligations on
account of any strike or labor problem, energy shortage, governmental pre-
emption or prescription, national emergency, or any other cause of any kind
beyond the reasonable control of Landlord ("Force Majeure").
I. INTENTIONALLY OMITTED.
I. NOTICES. All notices, consents, approvals and similar
communications to be given by one party to the other under this Lease, shall be
given in writing, mailed or personally delivered as follows:
A. Landlord. To Landlord as follows:
--------
TIAA Realty, Inc. c/o TIAA Realty, Inc.
c/o Office of the Building Teachers Insurance and Annuity
Manager Association of America
230 West Monroe Street 730 Third Avenue
Chicago, Illinois 60606 New York, New York 10017
Attn: Vice President
or to such other person at such other address as Landlord may designate by
notice to Tenant.
A. Tenant. To Tenant at the address stated in the Schedule until
------
Tenant takes possession of the Premises, and thereafter at the Premises or such
other address as Tenant may designate by notice to Landlord.
Mailed notices shall be sent by United States certified or registered mail,
or by a reputable national overnight courier service, postage prepaid. Mailed
notices shall be deemed to have been given upon posting in the United States
mail in the case
<PAGE>
of registered or certified mail, and one business day in the case of overnight
courier.
I. QUIET POSSESSION. So long as Tenant shall perform all of its
obligations under this Lease, Tenant shall enjoy peaceful and quiet possession
of the Premises against any party claiming through the Landlord.
I. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant
has not dealt with any real estate broker with respect to this Lease except for
Miglin-Beitler Management Corporation and any broker listed in the Schedule, and
no other broker is in any way entitled to any broker's fee or other payment in
connection with this Lease. Tenant shall indemnify and defend Landlord against
any claims by any other broker or third party for any payment of any kind in
connection with this Lease.
I. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Tenant's
----------------------
assignment contained in Section 14, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant
---------------------
under this Lease which are due upon demand, Tenant shall pay to Landlord any
amount for which Landlord renders a statement of account within ten days of
Tenant's receipt of Landlord's statement.
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate". The
-------------------------------------------------------------
term "Landlord" means only the owner of the Project and the lessor's interest in
this Lease from time to time. The words "re-entry" and "re-enter" are not
restricted to their technical legal meaning. The words "including" and similar
words shall mean "without limitation." The word "affiliate" shall mean a person
or entity controlling, controlled by or under common control with the applicable
entity. "Control" shall mean the power directly or indirectly, by contract or
otherwise, to direct the management and policies of the applicable entity.
D. Time of the Essence. Time is of the essence of each provision of this
-------------------
Lease.
E. No Option. This document shall not be effective for any purpose
---------
until it has been executed and delivered by both parties; execution and delivery
by one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this Lease
------------
shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all respects by the
-------------
laws of Illinois, without regard to the principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any way
------------------
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
I. No Oral Modification. No modification of this Lease shall be
--------------------
effective unless it is a written modification signed by both parties.
<PAGE>
J. Landlord's Right to Cure. If Landlord breaches any of its
------------------------
obligations under this Lease, Tenant shall notify Landlord and shall take no
action respecting such breach so long as Landlord immediately begins to cure the
breach and diligently pursues such cure to its completion. Landlord may cure any
default by Tenant; any expenses incurred shall become Additional Rent due from
Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect on the
--------
construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that it
---------
has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of its
----------------------------------
remedies under this Lease either in its own name or through an agent.
N. Entire Agreement. This Lease, together with all Appendices,
----------------
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to the
----------------
interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any
--------------------
rights to light and air in connection with Project. Landlord reserves to itself,
the Land, the Building below the improved floor of each floor of the Premises,
the Building above the ceiling of each floor of the Premises, the exterior of
the Premises and the areas on the same floor outside the Premises, along with
the areas within the Premises required for the installation and repair of
utility lines and other items required to serve other tenants of the Building.
Q. Consents. Neither party shall unreasonably withhold or delay any
--------
consent or approval required under this Lease, except as specifically permitted
in this Lease.
R. Singular and Plural. Wherever appropriate in this Lease, a singular
-------------------
term shall be construed to mean the plural where necessary, and a plural term
the singular. For example, if at any time two parties shall constitute Landlord
or Tenant, then the relevant term shall refer to both parties together.
S. No Recording by Tenant. Tenant shall not record in any public
----------------------
records any memorandum or any portion of this Lease.
T. Exclusivity. Landlord does not grant to Tenant in this Lease any
-----------
exclusive right except the right to occupy its Premises.
U. No Construction Against Drafting Party. The rule of construction
--------------------------------------
that ambiguities are resolved against the drafting party shall not apply to this
Lease.
V. Survival. All obligations of Landlord and Tenant under this Lease
--------
shall survive the termination of this Lease.
<PAGE>
W. Rent Not Based on Income. No rent or other payment in respect of
------------------------
the Premises shall be based in any way upon net income or profits from the
Premises. Tenant may not enter into or permit any sublease or license or other
agreement in connection with the Premises which provides for a rental or other
payment based on net income or profit.
X. Building Manager and Service Providers. Landlord may perform any of
--------------------------------------
its obligations under this Lease through its employees, the building manager
of the Project, or third parties hired by the Landlord or the building manager.
Upon the request of Landlord, Tenant shall enter into a contract approved by
Landlord as to form and content with the building manager of the Project or
third parties designated by Landlord for the furnishing of such services,
provided that no such contract shall require Tenant to make more payments or
accept fewer services than Tenant is entitled to under this Lease.
Y. Interest on Late Payments. Interest shall be paid by Tenant to
-------------------------
Landlord on any late payments of Rent from the date due until paid at the rate
provided in Section 2D(2).
I. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel
at any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.
I. HAZARDOUS SUBSTANCES. Tenant shall not cause or permit any
Hazardous Substances to be brought upon, produced, stored, used, discharged or
disposed of in or near the Project unless Landlord has consented to such storage
or use in its sole discretion. "Hazardous Substances" include those hazardous
substances described in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et
seq., any other applicable federal, state or local law, and the regulations
adopted under these laws. If any lender or governmental agency shall require
testing for Hazardous Substances in the Premises, Tenant shall pay for such
testing.
I. EXCULPATION. Landlord shall have no personal liability under
this Lease; its liability shall be limited to its interest in the Project, and
shall not extend to any other property or assets of the Landlord.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
TIAA REALTY, INC., a Delaware corporation,
Landlord
By: Teachers Insurance and Annuity Association
of America, a New York corporation, its
authorized representative
By: /S/ Robert D. Loverro
Name:
Title:
TENANT:
DIGITAL WORK INC., a __________________________
By: /s/ Loreen Sieroslawski
Name:
Title:
<PAGE>
APPENDIX A
PLAN OF THE PREMISES
(attach floor plan depicting the Premises)
APPENDIX A
Page 1 of 1
<PAGE>
APPENDIX B
CLEANING SCHEDULE
Landlord shall furnish janitorial service as described below:
DAILY
-----
Sweep, dry mop (using treated mops), or vacuum all floor areas (moving
light furniture) of resilient wood or carpet, remove matter such as gum and tar
which had adhered to the floor.
Empty and damp wipe all ashtrays and waste baskets and remove all trash.
Dust all horizontal surfaces with treated dust cloth, including furniture,
files, equipment, blinds, and louvers that can be reached without a ladder.
Damp wipe all telephones, including dials and crevices.
Spot wash to remove smudges, marks and fingerprints from such areas as
walls, equipment, doors, partitions and light switches within reach.
Wash and disinfect water fountains and water coolers.
Damp mop all non-resilient floors such as concrete, terrazzo and ceramic
tile.
Empty all waste containers.
Dust and rub down elevator doors, walls, and metal work in elevator cabs.
TOILET ROOMS
------------
Clean mirrors, soap dispensers, shelves, wash basins, exposed plumbing,
dispenser and disposal container exteriors using detergent disinfectant and
water. Damp wipe all ledges, toilet stalls and doors, spot clean light
switches, doors and walls.
Clean toilets and urinals with detergent disinfectant, beginning with seats
and working down. Pour one ounce of bowl cleaner into urinal after cleaning and
do not flush.
Furnish and refill all soap, toilet, sanitary napkin and towel dispensers.
Clean all baseboards.
Damp mop floors using detergent disinfectant.
WEEKLY
------
Wash all directory board, display, entry door and side light glass, as
necessary.
Spot clean carpet stains.
APPENDIX B
Page 1 of 2
<PAGE>
Spot wash interior partition glass and door glass to remove smudge marks,
and all smudge marks and finger marks from doors, partitions, woodwork, window
ledges and window mullions.
APPENDIX B
2 of 2
<PAGE>
MONTHLY
-------
Sweep stairwells and landings.
Wash all uncarpeted areas.
High dust all horizontal and vertical surfaces not reached in nightly
cleaning, such as pipes, light fixtures, door frames, picture frames and other
wall hangings.
QUARTERLY
---------
Vacuum all ceilings and wall air supply and exhaust diffusers or grills.
Wash all stairwell landings and treads.
Exterior windows of the building will be cleaned, weather permitting.
All tile areas to be scrubbed, waxed and buffed.
APPENDIX B
Page 2 of 2
<PAGE>
APPENDIX C
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The Project directory shall be available to Tenant solely to display
names and their location in the Project, which display shall be as directed by
Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and shall move all supplies, furniture and equipment as soon
as received directly to the Premises and move all such items and waste being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Project. Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Project.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall not
be used for any purposes other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus, or carry on any mechanical business without the prior
written consent of Landlord; use the Premises for housing, lodging or sleeping
purposes; or permit preparation or warming of food in the Premises (warming of
coffee and individual meals with employees and guests excepted). Tenant shall
not occupy or use the Premises or permit the Premises to be occupied or used for
any purpose, act or thing which is in violation of any public law, ordinance or
governmental regulation or which may be dangerous to persons or property.
7. Tenant shall not bring upon, use or keep in the Premises or the
Project any kerosene, gasoline or inflammable or combustible fluid or material,
or any other articles deemed hazardous to persons or property, or use any method
of heating or air conditioning other than that supplied by Landlord.
8. Landlord shall have sole power to direct electricians as to where and
how telephone and other wires are to be introduced. No boring or cutting for
wires is to be allowed without the consent of Landlord. The location of
telephones, call boxes
APPENDIX C
Page 1 of 4
<PAGE>
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
9. No additional locks shall be placed upon any doors, windows or transoms
in or to the Premises. Tenant shall not change existing locks or the mechanism
thereof. Upon termination of the lease, Tenant shall deliver to Landlord all
keys and passes for offices, rooms, parking lot and toilet rooms which shall
have been furnished Tenant and shall make known to Landlord the combination of
all locks then remaining on the Premises. In the event of the loss of keys so
furnished, Tenant shall pay Landlord therefor. Tenant shall not make, or cause
to be made, any such keys and shall order all such keys solely from Landlord and
shall pay Landlord for any keys in addition to the two sets of keys originally
furnished by Landlord for each lock.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be
received in the Project or carried up or down in the freight elevator, except
between such hours and in such freight elevator as shall be designated by
Landlord. Tenant shall not take or permit to be taken in or out of other
entrances of the Building, or take or permit on other elevators, any item
normally taken in or out through the trucking concourse or service doors or in
or on freight elevators.
12. Tenant shall cause all doors to the Premises to be closed and securely
locked and shall turn off all utilities, lights and machines before leaving the
Project at the end of the day.
13. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.
14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Project's heating and air
conditioning, and shall refrain from attempting to adjust any controls, other
than room thermostats installed for Tenant's use. Tenant shall keep corridor
doors closed.
15. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage which includes keeping doors locked and other means
of entry to the Premises closed and secured.
16. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.
17. Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
18. No bicycle or other vehicle and no animals or pets shall be allowed in
the Premises, halls, freight docks, or any other parts of the Building except
that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not
make or
APPENDIX C
Page 2 of 4
<PAGE>
permit any noise, vibration or odor to emanate from the Premises, or do anything
therein tending to create, or maintain, a nuisance, or do any act tending to
injure the reputation of the Building.
19. Tenant acknowledges that Building security problems may occur which
may require the employment of extreme security measures in the day-to-day
operation of the Project.
Accordingly:
(a) Landlord may, at any time, or from time to time, or for regularly
scheduled time periods, as deemed advisable by Landlord and/or its agents, in
their sole discretion, require that persons entering or leaving the Project or
the Property identify themselves to watchmen or other employees designated by
Landlord, by registration, identification or otherwise.
(b) Tenant agrees that it and its employees will cooperate fully with
Project employees in the implementation of any and all security procedures.
(c) Such security measures shall be the sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord in
connection therewith.
20. Tenant shall not do or permit the manufacture, sale, purchase, use or
gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.
21. Tenant shall not disturb the quiet enjoyment of any other tenant.
22. Tenant shall not provide any janitorial services or cleaning without
Landlord's written consent and then only subject to supervision of Landlord and
at Tenant's sole responsibility and by janitor or cleaning contractor or
employees at all times satisfactory to Landlord.
23. Landlord may retain a pass key to the Premises and be allowed
admittance thereto at all times to enable its representatives to examine the
Premises from time to time and to exhibit the same and Landlord may place and
keep on the windows and doors of the Premises at any time signs advertising the
Premises for Rent.
24. No equipment, mechanical ventilators, awnings, special shades or other
forms of window covering shall be permitted either inside or outside the windows
of the Premises without the prior written consent of Landlord, and then only at
the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.
25. Tenant shall not during the term of this Lease canvas or solicit other
tenants of the Building for any purpose.
26. Tenant shall not install or operate any phonograph, musical or
sound-producing instrument or device, radio receiver or transmitter, TV receiver
or transmitter, or similar device in the Building, nor install or operate any
antenna, aerial, wires or other equipment inside or outside the Building, nor
operate any electrical device from which may emanate electrical waves which may
interfere with or impair radio or television broadcasting or reception from or
in the Building or
APPENDIX C
Page 3 of 4
<PAGE>
elsewhere, without in each instance the prior written approval of Landlord. The
use thereof, if permitted, shall be subject to control by Landlord to the end
that others shall not be disturbed.
27. Tenant shall promptly remove all rubbish and waste from the Premises.
28. Tenant shall not exhibit, sell or offer for sale, Rent or exchange in
the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.
29. Tenant shall list all furniture, equipment and similar articles Tenant
desires to remove from the Premises or the Building and deliver a copy of such
list to Landlord and procure a removal permit from the office of the Building
authorizing Building employees to permit such articles to be removed.
30. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.
31. Tenant shall not do any painting in the Premises, or mark, paint, cut
or drill into, drive nails or screws into, or in any way deface any part of the
Premises or the Building, outside or inside, without the prior written consent
of Landlord.
32. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.
33. Tenant and its employees shall cooperate in all fire drills conducted
by Landlord in the Building.
APPENDIX C
Page 4 of 4
<PAGE>
APPENDIX D
TENANT IMPROVEMENT AGREEMENT
1. INITIAL IMPROVEMENTS. Landlord shall cause to be performed the
improvements (the "Initial Improvements") in the Premises provided for in the
plans and specifications to be reasonably and mutually agreed to by Landlord and
Tenant (the "Plans"). The Initial Improvements shall be performed by a
contractor approved by Landlord (which approval Landlord may withhold in its
sole discretion) (the "Contractor"). Landlord shall use commercially reasonable
efforts to cause the Work to be substantially completed on or before the
Commencement Date specified in the Schedule to the Lease, subject to "Tenant
Delay" (as defined in Section 4 hereof) and any Force Majeure.
2. ADDITIONAL IMPROVEMENTS. If Tenant shall require improvements
("Additional Improvements") to the Premises in addition to or substitution for
the Initial Improvements, Tenant shall deliver to Landlord for its approval
plans and specifications for such Additional Improvements. If Landlord does not
approve of the plans for Additional Improvements, Landlord shall advise Tenant
of the changes required. Tenant shall revise and redeliver the plans and
specifications to Landlord within five (5) business days of Landlord's advice or
Tenant shall be deemed to have abandoned its request for such Additional
Improvements. Tenant shall pay for all preparations and revisions of plans and
specifications, and the construction of all Additional Improvements.
3. LANDLORD'S CONTRIBUTION. Landlord shall contribute an amount up to
$174,318 ($17.00 x 10,254 r.s.f.) ("Landlord's Contribution") toward the costs
incurred by Landlord for the Initial Improvements, including without limitation,
the cost of any architecture fees. Landlord has no obligation to pay for costs
of the Initial Improvements in excess of Landlord's Contribution. If the cost of
the Initial Improvements exceeds the Landlord's Contribution, Tenant shall pay
such overage to Landlord prior to commencement of construction of the Initial
Improvements. Tenant shall also pay to Landlord prior to commencement of
construction, the cost of all Additional Improvements. Notwithstanding anything
to the contrary contained in this Lease, the Landlord's Contribution shall be
available to Tenant for a period of twenty-four months after the Commencement
Date. If Tenant fails to use any portion of the Landlord's Contribution within
such twenty-four (24) month period, any such portion shall be unavailable to
Tenant.
4. COMMENCEMENT DATE DELAY. The Commencement Date shall be delayed until
the Initial Improvements have been substantially completed (the "Completion
Date"), except to the extent that the delay shall be caused by any one or more
of the following a ("Tenant Delay"):
(a) Tenant's request for Additional Improvements whether or not any
such Additional Improvements are actually performed; or
(b) Contractor's performance of any Additional Improvements; or
(c) Tenant's request for materials, finishes or installations
requiring unusually long lead times; or
APPENDIX D
Page 1 of 12
<PAGE>
(d) Any other act or omission by Tenant, its agents, contractors or
persons employed by any of such persons.
If the Commencement Date is delayed for any reason, then Landlord shall cause
Landlord's Architect to certify the date on which the Initial Improvements would
have been completed but for such Tenant Delay, or were in fact completed without
any Tenant Delay.
5. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Landlord at its
discretion may permit Tenant and its agents to enter the Premises prior to the
Commencement Date to prepare the Premises for Tenant's use and occupancy. Any
such permission shall constitute a license only, conditioned upon Tenant's:
(a) working in harmony with Landlord and Landlord's agents, contractors,
workmen, mechanics and suppliers and with other tenants and occupants of the
Building;
(b) obtaining in advance Landlord's approval of the contractors proposed to
be used by Tenant and depositing with Landlord in advance of any work (i)
security satisfactory to Landlord for the completion thereof, and (ii) the
general contractor's affidavit for the proposed work and the waivers of lien
from the general contractor and all subcontractors and suppliers of material;
and
(c) furnishing Landlord with such insurance as Landlord may require against
liabilities which may arise out of such entry.
Landlord shall have the right to withdraw such license for any reason upon
twenty-four (24) hours' written notice to Tenant. Landlord shall not be liable
in any way for any injury, loss or damage which may occur to any of Tenant's
property or installations in the Premises prior to the Commencement Date. Tenant
shall protect, defend, indemnify and save harmless Landlord from all
liabilities, costs, damages, fees and expenses arising out of the activities of
Tenant or its agents, contractors, suppliers or workmen in the Premises or the
Building. Any entry and occupation permitted under this Section shall be
governed by Section 5 and all other terms of the Lease.
6. MISCELLANEOUS.
Terms used in this Appendix D shall have the meanings assigned to them in
the Lease. The terms of this Appendix D are subject to the terms of the Lease.
APPENDIX D
Page 2 of 2
<PAGE>
APPENDIX E
MORTGAGES CURRENTLY AFFECTING THE PROJECT
-----------------------------------------
None.
APPENDIX E
Page 1 of 1
<PAGE>
Lease
230 West Monroe
Chicago, Illinois
<TABLE>
<CAPTION>
Page
<S> <C>
1. LEASE AGREEMENT................................................................. 2
2. RENT 2
A. Types of Rent............................................................... 2
(1) Base Rent.............................................................. 2
(2) Operating Cost Share Rent.............................................. 2
(3) Tax Share Rent......................................................... 2
(4) Additional Rent........................................................ 2
(5) Rent................................................................... 2
B. Payment of Operating Cost Share Rent and Tax Share Rent..................... 2
(1) Payment of Estimated Operating Cost
Share Rent and Tax Share Rent.......................................... 2
(2) Correction of Operating Cost Share Rent................................ 3
(3) Correction of Tax Share Rent........................................... 3
C. Definitions................................................................. 3
(1) Taxes.................................................................. 3
(2) Operating Costs........................................................ 3
(3) Fiscal Year............................................................ 4
D. Computation of Base Rent and Rent Adjustments............................... 4
(1) Prorations............................................................. 4
(2) Default Interest....................................................... 5
(3) Rent Adjustments....................................................... 5
(4) Books and Records...................................................... 5
(5) Miscellaneous.......................................................... 5
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF PREMISES..... 5
A. Condition of Premises...................................................... 5
B. Tenant's Possession........................................................ 6
C. Maintenance................................................................ 6
D. Ownership of Improvements.................................................. 6
E. Removal at Termination..................................................... 6
4. PROJECT SERVICES................................................................ 6
A. Heating and Air Conditioning............................................... 6
B. Elevators.................................................................. 7
C. Electricity................................................................ 7
D. Water...................................................................... 7
E. Janitorial Service......................................................... 7
F. Telephone Service.......................................................... 7
G. Interruption of Services................................................... 7
5. ALTERATIONS AND REPAIRS......................................................... 8
A. Landlord's Consent and Conditions.......................................... 8
B. Electronic Systems......................................................... 8
C. Damage to Systems.......................................................... 8
D. No Liens................................................................... 9
</TABLE>
APPENDIX F
Page 1 of 1
<PAGE>
<TABLE>
<S> <C>
6. USES OF PREMISES................................................................... 9
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES....................................... 9
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE....................................... 9
A. Waiver of Claims............................................................. 9
B. Indemnification.............................................................. 9
C. Insurance Coverage........................................................... 10
D. Insurance Certificates....................................................... 10
9. FIRE AND OTHER CASUALTY............................................................ 10
A. Termination.................................................................. 10
B. Restoration.................................................................. 10
10. EMINENT DOMAIN..................................................................... 11
11. RIGHTS RESERVED TO LANDLORD........................................................ 11
A. Name......................................................................... 11
B. Signs........................................................................ 11
C. Window Treatments............................................................ 11
D. Service Contracts............................................................ 11
E. Keys......................................................................... 11
F. Access....................................................................... 11
G. Preparation for Reoccupancy.................................................. 11
H. Heavy Articles............................................................... 11
I. Show Premises................................................................ 11
J. Restrict Access.............................................................. 11
K. Relocation of Tenant......................................................... 12
L. Use of Lockbox............................................................... 12
M. Repairs and Alterations...................................................... 12
N. Landlord's Agents............................................................ 12
O. Building Services............................................................ 12
P. Other Actions................................................................ 12
12. TENANT'S DEFAULT................................................................... 12
A. Rent Default................................................................. 12
B. Assignment/Sublease or Hazardous Substances Default.......................... 12
C. Other Performance Default.................................................... 13
D. Credit Default............................................................... 13
13. LANDLORD REMEDIES.................................................................. 13
A. Termination of Lease or Possession........................................... 13
B. Lease Termination Damages.................................................... 13
C. Possession Termination Damages............................................... 13
D. Landlord's Remedies Cumulative............................................... 13
E. Waiver of Trial by Jury...................................................... 14
14. SURRENDER.................................................................... 14
15. HOLDOVER..................................................................... 14
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES....................................... 14
A. Subordination................................................................ 14
B. Termination of Ground Lease or Foreclosure of Mortgage....................... 15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
C. Security Deposit................................................... 15
D. Notice and Right to Cure........................................... 15
E . Definitions........................................................ 15
17. ASSIGNMENT AND SUBLEASE................................................. 15
A. Consent Required................................................... 15
B. Procedure.......................................................... 15
C. Change of Management or ownership.................................. 16
D. Excess Payments.................................................... 16
18. CONVEYANCE BY LANDLORD.................................................. 16
19. ESTOPPEL CERTIFICATE.................................................... 16
20. SECURITY DEPOSIT........................................................ 16
21. EXTENSION............................................................... 17
22. RIGHT OF FIRST OFFER.................................................... 18
23. FORCE MAJEURE........................................................... 19
24. INTENTIONALLY OMITTED................................................... 19
25. NOTICES................................................................. 19
A. Landlord........................................................... 19
B. Tenant............................................................. 19
26. QUIET POSSESSION........................................................ 19
27. REAL ESTATE BROKER...................................................... 19
28. MISCELLANEOUS........................................................... 19
A. Successors and Assigns............................................. 19
B. Date Payments Are Due.............................................. 19
C. Meaning of "Landlord", "Re-Entry", "including" and "Affiliate"..... 19
D. Time of the Essence................................................ 20
E. No Option.......................................................... 20
F. Severability....................................................... 20
G. Governing Law...................................................... 20
H. Lease Modification................................................. 20
I. No Oral Modification............................................... 20
J. Landlord's Right to Cure........................................... 20
K. Captions........................................................... 20
L. Authority.......................................................... 20
M. Landlord's Enforcement of Remedies................................. 20
N. Entire Agreement................................................... 20
0. Landlord's Title................................................... 20
P. Light and Air Rights............................................... 20
Q. Consents........................................................... 20
R. Singular and Plural................................................ 20
S. No Recording by Tenant............................................. 21
T. Exclusivity........................................................ 21
U. No Construction Against Drafting Party............................. 21
V. Survival........................................................... 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
W. Rent Not Based on Income.......................................... 21
X. Building Manager and Service Providers............................ 21
Y. Interest on Late Payments......................................... 21
30. HAZARDOUS SUBSTANCES................................................... 21
31. EXCULPATION............................................................ 21
</TABLE>
APPENDIX A - PLAN OF THE PREMISES
APPENDIX B - CLEANING SCHEDULE
APPENDIX C - RULES AND REGULATIONS
APPENDIX D - TENANT IMPROVEMENT AGREEMENT
APPENDIX E - MORTGAGES CURRENTLY AFFECTING THE PROJECT
<PAGE>
Exhibit 10.19
- -------------
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made and entered into
---------
as of this day of __________, 1999 by and between TIAA REALTY, INC., a
Delaware corporation ("Landlord") and DIGITAL WORKS INC., a Delaware corporation
--------
("Tenant").
------
W I T N E S S E T H
-------------------
WHEREAS, Landlord and Tenant have heretofore entered into that certain
lease dated as of June 3, 1999 (the "Lease"), pursuant to which Landlord leased
-----
to Tenant approximately 10,254 rentable square feet of space located on the
nineteenth (19th) floor (the "Original Premises") in the building commonly known
-----------------
as 230 West Monroe Street, situated at the northeast corner of Monroe and
Franklin Streets in Chicago, Illinois (the "Building"), as more particularly set
--------
forth in the Lease;
WHEREAS, Landlord and Tenant desire to amend and supplement the Lease
according to the terms hereof to extend the Term of the Lease with respect to
the Original Premises and to evidence Tenant's expansion into the Additional
Space (as hereinafter defined);
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
hereby to modify and amend the Lease as follows:
I. Controlling Language. Insofar as the specific terms and provisions of
--------------------
this Amendment purport to amend or modify or are in conflict with the specific
terms, provisions and exhibits of the Lease, the terms and provisions of this
Amendment shall govern and control; in all other respects, the terms, provisions
and exhibits of the Lease shall remain unmodified in full force and effect.
I. Term of Lease. The Term of the Lease was heretofore scheduled to
-------------
expire on August 31, 2004. Landlord and Tenant hereby agree that the Term of the
Lease is hereby extended for an additional period of four (4) months, commencing
on September 1, 2004 ("Extension Commencement Date") and ending on December 31,
---------------------------
2004 ("Extension Term") on all the terms, covenants and conditions of the Lease,
--------------
except as set forth in this Section 2. Any reference in the Lease to the "Term"
of Lease shall be deemed to include Extension Term. Any reference to the
"Termination Date" in the Lease shall be deemed to refer to December 31, 2004.
<PAGE>
Beginning on the Extension Commencement Date and for the duration of the
Extension Term, Tenant shall, with respect to the Original Premises, pay to
Landlord Base Rent in monthly installments in advance on or before the first day
of each month of the Extension Term as set forth in the following schedule:
Monthly
Installment
Base Rent of Base Rent
-----------------------------------
Extension Term $57,559.12 $ 14,389.78
Tenant shall, during the Extension Term, continue to pay, with respect to the
Original Premises, Operating Cost Share Rent, Tax Share Rent and Additional Rent
as required by the Lease. Tenant shall, during the Extension Term, pay rent with
respect to the Additional Space as set forth in Section 3 below.
I. Additional Space. Landlord shall lease to Tenant the approximately
----------------
12,159 rentable square feet of space on the twentieth (20th) floor of the
Building depicted on Exhibit A attached hereto and made a part hereof (the
---------
"Additional Space") for a term commencing upon the earlier to occur of (a)
----------------
January 1, 2000 or (b) the date the Additional Space Build-Out (as hereinafter
defined) has been substantially completed (the "Additional Space Commencement
-----------------------------
Date") and ending on the last day of the Term of the Lease, as extended by
- ----
Section 2 above. The Additional Space shall be included in the term "Premises"
as such term used in the Lease shall be subject to all the terms and conditions
of the Lease except to the extent expressly modified hereby, and except for
Section 2A of the Lease, Items 4, 10, 11 and 12 of the Schedule to the Lease,
and Appendix D to the Lease.
I. Additional Space Rent. Beginning on the Additional Space Commencement
---------------------
Date and for the remainder of the Term of the Lease, as extended by Section 2
above, Tenant shall pay to Landlord, in addition to (and not in substitution of)
the Rent Tenant is obligated to pay under the Lease with respect to the Original
Premises, the following:
A. Base Rent to be paid, in monthly installments in advance on or before
---------
the first day of each month set forth in the following schedule:
<PAGE>
Monthly
Installment
Period Base Rent of Base Rent
First Additional $185,424.75 $15,452.06
Space Lease Year
Second Additional $191,017.89 $15,918.16
Space Lease Year
Third Additional $196,732.62 $16,394.39
Space Lease Year
Fourth Additional $202,568.94 $16,880.75
Space Lease Year
Fifth Additional $208,648.44 $17,387.37
Space Lease Year
For the purposes of this Amendment, "First Additional Space Lease
----------------------------
Year" shall mean the period commencing on the Additional Space Commencement
Date and ending December 31, 2000 (which period Landlord and Tenant
acknowledge may be greater than twelve months), and each subsequent
"Additional Space Lease Year" shall be the period of twelve calendar months
---------------------------
following the last day of the prior Additional Space Lease Year.
A. Operating Cost Share Rent in an amount equal to one hundred
-------------------------
percent (100%) of Tenant's Additional Space Proportionate Share (hereinafter
defined) of Operating Costs for the applicable fiscal year of the Lease.
Operating Cost Share Rent shall be paid monthly in advance in an estimated
amount, as adjusted by Landlord from time to time.
A. Tax Share Rent in an amount equal to one hundred percent (100%)
--------------
of Tenant's Additional Space Proportionate Share of Taxes for the applicable
fiscal year of the Lease. Tax Share Rent shall be paid monthly in advance in an
estimated amount, as adjusted by Landlord from time to time.
A. Additional Rent consisting of all of the sums, liabilities,
---------------
obligations and other amounts (excepting Base Rent, Operating Cost Share Rent
and Tax Share Rent) which Tenant is required to pay or discharge pursuant to the
Lease or this Amendment (including, without limitation, any
<PAGE>
amounts which the Lease or this Amendment provides shall be Tenant's cost or
expense), together with interest for late payment thereon, all as hereafter or
in the Lease provided.
For purposes of this Amendment, "Tenant's Additional Space Proportionate
Share" shall mean 2.12%.
This Section 4 of this Amendment is intended to supplement the terms of the
Lease. Nothing in this Section 4 of this Amendment is intended to modify or
change the terms and conditions applicable to Base Rent, Operating Cost Share
Rent, Tax Share Rent or Additional Rent with respect to the Original Premises.
Any references herein or in the Lease to Base Rent, Operating Cost Share Rent,
Tax Share Rent or Additional Rent shall be deemed to apply to the Original
Premises and Tenant's Proportionate Share with respect thereto, or to the
Additional Space and Tenant's Additional Space Proportionate Share, as the case
may be. The definition of Taxes and Operating Costs shall be as set forth in
Section 2C of the Lease. Operating Cost Share Rent and Tax Share Rent for both
the Original Premises and the Additional Space shall be paid in the manner set
forth in Section 2B of the Lease.
I. Condition of Additional Space. Except for latent defects
-----------------------------
relating to the Additional Space of which Tenant notifies Landlord within one
year of the Additional Space Commencement Date, Landlord is leasing the
Premises, including the Additional Space, to Tenant for the remainder of the
Term of the Lease "AS IS", without any representations or warranties of any kind
(including, without limitation, any express or implied warranties of
merchantability, fitness or habitability) and without any obligation on the part
of Landlord to alter, remodel, improve, repair, or decorate the Premises or any
part thereof.
I. Tenant Construction Allowance. Landlord hereby agrees to provide
-----------------------------
Tenant with an amount not to exceed Three Hundred Sixty-Four Thousand Seven
Hundred Seventy and No/100 Dollars ($364,770) ($30.00 X 12,159 rentable square
feet) (the "Tenant Construction Allowance") to be applied toward costs of
-----------------------------
construction, preparation of architectural and mechanical drawings, and Tenant's
architectural fees in connection with the build-out of the Additional Space in
accordance with plans and specifications approved by Landlord in accordance with
Section 5 of the Lease (the "Additional Space Build-Out"). The Additional Space
--------------------------
Build-Out shall be performed by Tenant in accordance with Section 5 of the
Lease. In addition, Tenant shall not perform the Additional Space Build-Out
until it has obtained Landlord's prior written consent to all contracts
relating to the construction and performance of the Additional Space Build-Out.
If the total costs incurred by Tenant in connection
<PAGE>
with the Additional Space Build-Out exceed the Tenant Construction Allowance
("Excess Costs"), Tenant hereby acknowledges that all of such Excess Costs shall
------------
be borne entirely by Tenant, and Tenant hereby agrees to pay such Excess Costs
upon demand. If the cost of the Additional Space Build-Out are less than the
Tenant Construction Allowance, such excess shall be retained by Landlord and
Tenant shall have no right thereto. Upon written request of Tenant (not more
frequently than once each month), Landlord shall pay all or any portion of the
Tenant Construction Allowance to Tenant, within thirty (30) days after receipt
of (i) invoices evidencing payment of all Excess Costs, (ii) evidence
satisfactory to Landlord that the work covered by such invoices and any other
work for which reimbursement from the Tenant Construction Allowance is sought
has been completed in a satisfactory manner, (iii) lien waivers and sworn
affidavits covering all work performed or otherwise reasonably requested by
Landlord, (iv) marked copies of the originally approved plans and specifications
showing changes made in constructing the Additional Space Build-Out after such
plans and specifications were initially approved by Landlord (any such changes
must be approved by Landlord in the same manner as the initial plans and
specifications); and (v) such other documentation as Landlord may reasonably
require under the circumstances. Tenant shall deliver as-built plans to Landlord
upon completion of the Additional Space Build-Out.
Landlord shall permit Tenant and its agents to enter the Additional Space
subsequent to the date of this Amendment, but prior to the Additional Space
Commencement Date to prepare the Additional Space for Tenant's use and
occupancy. Any such permission shall constitute a license only, conditioned
upon Tenant's: (a) working in harmony with Landlord and Landlord's agents,
contractors, workmen, mechanics and suppliers and with other tenants and
occupants of the Building; (b) obtaining in advance Landlord's approval of the
contractors proposed to be used by Tenant and depositing with Landlord in
advance of any work (i) security satisfactory to Landlord for the payment of any
Excess Costs, and (ii) the general contractor's affidavit for the proposed work
and the waivers of lien from the general contractor and all subcontractors and
suppliers of material; and (c) furnishing Landlord with such insurance as
Landlord may require against liabilities which may arise out of such entry.
Landlord shall have the right to withdraw such license for any reason upon
twenty-four (24) hours' written notice to Tenant. Landlord shall not be liable
in any way for any injury, loss or damage which may occur to any of Tenant's
property or installations in the Additional Space prior to the Additional Space
Commencement Date. Tenant shall protect, defend, indemnify and save harmless
Landlord from all liabilities, costs, damages, fees and expenses arising out of
the activities of Tenant or its
<PAGE>
agents, contractors, suppliers or workmen in the Additional Space or the
Building. Any entry and occupation permitted under this Section shall be
governed by Section 6 of the Lease and all other terms of the Lease.
Tenant's plans and specifications shall comply with all applicable
statutes, ordinances, regulations, laws and codes. Landlord's approval of the
Tenant's plans and specifications or any modifications or changes thereto shall
not impose upon Landlord or its agents or representatives any obligation with
respect to the design of the Additional Space Build-Out or with respect to the
compliance of the Additional Space Build-Out and/or such Tenant's plans and
specifications (or modifications or changes thereto) with applicable laws,
codes, ordinances and regulations, it being expressly understood that the
obligation with respect to the design of the Additional Space Build-Out and its
compliance with applicable law, codes, ordinances and regulations rests with the
Tenant and the party responsible for preparing such Tenant's plans and
specifications.
I. Intentionally Omitted.
---------------------
I. Right of First Offer. Subject to Section 8B below, and subject
--------------------
to any expansion or renewal options of any current tenant or tenants in the
Building (each individually, a "Prior Tenant"), during the Term of the Lease,
------------
Tenant shall have and is hereby granted a right of first offer on the portion of
the space located on the 20th floor of the Building depicted on Exhibit B
---------
attached hereto (collectively, the "ROFO Space"), which right shall be exercised
----------
in accordance with the procedures set forth in Section 8A below.
1. If at any time during the Term of the Lease any ROFO Space
becomes available for lease to anyone other than a Prior Tenant, Landlord shall
give written notice thereof to Tenant (the "Landlord's ROFO Notice") identifying
----------------------
that portion of the ROFO Space that is available (the "Subject ROFO Space").
------------------
Landlord's ROFO Notice may be given at any time up to sixteen (16) months in
advance of such availability and shall contain the terms upon which Landlord
intends to offer the Subject ROFO Space for lease to the market. Tenant shall
notify Landlord within ten (10) days of receipt of Landlord's ROFO Notice
whether it desires to lease the Subject ROFO Space on the terms set forth in
Landlord's ROFO Notice; provided, however, that failure to notify Landlord
within said 10-day period shall be deemed a refusal by Tenant. After any such
refusal or deemed refusal, Tenant shall have no further rights to such Subject
ROFO Space and Landlord shall be free to lease such space to any person or
entity for any term. If Tenant exercises its right of first offer with respect
to such Subject ROFO Space, such space shall be added to the Premises on (a) all
<PAGE>
the terms, covenants and conditions specified in the Landlord's ROFO Notice,
including without limitation the rent and the term set forth therein, and (b)
the terms, covenants and conditions of this Lease to the extent that such terms,
covenants and conditions of this Lease do not conflict with the terms, covenants
and conditions specified in the Landlord's ROFO Notice. Any ROFO Space added to
the Premises pursuant to this Section 8 shall become a part of the Premises for
all purposes of this Lease, and any reference in this Lease to the term
"Premises" shall be deemed to refer to and include such portion of the ROFO
Space, except as expressly provided otherwise in this Lease.
1. Tenant's right to exercise its right of first offer with respect
to any portion of the ROFO Space pursuant to this Section 8, is subject to the
following conditions: (i) that on the date that Tenant delivers its binding
written notice of its election to exercise its right of first offer, Tenant is
not in default under any of the terms, covenants or conditions of the Lease, and
an unmatured event of default has not occurred and is not continuing; and (ii)
that Tenant shall not have assigned the Lease or sublet any portion of the
Premises at any time during the period commencing with the date that Tenant
delivers its binding written notice to Landlord of its exercise of its right of
first offer and ending on the date on which such ROFO Space is available to be
added to the Premises, or at any time prior to such period, if such assignment
or sublease extends into such period.
1. Promptly after Tenant's exercise of its right of first offer
pursuant to this Section 8, Landlord shall prepare an amendment to the Lease to
reflect changes in the size of the Premises, Base Rent, Tenant's Proportionate
Share and any other appropriate terms, due to the addition of the ROFO Space.
Tenant shall execute and return such an amendment to the Lease within fifteen
(15) days after its submission to Tenant.
I. Additional Security Deposit. A. In addition to and not in
---------------------------
replacement of the Security Deposit required pursuant to Section 20 of the
Lease, Tenant shall deposit with Landlord on the date of this Amendment as
security for the performance of all of its obligations under the Lease, as
amended by this Amendment, an amount of $350,000 (the "Additional Security
-------------------
Deposit", which Additional Security Deposit is, together with the Security
- -------
Deposit described in Section 20 of the Lease, are referred to collectively
herein as the "Security Deposit").
----------------
The Additional Security Deposit shall be in the form of an unconditional
and irrevocable letter of credit, which letter of credit shall (a) be in the
initial amount of $350,000, (b) be in form and substance satisfactory to
<PAGE>
Landlord, (c) name Landlord as its beneficiary, (d) expressly allow Landlord to
draw upon it at any time or from time to time by delivering to the issuer
written notice that Landlord is entitled to draw thereunder, (e) be drawn on an
FDIC-insured financial institution satisfactory to Landlord, (f) be redeemable
in the State of New York, and (g) be freely assignable by Landlord to any
successor to Landlord's interest in the Project. If Landlord is not provided
at least ten (10) days before the stated expiration date thereof, then Landlord
shall have the right to draw under such letter of credit then held by Landlord
and hold such funds as a Security Deposit as defined in and in accordance with
the terms of Section 20 of the Lease.
Except as provided in Section 9B. below (which with respect to the Letter
of Credit deposited as the Additional Security Deposit pursuant to this Section
9 only, supersedes Section 20C of the Lease), all terms and conditions of the
Lease regarding Tenant's Security Deposit shall apply equally to the Additional
Security Deposit and to the Security Deposit made pursuant to Section 20 of the
Lease.
B. Provided that Tenant is not in default under any of the terms,
covenants or conditions of the Lease, beginning with the first day of the third
Additional Space Lease Year, and at the first day of each Additional Space Lease
Year thereafter, the amount of the Letter of Credit delivered as the Additional
Security Deposit pursuant to this Section 9 may be decreased in the following
manner:
Additional Space Amount of Additional Security
Lease Year Deposit Letter of Credit
---------- ------------------------
1 $350,000.00
2 $350,000.00
3 $266,197.00
4 $186,140.00
5 $ 97,701.00
I. Incorporation of Lease. Landlord and Tenant hereby agree that
----------------------
(a) this Amendment is incorporated into and made a part of the Lease, (b) any
and all references herein to the Lease shall include this Amendment, and (c) the
Lease and all terms, conditions and provisions of the Lease are in full force
and effect as of the date hereof, except as expressly modified and amended
hereinabove.
I. Defined Terms. All terms capitalized but not defined herein
-------------
shall have the same meaning ascribed to such terms in the Lease. The marginal
headings and titles to the
<PAGE>
paragraphs of this Amendment are not a part of this Amendment and shall have no
effect upon the construction or interpretation of any part hereof.
I. Governing Law. This Amendment shall be governed by and construed
-------------
under the laws of the State of Illinois.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD: TENANT:
TIAA REALTY, INC., DIGITAL WORKS, INC., a Delaware
a Delaware corporation corporation
By: Teachers Insurance and
Annuity Association of
America, its authorized By: /s/ Loreen Sieroslawski
representative Name:
Title:
By: /s/ S. Marc Flannery
Name:
Title:_____________________
<PAGE>
EXHIBIT A
---------
Plan of Additional Space
<PAGE>
EXHIBIT 10.19
- -------------
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE (this "Amendment") is made and entered into
---------
as of this ________ day of ______________, 1999 by and between TIAA REALTY,
INC., a Delaware corporation ("Landlord") and DIGITAL WORKS INC., a Delaware
--------
corporation ("Tenant").
------
W I T N E S S E T H
-------------------
WHEREAS, Landlord and Tenant have heretofore entered into that certain
lease dated as of June 3, 1999 (the "Original Lease"), pursuant to which
--------------
Landlord leased to Tenant approximately 10,254 rentable square feet of space
located on the nineteenth (19th) floor (the "Original Premises") in the building
-----------------
commonly known as 230 West Monroe Street, situated at the northeast corner of
Monroe and Franklin Streets in Chicago, Illinois (the "Building"), as more
--------
particularly set forth in the Lease;
WHEREAS, Landlord and Tenant have heretofore entered into that certain
First Amendment to Lease, dated November 17, 1999 (the "First Amendment"); the
---------------
Original Lease and the First Amendment are referred to collectively herein as,
the "Lease") to extend the Term of the Lease with respect to the Original
-----
Premises and to evidence Tenant's expansion into the Additional Space (as
defined in the First Amendment);
WHEREAS, Tenant desires to lease certain space in the Building on a short-
term basis;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
hereby agree as follows:
I. Controlling Language. Insofar as the specific terms and
--------------------
provisions of this Amendment purport to amend or modify or are in conflict with
the specific terms, provisions and exhibits of the Lease, the terms and
provisions of this Amendment shall govern and control; in all other respects,
the terms, provisions and exhibits of the Lease shall remain unmodified in full
force and effect.
I. Temporary Space. Tenant shall have the right to occupy
---------------
approximately 5,731 rentable square feet on the 7th floor of the Building and
described in the plan attached hereto as Exhibit A (the "Temporary Space")
--------- ---------------
commencing on December 20, 1999 and ending February 28, 2000 (the "Temporary
---------
Space Term"). Tenant shall pay rent with respect to the Temporary Space in an
- ----------
amount equal to $10,000 for per month, payable in advance. Contemporaneous with
its execution, Tenant shall pay
<PAGE>
to Landlord all rent due and payable for the Temporary Space Term (i.e.,
$23,548.00). Rent for any partial month shall during the Temporary Space Term
shall be prorated based on the number of days of such month falling within the
Temporary Space Term. In addition, Tenant shall pay for all utilities furnished
to the Temporary Space. Tenant's occupancy of the Temporary Space shall be on
all of the terms, covenants and conditions contained in the Lease, except as
provided in this Section 2 and except as provided in Sections 2, 15, 21, 22 and
---------
Appendix D of the Original Lease and Sections 2, 3, 4, 5, 6, 8 of the First
Amendment.
If Tenant retains possession of any part of the Temporary Space after the
Temporary Space Term, Tenant shall (i) be deemed to be in default under the
Lease, without any obligation of Landlord to provide notice of such default and
without provision of any cure period (except to the extent required by law); and
(ii) become a tenant at sufferance upon all of the terms of this Lease as might
be applicable to such tenancy, except during such holdover Tenant shall pay rent
in an amount equal to (x) $670.00 per day (plus an equitable share of
Operating Expense and Taxes [each as defined in the Lease]) for the first seven
(7) days of such holdover and (y) $1000 per day (plus an equitable share of
Operating Expenses and Taxes)for each day after the initial seven (7) days of
such holdover. In addition, if Tenant holds over for more than 30 days, Tenant
shall also pay Landlord all of Landlord's direct and consequential damages, and
in addition, if Landlord so elects by notice to Tenant, such holdover shall
constitute a renewal of this Lease for one year at 110% of the then current
market rate as determined by Landlord. No acceptance of Rent or other payments
by Landlord under these holdover provisions shall operate as a waiver of
Landlord's right to regain possession or any other of Landlord's remedies.
In the event that Tenant vacates the Temporary Space prior to the
expiration of the Temporary Space Term and surrenders the Temporary Space to
Landlord in the condition required by the Lease (including if Landlord so
requires, a written confirmation of such surrender executed by Tenant), Landlord
shall refund to Tenant any amount equal to portion of the rent, prorated on a
daily basis, previously paid by Tenant to Landlord for the Temporary Space for
the period from (a) the date of which is one (1) day after the date on which
such surrender occurs to (b) the date on which the Temporary Space Term would
otherwise have expired.
I. Condition of Temporary Space. Landlord is leasing the Temporary
----------------------------
Space, to Tenant for the remainder of the Term of the Lease "AS IS", without any
representations or warranties of any kind (including, without limitation, any
express or implied warranties of merchantability, fitness or habitability) and
without any obligation on the part of Landlord to alter, remodel, improve,
repair, or decorate the Premises or any part thereof.
I. Incorporation of Lease. Landlord and Tenant hereby agree that
----------------------
(a) this Amendment is incorporated into and made a part of the Lease, (b) any
and all references herein to the Lease shall include this Amendment, and (c) the
Lease and all
<PAGE>
terms, conditions and provisions of the Lease are in full force and effect as of
the date hereof, except as expressly modified and amended hereinabove.
I. Defined Terms. All terms capitalized but not defined herein
-------------
shall have the same meaning ascribed to such terms in the Lease. The marginal
headings and titles to the paragraphs of this Amendment are not a part of this
Amendment and shall have no effect upon the construction or interpretation of
any part hereof.
I. Governing Law. This Amendment shall be governed by and construed
-------------
under the laws of the State of Illinois.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD: TENANT:
TIAA REALTY, INC., a DIGITAL WORKS, INC., a
Delaware
a Delaware corporation corporation
By: Teachers Insurance and
Annuity Association of
America, its authorized By: /s/ Loreen Sieroslawski
representative Name:
Title:
By: /s/ S. Marc Flannery
Name:
Title:_____________________________
<PAGE>
EXHIBIT A
---------
Plan of Temporary Space
<PAGE>
Exhibit 10.20
THIS DOCUMENT IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION. WHERE APPROPRIATE, THE CONFIDENTIAL
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND REPLACED WITH *** OR
*** CONFIDENTIAL TREATMENT REQUESTED ***.
Confidential
INTERACTIVE MARKETING AGREEMENT
-------------------------------
This Interactive Marketing Agreement (the "Agreement"), dated as of January
1, 2000 (the "Effective Date"), is between America Online, Inc. ("AOL"), a
Delaware corporation, with offices at 22000 AOL Way, Dulles, Virginia 20166, and
DigitalWork.com, Inc. ("DigitalWork"), a Delaware corporation, with offices at
230 West Monroe Street, Suite 1950, Chicago, Illinois 60606. AOL and
DigitalWork may be referred to individually as a "Party" and collectively as the
"Parties."
INTRODUCTION
------------
AOL and DigitalWork each desires to enter into an interactive marketing
relationship whereby AOL will promote and distribute an interactive site
referred to (and further defined) herein as the Co-Branded Site. This
relationship is further described below and is subject to the terms and
conditions set forth in this Agreement. Defined terms used but not defined in
the body of the Agreement will be as defined on Exhibit B attached hereto.
TERMS
-----
1. PROMOTION, DISTRIBUTION AND MARKETING.
1.1. AOL Promotion of Co-Branded Site. AOL will provide DigitalWork with
the promotions for the Co-Branded Site described on Exhibit A attached
hereto. Subject to DigitalWork's reasonable approval, AOL will have
the right to fulfill its promotional commitments with respect to any
of the foregoing by providing DigitalWork comparable promotional
placements in appropriate alternative areas of the AOL Network. In
addition, if AOL is unable to deliver any particular Promotion, AOL
will work with DigitalWork to provide DigitalWork, as its sole remedy,
a comparable promotional placement. AOL reserves the right to redesign
or modify the organization, structure, "look and feel," navigation and
other elements of the AOL Network at any time. In the event such
modifications materially and adversely affect any specific Promotion,
AOL will work with DigitalWork to provide DigitalWork, as its sole
remedy, a comparable promotional placement.
1.2. Impressions Commitment. During the Term, AOL shall deliver ***
Impressions to the Co-Branded Site through the Promotions (the
"Impressions Commitment"). With respect to the Impressions targets
specified on Exhibit A, AOL will not be obligated to provide in excess
of any Impressions target amounts in any year. In the event there is
(or will be in AOL's reasonable judgment) a shortfall in Impressions
as of the end of the Initial Term (a "Final Shortfall"), AOL will
provide DigitalWork, as its sole remedy, with comparable Impressions
(e.g., having similar value or cpm, or being similarly targeted
demographically) as reasonably and mutually agreed by the Parties to
be so comparable.
1.3. Content of Promotions. The Promotions will link only to the Co-Branded
Site and will promote only the DigitalWork Products described on
Exhibit D. The specific DigitalWork Content to be contained within the
Promotions described in Exhibit A (the "Promo Content") will be
determined by DigitalWork, subject to AOL's technical limitations, the
terms of this Agreement and AOL's then-applicable policies relating to
advertising and promotions. DigitalWork will submit in advance to AOL
for its review a quarterly online
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
marketing plan with respect to the Co-Branded Site. The Parties will
meet in person or by telephone at least monthly to review operations
and performance hereunder, including a review of the Promo Content to
ensure that it is designed to maximize performance. DigitalWork will
consistently update the Promo Content as often as necessary to
maximize effectiveness of the Promotions, as reasonably and mutually
agreed. Except to the extent expressly described herein, the specific
form, placement, duration and nature of the Promotions will be as
determined by AOL in its reasonable editorial discretion (consistent
with the editorial composition of the applicable screens).
1.4. DigitalWork Promotion of Co-Branded Site and AOL. As set forth in
fuller detail in Exhibit C, DigitalWork will not promote any third
party (other than AOL or Netscape or their designated affiliates) as a
preferred online business center (e.g., access provider, content
portal, or communications (e-mail or instant message) service) and
will promote the availability of the Co-Branded Site through the AOL
Network.
2. CO-BRANDED SITE.
2.1. Creation of Co-Branded Site. DigitalWork will create a customized, co-
branded version of DigitalWork's primary Interactive Site as the
Co-Branded Site (to the extent consistent with the terms hereof),
including distinct versions of the Co-Branded Site for each applicable
property of the AOL Network as set forth below (e.g., one for linking
from the AOL Service which is co-branded with the AOL brand, one for
linking from the CompuServe Service which is co-branded with the
CompuServe brand, etc.) (or, at AOL's option and upon reasonable
advanced notice, just one version with the same co-branding across all
AOL properties). DigitalWork will use *** to include certain distinct
Content within each such distinct version of the Co-Branded Site,
tailored and targeted to the applicable audience as mutually agreed
(the "Brand Specific Content"). DigitalWork will comply with AOL's and
its affiliates' then generally applicable customization standards and
design guideline templates for each property with respect to headers,
footers, co-branding and URLs, by way of example as set forth on
Exhibit H attached hereto. Each page of the Co-Branded Site shall have
AOL or AOL affiliate branded headers and footers, be located on the
URL for the appropriate AOL affiliate (e.g., www.digitalwork.aol.com
or www.digitalwork.netscape.com) such that AOL receives credit for all
traffic thereto, in each case in accordance with AOL's (or the
applicable AOL affiliate's) then current generally applicable
standards, and contain navigational links to the appropriate property
of the AOL Network. AOL shall have the right to change or modify its
design guideline templates and co-branding requirements during the
Terms, to conform to general changes made to the AOL Network or
portions thereof. Upon AOL's reasonable request, DigitalWork will
integrate into the Co-Branded Site, AOL's tools and technology for
chat, message boards, Quick Checkout, and Search, plus such other
tools and technology as the Parties may further mutually agree, and
will *** to so integrate AOL's Shopping Cart ***. Notwithstanding
anything to the contrary herein, DigitalWork shall have a reasonable
amount of time (not to exceed 45 days from the execution hereof) to
ramp up and implement the full extent of the co-branding required by
this Section 2.1.
2.2. Content and Programming. DigitalWork will make available through the
Co-Branded Site the comprehensive offering of Products and related
Content described on Exhibit D. Except as mutually agreed in writing
by the Parties, the Co-Branded Site will contain only Content that is
directly related to the DigitalWork Products listed on Exhibit D and
will not contain any third-party products, services, programming or
other Content. All sales of Products through the Co-Branded Site will
be conducted through a direct sales format (e.g., not via auctions or
clubs (it being understood and agreeded that repeat business or
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
service over a period of time for one fee is permitted)) DigitalWork
will not promote, sell, offer or otherwise distribute any products
through any format other than a direct sales format (e.g., through
auctions or clubs) without the prior written consent of AOL.
DigitalWork will review, delete, edit, create, update and otherwise
manage all Content available on or through the Co-Branded Site in
accordance with the terms of this Agreement. DigitalWork will ensure
that the Co-Branded Site does not in any respect promote, advertise,
market or distribute the products, services or content of any other
Interactive Service, or any entity reasonably construed to be in
competition with any third party with which AOL has an exclusive or
premier relationship. DigitalWork will provide AOL and the Co-Branded
Site with the programming, content, and services set fort on Exhibit
D. AOL will integrate DigitalWork's content, programming and services
in the manner and areas set forth in Exhibit D.
2.3. Production Work. Except as agreed to in writing by the Parties
pursuant to the "Production Work" section of the Standard Online
Commerce Terms & Conditions attached hereto as Exhibit F, DigitalWork
will be responsible for all production work associated with the Co-
Branded Site, including all related costs and expenses.
2.4. Technology. DigitalWork will *** CONFIDENTIAL TREATMENT REQUESTED ***
conform its promotion and sale of Products through the Co-Branded Site
to the then-existing technologies identified by AOL which are
optimized for the AOL Service including, without limitation, any
"quick checkout" tool which AOL may implement to facilitate purchase
of products or services in the Co-Branded Site by AOL Users from
DigitalWork through the Co-Branded Site. AOL will be entitled to
require reasonable changes to the Content (including, without
limitation, the features or functionality) within any linked pages of
the Co-Branded Site to the extent such Content will, in AOL's good
faith judgment, adversely affect any operational aspect of the AOL
Network. AOL reserves the right to review and test the Co-Branded Site
from time to time to determine whether the site is compatible with
AOL's then-available client and host software and the AOL Network.
2.5. Product Offering. DigitalWork will ensure that the Co-Branded Site
includes all of the Products and other Content (including, without
limitation, any features, offers, contests, functionality or
technology) that are then made available by or on behalf of
DigitalWork through any Additional DigitalWork Channel; provided,
however, that (i) such inclusion will not be required where it is
commercially or technically impractical to either Party (i.e.,
inclusion would cause either Party to incur substantial incremental
costs); and (ii) the specific changes in scope, nature and/or
offerings required by such inclusion will be subject to AOL's review
and approval and the terms of this Agreement.
2.6. Pricing and Terms. DigitalWork will ensure that: (i) the prices (and
any other required consideration) for Products in the Co-Branded Site
do not exceed the prices for the Products or substantially similar
Products offered by or on behalf of DigitalWork through any Additional
DigitalWork Channel; (ii) the terms and conditions related to Products
in the Co-Branded Site are no less favorable in any respect to the
terms and conditions for the Products or substantially similar
Products offered by or on behalf of DigitalWork through any Additional
DigitalWork Channel; and (iii) both the prices and the terms and
conditions related to the overall Product line in the Co-Branded Site
are reasonably competitive in the aggregate with the prices and terms
and conditions for the Products or substantially similar Products
(taking into account relative quality) offered by any comparable third
party.
2.7. Exclusive Offers/Member Benefits. The overall program of special/
promotional offers made available to AOL Users by DigitalWork through
the Co-Branded Site shall, in the
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
aggregate, be at least as good as any program of special or
promotional offers made available by or on behalf of DigitalWork
through any Additional DigitalWork Channel. In addition, DigitalWork
shall promote through the Co-Branded Site on a regular and consistent
basis special offers exclusively available to AOL Users (the "AOL
Exclusive Offers"). DigitalWork shall, at all times, feature at least
one AOL Exclusive Offer for AOL Users. The AOL Exclusive Offer made
available by DigitalWork shall provide a substantial member benefit to
AOL Users, either by virtue of a meaningful price discount, product
enhancement, unique service benefit or other special feature.
DigitalWork will provide AOL with reasonable prior notice of AOL
Exclusive Offers so that AOL can market the availability of such AOL
Exclusive Offers in the manner AOL deems appropriate in its editorial
discretion.
2.8. Operating Standards. DigitalWork will ensure that the Co-Branded Site
complies at all times with the standards set forth in Exhibit E. To
the extent site standards are not established in Exhibit E with
respect to any aspect or portion of the Co-Branded Site (or the
Products or other Content contained therein), DigitalWork will provide
such aspect or portion at a level of accuracy, quality, completeness,
and timeliness which meets or exceeds prevailing standards in the
business-to-business industry. In the event DigitalWork fails to
comply with any material terms of this Agreement or any Exhibit
attached hereto, AOL will have the right (in addition to any other
remedies available to AOL hereunder) to decrease the promotion it
provides to DigitalWork hereunder (and to decrease or cease any other
contractual obligation hereunder) until such time as DigitalWork
corrects its non-compliance (and in such event, AOL will be relieved
of the proportionate amount of any promotional commitment made to
DigitalWork by AOL hereunder corresponding to such decrease in
promotion) and any revenue threshold(s) set forth in Section 4 will
each be adjusted proportionately to correspond to such decrease in
promotion and other obligations during the period of non-compliance.
2.9. Advertising Sales. AOL will own all advertising inventory within the
Co-Branded Site and will have the exclusive right to license and/or
sell all Advertisements in the Co-Branded Site (who AOL may sell such
ads to, and for what products or services, shall be subject to
DigitalWork's reasonable standard advertising policies as made
available to AOL). DigitalWork may not incorporate or link to any
Advertisement or other commercial elements without AOL's prior written
approval. DigitalWork will provide AOL with a meaningful opportunity
to discuss in good faith the possibility (subject to mutual agreement
on terms) for AOL to exclusively sell all advertising inventory on
some or all of: the Standard Site and/or any other DigitalWork
Interactive Site.
2.10. Traffic Flow. DigitalWork will take *** to ensure that AOL traffic is
either kept within the Co-Branded Site or channeled back into the AOL
Network (with the exception of advertising links sold and implemented
pursuant to the Agreement). The Parties will work together on
implementing mutually acceptable links from the Co-Branded Site back
to the AOL Service. In the event that AOL points to the Co-Branded
Site or any other DigitalWork Interactive Site or otherwise delivers
traffic to such site hereunder, DigitalWork will ensure that
navigation back to the AOL Network from such site, whether through a
particular pointer or link, the "back" button on an Internet browser,
the closing of an active window, or any other return mechanism, shall
not be interrupted by DigitalWork through the use of any intermediate
screen or other device not specifically requested by the user,
including without limitation through the use of any html popup window
or any other similar device. Rather, such AOL traffic shall be pointed
directly back to the AOL Network as designated by AOL. DigitalWork
will modify links within the co-branded pages, where appropriate, to
re-circulate users to the appropriate AOL property. DigitalWork will
ensure that all AOL users in the co-branded areas will not be
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
able to access any additional links to DigitalWork's generally
available Web site, other than those areas set forth on Exhibit B.
3. PAYMENTS.
3.1. Guaranteed Payments. DigitalWork will pay AOL a non-refundable
guaranteed payment of ***, payable as follows: (a) *** upon execution
hereof, and (b) *** within *** of the full execution hereof.
3.2. Sharing of Transaction Revenues. During the Initial Term, DigitalWork
shall retain *** of the Transaction Revenues generated by DigitalWork
in the Co-Branded Site.
3.3. Sharing of Advertising Revenues. AOL shall own the rights to
Advertising Revenues generated through the Co-Branded Site, as set
forth in Section 2.9. AOL will pay to DigitalWork, *** of Advertising
Revenues received by AOL for such Advertisements in the Co-Branded
Site as described herein on a *** basis within *** following ***
which such amounts were generated.
3.4. Late Payments; Wired Payments. All amounts owed hereunder not paid
when due and payable will bear interest from the date such amounts are
due and payable at ***. All payments required hereunder will be paid
in immediately available, non-refundable U.S. funds wired to the
"America Online" account, Account Number *** at The Chase Manhattan
Bank, 1 Chase Manhattan Plaza, New York, NY 10081 (ABA: ***).
3.5. Auditing Rights. DigitalWork will maintain complete, clear and
accurate records of all expenses, revenues and fees in connection with
the performance of this Agreement. For the sole purpose of ensuring
compliance with this Agreement, AOL (or its representative) will have
the right to conduct a reasonable and necessary inspection of portions
of the books and records of DigitalWork which are relevant to
DigitalWork's performance pursuant to this Agreement. Any such audit
may be conducted after *** prior written notice to DigitalWork. AOL
shall bear the expense of any audit conducted pursuant to this Section
4.5 unless such audit shows an error in AOL's favor amounting to a
deficiency to AOL in excess of *** of the actual amounts paid and/or
payable to AOL hereunder, in which event DigitalWork shall bear the
reasonable expenses of the audit. DigitalWork shall pay AOL the amount
of any deficiency discovered by AOL within *** after receipt of notice
thereof from AOL.
3.6. Taxes. DigitalWork will collect and pay and indemnify and hold AOL
harmless from, any sales, use, excise, import or export value added or
similar tax or duty not based on AOL's net income, including any
penalties and interest, as well as any costs associated with the
collection or withholding thereof, including attorneys' fees.
3.7. Reports.
3.7.1. Sales Reports. DigitalWork will provide AOL in an automated
manner with a *** report (and will *** to provide *** reports
if requested by AOL) in a mutually agreed format, detailing
the following activity in such period (and any other
information mutually agreed upon by the Parties or reasonably
required for measuring revenue activity by DigitalWork through
the Co-Branded Site): (i) summary sales information by day
(date, number of Products, number of orders, total Transaction
Revenues); and (ii) detailed sales information (purchaser name
and screenname (with respect to screenname, if commercially
reasonable) (or e-mail address), SKU or Product description)
(in information in clauses (i) and (ii), "Sales Reports"). AOL
will be entitled to use the Sales Reports in its business
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
operations, subject to the terms of this Agreement. AOL
acknowledges that such reports may contain Confidential
Information as defined herein.
3.7.2. Usage Reports. AOL shall provide DigitalWork with standard
usage information related to the Promotions (e.g. a schedule
of the Impressions delivered by AOL at such time) which is
similar in substance and form to the reports provided by AOL
to other interactive marketing partners similar to
DigitalWork. DigitalWork acknowledges that such information
may be Confidential Information as defined herein. Upon
reasonable request by DigitalWork, AOL shall supply
independent verification of such Impressions reports, verified
by AOL's independent auditor, similar in substance and form to
the verifications provided by AOL to other interactive
marketing partners similar to DigitalWork.
3.7.3. Fraudulent Transactions. To the extent permitted by applicable
laws, DigitalWork will provide AOL with an prompt report of
any fraudulent order, including the date, screenname or email
address and amount associated with such order, promptly
following DigitalWork obtaining knowledge that the order is,
in fact, fraudulent.
4. WARRANTS. Concurrently with the execution hereof, and as a condition
precedent to AOL's obligations hereunder, DigitalWork shall enter into the
Preferred Stock Subscription Warrant Agreement with AOL (the "Warrant
Agreement").
5. TERM; RENEWAL; TERMINATION.
5.1. Term. Unless earlier terminated as set forth herein, the initial term
of this Agreement will be eighteen (18) months from and after the
Effective Date (the "Initial Term").
5.2. Renewal. Upon conclusion of the Initial Term, AOL will have the right
to renew the Agreement for a one-year renewal term (the "Renewal Term"
and together with the Initial Term, the "Term"). The Renewal Term
shall automatically commence following the expiration of the Initial
Term (or prior Renewal Term, as the case may be), provided that AOL
shall be entitled to terminate any such Renewal Term with thirty (30)
days prior written notice to DigitalWork. The Parties may mutually
agree to extend the Agreement for multiple additional Renewal Terms.
5.3. Continued Links. Upon expiration of the Term, for up to one (1) year
thereafter, AOL may, at its discretion, continue to promote one or
more "pointers" or links from the AOL Network to an DigitalWork
Interactive Site and continue to use DigitalWork's trade names, trade
marks and service marks in connection therewith (collectively, a
"Continued Link"). So long as AOL maintains a Continued Link, (a)
DigitalWork shall maintain its Co-Branded Site, and pay AOL *** of all
Transaction Revenues from AOL Purchasers sourced after the Term and
during such Continued Link (on a *** basis within *** following the
end of the *** in which such Transaction Revenues were generated), and
(b) Sections 3.4 through 3.7, along with the terms of Exhibit G hereto
shall continue to apply with respect to the Continued Link and any
transactions arising therefrom.
5.4. Termination for Breach. Except as expressly provided elsewhere in this
Agreement, either Party may terminate this Agreement at any time in
the event of a material breach of the Agreement by the other Party
which remains uncured after thirty (30) days written notice thereof to
the other Party (or such shorter period as may be specified elsewhere
in this Agreement). Notwithstanding the foregoing, in the event of a
material breach of a provision that expressly requires action to be
completed within an express period shorter than 30 days, either Party
may terminate this Agreement if the breach remains uncured after
written notice thereof to the other Party.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
5.5. Termination for Bankruptcy/Insolvency. Either Party may terminate this
Agreement immediately following written notice to the other Party if
the other Party (i) ceases to do business in the normal course, (ii)
becomes or is declared insolvent or bankrupt, (iii) is the subject of
any proceeding related to its liquidation or insolvency (whether
voluntary or involuntary) which is not dismissed within ninety (90)
calendar days or (iv) makes an assignment for the benefit of
creditors.
5.6. Termination on Change of Control. In the event of (i) a Change of
Control of DigitalWork resulting in control of DigitalWork by an
Interactive Service or (ii) a Change of Control of AOL, AOL may
terminate this Agreement by providing thirty (30) days prior written
notice of such intent to terminate; provided that, if AOL elects to so
terminate as a result of a Change of Control of AOL, then AOL shall
deliver a pro rata refund to DigitalWork of amounts paid by
DigitalWork to the extent unearned by AOL (i.e., to the extent of
undelivered Impressions Commitment at time of termination).
5.7. Press Releases. Each Party will submit to the other Party, for its
prior written approval, which will not be unreasonably withheld or
delayed, any press release or any other public statement ("Press
Release") regarding the transactions contemplated hereunder.
Notwithstanding the foregoing, either Party may issue Press Releases
and other disclosures as required by law without the consent of the
other Party and in such event, the disclosing Party will provide at
least five (5) business days prior written notice of such disclosure.
The failure by one Party to obtain the prior written approval of the
other Party prior to issuing a Press Release (except as required by
law) shall be deemed a material breach of this Agreement. Because it
would be difficult to precisely ascertain the extent of the injury
caused to the non-breaching party, in the event of such material
breach, the non-breach party may elect to either (a) terminate this
Agreement immediately upon notice to the other Party, or (b) as
liquidated damages, elect to modify the Impression commitment
hereunder by *** (either an increase in Impressions if AOL has
materially breached the Agreement or a decrease in Impressions if
DigitalWork has materially breached the Agreement). The Parties agree
that the liquidated damages set forth are a reasonable approximation
of the injury that would be suffered by the non-breaching Party.
6. NETSCAPE TOOLS, UTILITIES & PROGRAMMING.
6.1. Netscape Open Business Directory. Netscape will integrate DigitalWork,
and DigitalWork will *** to provide an opt-in for its business users
to be integrated into, the Netscape Open Business Directory (subject
to all generally applicable terms thereof, as available online).
DigitalWork and its business users integrated into the Netscape Open
Business Directory will qualify for specific *** CONFIDENTIAL
TREATMENT REQEUSTED *** products and services. In addition,
DigitalWork business users will be able to search for and find buyers
and sellers and to leverage Netscape generally available value-added
business-to-business e-commerce hosted services such as auctions,
catalog buying, and bid-quote. DigitalWork understands and agrees that
the Netscape Open Business Directory product *** CONFIDENTIAL
TREATMENT REQUESTED *** and that, if *** provided that AOL ***
CONFIDENTIAL TREATMENT REQUESTED *** AOL may consider ***
Notwithstanding the forgoing, if requested by AOL and/or such third
party, DigitalWork shall participate.
6.2. Netscape Business Card. DigitalWork will be integrated into a co-
branded Netscape Business Card (subject to all generally applicable
terms thereof), enabling DigitalWork to provide specific photos and
programming related to its products and services and leverage Netscape
generally available value-added business-to-business e-commerce
services. DigitalWork will *** to evaluate offering to its partners
and users accessing DigitalWork's generally available web sites, the
opportunity to be integrated into a co-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
branded Netscape Business Card (subject to all generally applicable
terms thereof). To the extent a DigitalWork partner or end user
subscribes for any revenue generating service in the Netscape Business
Cards, Netscape will pay DigitalWork, *** of *** generated from such
premium integration. Netscape shall pay such amounts to DigitalWork on
a *** basis within *** following the *** in which such amounts were
generated. DigitalWork understands and agrees that the product may be
structured by AOL provided that AOL shall *** AOL may consider ***
Notwithstanding the forgoing, if ***
6.3. Co-Branded AIM Client. Concurrently with the execution hereof, and as
a condition precedent to the effectiveness hereof, the Parties shall
enter into the AIM Agreement.
6.4. Netscape Programming. Within *** of any such request from Netscape,
DigitalWork will *** to *** its generally available web site ***. The
Parties will mutually agree upon *** if any, *** (b) *** and (c)***
DigitalWork will ***, if any, ***.
7. MANAGEMENT COMMITTEE/ARBITRATION.
7.1. Management Committee. The Parties will act in good faith and use
commercially reasonable efforts to promptly resolve any claim,
dispute, claim, controversy or disagreement (each a "Dispute") between
the Parties or any of their respective subsidiaries, affiliates,
successors and assigns under or related to this Agreement or any
document executed pursuant to this Agreement or any of the
transactions contemplated hereby. If the Parties cannot resolve the
Dispute within such time frame, the Dispute will be submitted to the
Management Committee for resolution. For ten (10) days following
submission of the Dispute to the Management Committee, the Management
Committee will have the exclusive right to resolve such Dispute;
provided further that the Management Committee will have the final and
exclusive right to resolve Disputes arising from any provision of the
Agreement which expressly or implicitly provides for the Parties to
reach mutual agreement as to certain terms. If the Management
Committee is unable to amicably resolve the Dispute during the ten-day
period, then the Management Committee will consider in good faith the
possibility of retaining a third party mediator to facilitate
resolution of the Dispute. In the event the Management Committee
elects not to retain a mediator, the dispute will be subject to the
resolution mechanisms described below. "Management Committee" will
mean a committee made up of a senior executive from each of the
Parties for the purpose of resolving Disputes under this Section 7 and
generally overseeing the relationship between the Parties contemplated
by this Agreement. Neither Party will seek, nor will be entitled to
seek, binding outside resolution of the Dispute unless and until the
Parties have been unable amicably to resolve the Dispute as set forth
in this Section 7 and then, only in compliance with the procedures set
forth in this Section 7.
7.2. Arbitration. Except for Disputes relating to issues of (i) proprietary
rights, including but not limited to intellectual property and
confidentiality, and (ii) any provision of the Agreement which
expressly or implicitly provides for the Parties to reach mutual
agreement as to certain terms (which will be resolved by the Parties
solely and exclusively through amicable resolution as set forth in
Section 7.1), any Dispute not resolved by amicable resolution as set
forth in Section 7.1 will be governed exclusively and finally by
arbitration. Such arbitration will be conducted by the American
Arbitration Association ("AAA") in Washington, D.C. and will be
initiated and conducted in accordance with the Commercial Arbitration
Rules ("Commercial Rules") of the AAA, including the AAA Supplementary
Procedures for Large Complex Commercial Disputes ("Complex
Procedures"), as such rules will be in effect on the date of delivery
of a demand for arbitration ("Demand"), except to the extent that such
rules are inconsistent
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
with the provisions set forth herein. Notwithstanding the foregoing,
the Parties may agree in good faith that the Complex Procedures will
not apply in order to promote the efficient arbitration of Disputes
where the nature of the Dispute, including without limitation the
amount in controversy, does not justify the application of such
procedures.
7.3. Selection of Arbitrators. The arbitration panel will consist of three
arbitrators. Each Party will name an arbitrator within ten (10) days
after the delivery of the Demand. The two arbitrators named by the
Parties may have prior relationships with the naming Party, which in a
judicial setting would be considered a conflict of interest. The third
arbitrator, selected by the first two, should be a neutral
participant, with no prior working relationship with either Party. If
the two arbitrators are unable to select a third arbitrator within ten
(10) days, a third neutral arbitrator will be appointed by the AAA
from the panel of commercial arbitrators of any of the AAA Large and
Complex Resolution Programs. If a vacancy in the arbitration panel
occurs after the hearings have commenced, the remaining arbitrator or
arbitrators may not continue with the hearing and determination of the
controversy, unless the Parties agree otherwise.
7.4. Governing Law. The Federal Arbitration Act, 9 U.S.C. Secs. 1-16, and
not state law, will govern the arbitrability of all Disputes. The
arbitrators will allow such discovery as is appropriate to the
purposes of arbitration in accomplishing a fair, speedy and cost-
effective resolution of the Disputes. The arbitrators will reference
the Federal Rules of Civil Procedure then in effect in setting the
scope and timing of discovery. The Federal Rules of Evidence will
apply in toto. The arbitrators may enter a default decision against
any Party who fails to participate in the arbitration proceedings.
7.5. Arbitration Awards. The arbitrators will have the authority to award
compensatory damages only. Any award by the arbitrators will be
accompanied by a written opinion setting forth the findings of fact
and conclusions of law relied upon in reaching the decision. The award
rendered by the arbitrators will be final, binding and non-appealable,
and judgment upon such award may be entered by any court of competent
jurisdiction. The Parties agree that the existence, conduct and
content of any arbitration will be kept confidential and no Party will
disclose to any person any information about such arbitration, except
as may be required by law or by any governmental authority or for
financial reporting purposes in each Party's financial statements.
7.6. Fees. Each Party will pay the fees of its own attorneys, expenses of
witnesses and all other expenses and costs in connection with the
presentation of such Party's case (collectively, "Attorneys' Fees").
The remaining costs of the arbitration, including without limitation,
fees of the arbitrators, costs of records or transcripts and
administrative fees (collectively, "Arbitration Costs") will be borne
equally by the Parties. Notwithstanding the foregoing, the arbitrators
may modify the allocation of Arbitration Costs and award Attorneys'
Fees in those cases where fairness dictates a different allocation of
Arbitration Costs between the Parties and an award of Attorneys' Fees
to the prevailing Party as determined by the arbitrators.
7.7. Non Arbitratable Disputes. Any Dispute that is not subject to final
resolution by the Management Committee or to arbitration under this
Section 7 or by law (collectively, "Non-Arbitration Claims") will be
brought in a court of competent jurisdiction in the State of New York.
Each Party irrevocably consents to the exclusive jurisdiction of the
courts of the State of New York and the federal courts situated in the
State of New York, over any and all Non-Arbitration Claims and any and
all actions to enforce such claims or to recover damages or other
relief in connection with such claims.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
8. iPLANET. Netscape and DigitalWork will use good faith efforts to evaluate a
relationship with iPlanet for transaction and commerce related applications
and enterprise software on terms to be mutually agreed upon by the Parties.
The Parties will develop a specifications requirements document within ***
of full execution hereof.
9. MISCELLANEOUS. DigitalWork will provide AOL with a meaningful opportunity to
discuss *** CONFIDENTIAL TREATMENT REQUESTED ***. DigitalWork will provide
AOL with a meaningful opportunity to *** CONFIDENTIAL TREATMENT
REQUESTED***.
10. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set forth on
Exhibit F attached hereto and Standard Legal Terms & Conditions set forth on
Exhibit G attached hereto are each hereby made a part of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date
AMERICA ONLINE, INC. DIGITALWORK.COM, INC.
By:/s/ David Colburn By: /s/ John Banta
--------------------------- --------------------------
Name: Name:
Title: Title:
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
Placement/Promotion
-------------------
I.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
AREA DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Level 1 Promotion *** Impressions
- -------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Level 2 Promotions *** Impressions
- -------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* * * Rotational Banners
- -------------------------------------------------------------------------------
* * * Rotational Banners
- -------------------------------------------------------------------------------
* * * Rotational Button
- -------------------------------------------------------------------------------
* * * Rotational Text Links
- -------------------------------------------------------------------------------
* * * Rotational Text Links
- -------------------------------------------------------------------------------
* * * Rotational Text Links
- -------------------------------------------------------------------------------
* * * Rotational Banners & Text Links
- -------------------------------------------------------------------------------
* * * Rotational Banner
- -------------------------------------------------------------------------------
* * * Rotational Banners & Text Links
- -------------------------------------------------------------------------------
* * * Rotational Banners
- -------------------------------------------------------------------------------
* * * Rotational Banners & Text Links
- -------------------------------------------------------------------------------
* * * Rotational Banners
- -------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------
* * * Rotational Banners
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------
<S> <C>
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Sponsorship Button
- ----------------------------------------------------------
* * * One 2 Month Sponsorship Throughout the
Year
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * *
- ----------------------------------------------------------
* * * Rotational Great Deals Text Links
- ----------------------------------------------------------
* * * Rotational Great Deals Text Links
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * *
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * *
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
* * * Rotational Sponsorship Button
- ----------------------------------------------------------
* * * Rotational Banners
- ----------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
<TABLE>
- --------------------------------------------------------------------------------------
Level 3 Promotions *** Impressions
- --------------------------------------------------------------------------------------
<S> <C>
***
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
*** Rotational Banners and Text Links
- --------------------------------------------------------------------------------------
*** Rotational Banners and Text Links
- --------------------------------------------------------------------------------------
***
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
***
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
***
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
***
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
*** Rotational Banners
- --------------------------------------------------------------------------------------
</TABLE>
II. During the Term, subject to the terms and conditions hereof, DigitalWork
shall have the right to use the following Keyword Search Term on the AOL
Service: "DigitalWork", to link to the Co-Branded Site.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
Definitions
-----------
The following definitions will apply to this Agreement:
Additional DigitalWork Channel. Any other distribution channel (e.g., an
Interactive Service other than AOL) through which DigitalWork makes available an
offering comparable in nature to the Co-Branded Site.
Advertising Revenues. Aggregate amounts collected by AOL or its agents, as the
case may be, arising from the license or sale of Advertisements that appear
within any pages of the Co-Branded Site, less AOL's Advertising Sales
Commissions. AOL Advertising Revenues does not include amounts arising from
Advertisements on any screens or forms preceding, framing or otherwise directly
associated with the Co-Branded Site, which such screens and forms are owned and
controlled exclusively by AOL.
Advertising Sales Commission. (i) Actual amounts paid as commission to third
party agencies by either buyer or seller in connection with sale of the
Advertisement or (ii) **, in the event the Party has sold the Advertisement
directly and will not be deducting any third party agency commissions.
Advertisements. (a) Any advertisements, links, pointers, sponsorships, buttons,
banners, navigation, or any other placements or promotions; or (b) any other
services or rights to the extent generally recognized and used as a medium for
advertisements (including without limitation `affiliate programs' or referral
sales), in each case, whether for a fixed placement fee or a bounty based on
sales.
AIM Agreement. That Certain AOL Instant Messenger Marketing Agreement, dated as
of the date hereof between the Parties.
AOL Interactive Site. Any Interactive Site which is managed, maintained, owned
or controlled by AOL or its agents.
AOL Look and Feel. The elements of graphics, design, organization,
presentation, layout, user interface, navigation and stylistic convention
(including the digital implementations thereof) which are generally associated
with Interactive Sites within the AOL Service or AOL.com.
AOL Member. Any authorized user of the AOL Service, including any sub-accounts
using the AOL Service under an authorized master account.
AOL Network. (i) The AOL Service, (ii) AOL.com, (iii) CompuServe, (iv) Digital
City, (v) Netcenter, and (vi) any other product or service owned, operated,
distributed or authorized to be distributed by or through AOL or its affiliates
worldwide (and including those properties excluded from the definitions of the
AOL Service or AOL.com). It is understood and agreed that the rights of
DigitalWork relate only to the AOL Service and AOL.com and not generally to the
AOL Network.
AOL Purchaser. Any person or entity who enters the Co-Branded Site from the AOL
Network including, without limitation, from any third party area therein (to the
extent entry from such third party area is traceable through both Parties' ***),
and generates Transaction Revenues (regardless of whether such person or entity
provides an e-mail address during registration or entrance to the Co-Branded
Site which includes a domain other than an "AOL.com" domain); provided that any
person or entity who has previously satisfied the definition of AOL Purchaser
will remain an AOL Purchaser, and any subsequent purchases by such person or
entity (e.g., as a result of e-mail solicitations or any off-line means for
receiving orders requiring purchasers to reference a specific promotional
identifier or tracking code) will also give rise to Transaction Revenues
hereunder (and will not be conditioned on the person or entity's satisfaction of
clauses (i) or (ii) above).
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
AOL Service. The standard narrow-band U.S. version of the America Online(R)
brand service, specifically excluding (a) AOL.com, Netcenter or any other AOL
Interactive Site, (b) the international versions of an America Online service
(e.g., AOL Japan), (c) the CompuServe(R) brand service and any other CompuServe
products or services (d) "Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "Digital City," "NetMail(TM)," "Electra", "Thrive", "Real Fans",
"Love@AOL", "Entertainment Asylum," "AOL Hometown," "My News" or any similar
independent product, service or property which may be offered by, through or
with the U.S. version of the America Online(R) brand service, (e) any
programming or Content area offered by or through the U.S. version of the
America Online(R) brand service over which AOL does not exercise complete
operational control (including, without limitation, Content areas controlled by
other parties and member-created Content areas), (f) any yellow pages, white
pages, classifieds or other search, directory or review services or Content
offered by or through the U.S. version of the America Online brand service, (g)
any property, feature, product or service which AOL or its affiliates may
acquire subsequent to the Effective Date and (h) any other version of an America
Online service which is materially different from the standard narrow-band U.S.
version of the America Online brand service, by virtue of its branding,
distribution, functionality, Content or services, including, without limitation,
any co-branded version of the service or any version distributed through any
broadband distribution platform or through any platform or device other than a
desktop personal computer.
AOL User. Any user of the AOL Service, AOL.com, CompuServe, Digital City,
Netcenter, or the AOL Network.
AOL.com. AOL's primary Internet-based Interactive Site marketed under the
"AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) Netcenter,
(c) any international versions of such site, (d) "ICQ," "AOL NetFind(TM)," "AOL
Instant Messenger(TM)," "NetMail(TM)," "AOL Hometown," "My News" or any similar
independent product or service offered by or through such site or any other AOL
Interactive Site, (e) any programming or Content area offered by or through such
site over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any programming or Content area offered by or through such
site which was operated, maintained or controlled by the former AOL Studios
division (e.g., Electra), (g) any yellow pages, white pages, classifieds or
other search, directory or review services or Content offered by or through such
site or any other AOL Interactive Site, (h) any property, feature, product or
service which AOL or its affiliates may acquire subsequent to the Effective Date
and (i) any other version of an America Online Interactive Site which is
materially different from AOL's primary Internet-based Interactive Site marketed
under the "AOL.COM(TM)" brand, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any co-
branded versions or any version distributed through any broadband distribution
platform or through any platform or device other than a desktop personal
computer.
Co-Branded Site. The specific customized area or web site to be promoted and
distributed by AOL hereunder through which DigitalWork can market and complete
transactions regarding its Products, as more fully described in Section 2.
Change of Control. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets of
a party or (b) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1933,
as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than 50% of either (i) the then outstanding
shares of common stock of such party; or (ii) the combined voting power of the
then outstanding voting securities of such party entitled to vote generally in
the election of directors.
Component Products. Any of the following products or services: (i)
Communications or community tools, products or services (e.g., instant
messaging, chat, voice-activated chat, voice message, IP telephony, e-mail,
message boards) (but specifically excluding a reminder service), (ii) search
engines, navigation services, or directories/listings (e.g., web search, white
pages, yellow pages, member
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
directories, open directories), (iii) personalization services (e.g.,
homesteading/personal web publishing, calendar functions, "You've Got Pictures"
or other similar photographic services), (iv) shopping guides, decision guides,
`robots', or other similar shopping or decision aids, or (v) commerce/content
aggregation.
CompuServe. The standard, narrow-band U.S. version of the CompuServe brand
service, specifically excluding (a) any international versions of such service,
(b) any web-based service including "compuserve.com", "cserve.com" and "cs.com",
or any similar product or service offered by or through the U.S. version of the
CompuServe brand service, (c) Content areas owned, maintained or controlled by
CompuServe affiliates or any similar "sub-service," (d) any programming or
Content area offered by or through the U.S. version of the CompuServe brand
service over which CompuServe does not exercise complete or substantially
complete operational control (e.g., third-party Content areas), (e) any yellow
pages, white pages, classifieds or other search, directory or review services or
Content and (f) any co-branded or private label branded version of the U.S.
version of the CompuServe brand service, (g) any version of the U.S. version of
the CompuServe brand service which offers Content, distribution, services and/or
functionality materially different from the Content, distribution, services
and/or functionality associated with the standard, narrow-band U.S. version of
the CompuServe brand service, including, without limitation, any version of such
service distributed through any platform or device other than a desktop personal
computer and (h) any property, feature, product or service which CompuServe or
its affiliates may acquire subsequent to the Effective Date.
Confidential Information. Any information relating to or disclosed in the
course of the Agreement, which is or should be reasonably understood to be
confidential or proprietary to the disclosing Party, including, but not limited
to, the material terms of this Agreement, information about AOL Members, AOL
Users, AOL Purchasers and DigitalWork customers, technical processes and
formulas, source codes, product designs, sales, cost and other unpublished
financial information, product and business plans, projections, and marketing
data. "Confidential Information" will not include information (a) already
lawfully known to or independently developed by the receiving Party, (b)
disclosed in published materials, (c) generally known to the public, or (d)
lawfully obtained from any third party.
Content. Text, images, video, audio (including, without limitation, music used
in synchronism or timed relation with visual displays) and other data, Products,
advertisements, promotions, URLs, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related documentation.
Digital City. The standard, narrow-band U.S. version of Digital City's local
content offerings marketed under the Digital City(R) brand name, specifically
excluding (a) the AOL Service, AOL.com, Netcenter, or any other AOL Interactive
Site, (b) any international versions of such local content offerings, (c) the
CompuServe(R) brand service and any other CompuServe products or services (d)
"Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "Digital
City," "NetMail(TM)," "Electra", "Thrive", "Real Fans", "Love@AOL",
"Entertainment Asylum," "AOL Hometown," "My News" or any similar independent
product, service or property which may be offered by, through or with the
standard narrow band version of Digital City's local content offerings, (e) any
programming or Content area offered by or through such local content offerings
over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any yellow pages, white pages, classifieds or other search,
directory or review services or Content offered by or through such local content
offerings, (g) any property, feature, product or service which AOL or its
affiliates may acquire subsequent to the Effective Date, (h) any other version
of a Digital City local content offering which is materially different from the
narrow-band U.S. version of Digital City's local content offerings marketed
under the Digital City(R) brand name, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any co-
branded version of the offerings or any version distributed through any
broadband distribution platform or through any platform or device other than a
desktop personal computer, and (i) Digital City-branded offerings in any local
area where such offerings are not owned or operationally controlled by America
Online, Inc. or DCI (e.g., Chicago, Orlando, South Florida, and Hampton Roads.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Impression. User exposure to the applicable Promotion, as such exposure may be
reasonably determined and measured by AOL in accordance with its standard
methodologies and protocols.
Interactive Service. An entity offering one or more of the following: (i)
online or Internet connectivity services (e.g., an Internet service provider);
(ii) an interactive site or service featuring a broad selection of aggregated
third party interactive content (or navigation thereto) (e.g., an online service
or search and directory service)and/or marketing a broad selection of products
and/or services across numerous interactive commerce categories (e.g., an online
mall or other leading online commerce site); and (iii) communications software
capable of serving as the principal means through which a user creates, sends
and receives electronic mail or real time online messages.
Interactive Site. Any interactive site or area, including, by way of example and
without limitation, (i) an DigitalWork site on the World Wide Web portion of the
Internet or (ii) a channel or area delivered through a "push" product such as
the Pointcast Network or interactive environment such as Microsoft's Active
Desktop.
Keyword Search Terms. (a) The Keyword(TM) online search terms made available on
the AOL Service, combining AOL's Keyword(TM) online search modifier with a term
or phrase specifically related to DigitalWork (and determined in accordance with
the terms of this Agreement), and (b) the Go Word online search terms made
available on CompuServe, combining CompuServe's Go Word online search modifier
with a term or phrase specifically related to DigitalWork and determined in
accordance with the terms of this Agreement).
Licensed Content. All Content offered through the Co-Branded Site pursuant to
this Agreement or otherwise provided by DigitalWork or its agents in connection
herewith (e.g., offline or online promotional Content, Promotions, AOL
"slideshows" , etc.), including in each case, any modifications, upgrades,
updates, enhancements, and related documentation.
Netcenter. Netscape Communications Corporation's primary Internet-based
Interactive Site marketed under the "Netscape Netcenter(TM)" brand, specifically
excluding (a) the AOL Service, (b) AOL.com, (c) any international versions of
such site, (d) "ICQ," "AOL Netfind(TM)," "AOL Instant Messenger(TM),"
"NetMail(TM)," "AOL Hometown," "My News," "Digital City(TM)," or any similar
independent product or service offered by or through such site or any other AOL
Interactive Site, (e) any programming or Content area offered by or through such
site over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any programming or Content area offered by or through the
U.S. version of the America Online(R) brand service which was operated,
maintained or controlled by the former AOL Studios division (e.g., Electra), (g)
any yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through such site or any other AOL Interactive
Site, (h) any property, feature, product or service which AOL or its affiliates
may acquire subsequent to the Effective Date and (i) any other version of an AOL
or Netscape Communications Corporation Interactive Site which is materially
different from Netscape Communications Corporation's primary Internet-based
Interactive Site marketed under the "Netscape Netcenter(TM)" brand, by virtue of
its branding, distribution, functionality, Content or services, including,
without limitation, any co-branded versions and any version distributed through
any broadband distribution platform or through any platform or device other than
a desktop personal computer (e.g. Custom NetCenters built specifically for third
parties).
Product. Any product, good or service which DigitalWork (or others acting on
its behalf or as distributors) offers, sells, provides, distributes or licenses
to AOL Users directly or indirectly through (i) the Co-Branded Site (including
through any Interactive Site linked thereto), (ii) any other electronic means
directed at AOL Users (e.g., e-mail offers), or (iii) an "offline" means (e.g.,
toll-free number) for receiving
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
orders related to specific offers within the Co-Branded Site or any DigitalWork
Interactive Site requiring purchasers to reference a specific promotional
identifier or tracking code, including, without limitation, products sold
through surcharged downloads (to the extent expressly permitted hereunder).
Promotions. The promotions described on Exhibit A, any comparable promotions
delivered by AOL in accordance with Section 1.1, and any additional promotions
of the Co-Branded Site provided by AOL (including, without limitation,
additional Keyword Search Terms and other navigational tools).
Qualified New AOL Member. Any person or entity who registers for the AOL
Service (or the CompuServe Service) during the Term hereof as a result of an AOL
Promo button referenced in Exhibit C attached hereto and using MP's special
promotion identifier (connected therewith) and who pays the then-standard fees
required for membership to the AOL Service (or the CompuServe Service) through
at least three (3) consecutive monthly billing cycles.
Remnant Inventory. Advertising inventory which is unsold at the end of the
business day prior to the day on which that inventory will run. If DigitalWork
has purchased Remnant Inventory, DigitalWork's creative will be slotted into
such unsold inventory by AOL from time to time in accordance with internal AOL
policies. AOL does not guarantee that Remnant Inventory Impressions will be
delivered on any particular day(s) or that such Impressions will be delivered
evenly over the Term. Further, AOL does not guarantee placement on any
particular screen or group of screens (except that Channel level Remnant
Inventory will be run only within the specified Channel).
Run of Service Inventory or ROS. A collection of inventory made up of all areas
of the relevant AOL property or service. If Advertiser has purchased Run of
Service Inventory, AOL will place Advertiser's creative in different locations
throughout the relevant property or service in accordance with AOL internal
policies. Run of Service Impressions will be delivered reasonably evenly over a
given time period. Advertiser may not control placement within a Run of Service
Inventory purchase and AOL does not guarantee placement on any particular screen
or group of screens (except that Run of Channel Inventory will be run only in
the specified Channel).
Site Revenues. The combination of Transaction Revenues and Advertising
Revenues.
Standard Site. Any Interactive Site (other than the Co-Branded Site) which is
managed, maintained, owned or controlled by DigitalWork or its agents.
Transaction Revenues. Aggregate amounts paid by AOL Purchasers in connection
with the sale, licensing, distribution or provision of any Products, including,
in each case, *** , and excluding, in each case, (a) amounts collected for ***
and (b)***, but not excluding ***.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
DigitalWork Cross-Promotion
---------------------------
A. Within DigitalWork's primary Standard Site (currently located at
www.digitalwork.com), DigitalWork shall include the following (collectively,
the "AOL Promos"): (i) a prominent continuous promotional button for the
co-branded Netscape Instant Messenger(SM) product described in the AIM
Agreement; and (ii) within 90 days from the Effective Date hereof, a
prominent promotional banner or button (at least 120 x 30 pixels or 70 x 70
pixels in size) appearing on the first screen (or other mutually agreed
location) of such DigitalWork Interactive Site, to promote such AOL products
or services as AOL may reasonably designate (for example, the America
Online(R) brand service, the Netcenter, the CompuServe(R) brand service, the
AOL.com(R) site, any of the Digital City services or the AOL Instant
Messenger(TM) service) and, at AOL's option, download or order the then-
current version of client software for such products or services. AOL will
provide the creative content to be used in the AOL Promos (including
designation of links from such content to other content pages). DigitalWork
shall post (or update, as the case may be) the creative content supplied by
AOL within the spaces for the AOL Promos within five days of its receipt of
such content from AOL. Without limiting any other reporting obligations of
the Parties contained herein, DigitalWork shall provide AOL with monthly
written reports specifying the number of impressions to the pages containing
the AOL Promos during the prior month. In the event that AOL elects to serve
the AOL Promos to the DigitalWork Interactive Site from an ad server
controlled by AOL or its agent, DigitalWork shall take all reasonable
operational steps necessary to facilitate such ad serving arrangement
including, without limitation, inserting HTML code designated by AOL on the
pages of the DigitalWork Interactive Site on which the AOL Promos will
appear. In connection with the AOL Promos, AOL shall pay to MP the then
standard bounty payable to AOL's acquisition partners for each Qualified New
AOL Member obtained in connection herewith, as such standard amount is set
forth in AOL's then generally applicable Affiliate Program at:
http://affiliate.aol.com/affiliate/welcome.html.
B. In DigitalWork's television, radio, print and "out of home" (e.g., buses and
billboards) advertisements and in publications, programs, features or other
forms of media over which DigitalWork exercises editorial control (to the
extent they promote the DigitalWork.com Standard Site), DigitalWork will
include specific references or mentions (verbally where possible) of the
availability of the Co-Branded Site through the AOL Network, which are at
least as prominent as any references that DigitalWork makes to any
DigitalWork Interactive Site (but not any third party site) (by way of site
name, related company name, URL or otherwise). Without limiting the
generality of the foregoing, DigitalWork's listing of the "URL" for the
Standard Site will be accompanied by an equally prominent listing of the
"keyword" term on AOL for the Co-Branded Site. This will be done with the
following treatment: "America Online Keyword: DigitalWork" or another AOL
approved method.
C. To the extent that DigitalWork offers or promotes any products or services
similar to AOL's Component Products on the Co-Branded Site, DigitalWork
shall use exclusively AOL's version of such product.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D
Description of Products and Other Content
-----------------------------------------
1. PUBLIC RELATIONS WORKSHOP
A. Create a News Release (Use a Writing Service)
------------------------------------------------
Using information that users provide, DigitalWork press release experts
will craft a well-written press release that will convey users' message in
a newsworthy context.
B. Send a News Release
----------------------
Using AOL approved distribution channels, users can send a press release to
media around the world in about 30 minutes. Release is sent to media
professionals and industry categories that user may select, as well as to
AOL approved Internet and online partner sites.
C. Find a Trade Show
--------------------
Users enter search word(s) or use the Advanced Search feature to search by
industry, topic, date or location, and all event types.
2. ON-LINE ADVERTISING WORKSHOP
A. Launch a Banner Ad Campaign
------------------------------
Users' online advertisement will be displayed throughout the AOL approved
partners network on over approved partners web sites or on a more targeted
list of industry sites. Users have the option of using an existing banner
or creating a new one.
B. Send Direct E-mail
---------------------
Using DigitalWork online forms, users write their marketing message and
provide DigitalWork with information about users business and users product
or service. DigitalWork then selects the best, targeted opt-in list for
users and send out users' message. Opt-in lists are provided by AOL
approved partner.
C. Submit to Search Engines
---------------------------
Using AOL approved partner. Users complete a standard form, and can submit
their Web site to their choice of over XX of the top search engines and
online directories.
3. DIRECT MAIL WORKSHOP
A. Launch a Direct Mail Program
-------------------------------
DigitalWork's Direct Mail Program service lets users launch a complete
direct mail campaign in one easy step-by-step process.
B. Buy a Prospect List
-----------------------
For those experienced in selecting targeted lists, DigitalWork provides an
online ordering service through partnership with AOL approved partner And
for those who would like assistance in selecting the proper list, or who
would like to obtain a list from one of other DigitalWork list providers,
DigitalWork also provide a list buying service.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
C. Create Postcards
-------------------
Using DigitalWork online form, users can choose the postcard size, design
layout and quantities, and enter their marketing message. The image of
users' site is captured directly from users' Web site. Proofs are posted to
an on-line location for approval. Then the cards are printed with users'
marketing message on the back and shipped directly to users. Postcards
created and printed by AOL approved partner.
4. SALES WORKSHOP
A. Company Information
----------------------
Business Background or Information Report offer users insight on their
prospect's financial position, growth patterns, history, and plans for
expansion (or cutbacks). Reports are provided through AOL approved partner.
5. MARKET RESEARCH WORKSHOP
A. Do Company Research
----------------------
Users can order reports from AOL approved partner to get business
information about competitors, customers and prospects.
B. Monitor Your Industry
------------------------
To keep up to speed on the latest news in users' industry. Headlines are
updated every 20 minutes. Provided by AOL approved partner.
---------------------------------------------------------------------------
In addition to the above listed Workshops, AOL may, at its option, elect to use
any additional Workshops or other Content of DigitalWork from the Standard Site.
Notwithstanding anything to the contrary, all the above listed services in the
Co-Branded Site shall: (a) be supplied on a non-exclusive basis by DigitalWork
(e.g., AOL may utilize other entities to supply the same or similar Content or
services); (b) remain `best of breed' and be reasonably competitive in
accordance with all the applicable terms of this Agreement; and (c) to the
extent using a Component Product, use an AOL version thereof (e.g., `send an
e-mail' shall use an AOL or Netscape e-mail product / branding). References to
an AOL approved partner mean that if DigitalWork outsources a portion of such
function, or partners with a third party for fulfillment of such function, then
AOL has the right to reasonably approve the continued use of such third party
(it being understood and agreed that AOL has reviewed and approved all such
third parties currently so used by DigitalWork as of the Effective Date hereof:
provided that DigitalWork acknowledges prior notice from AOL of concerns
regarding inclusion of additional providers in the banner advertising service
and agrees that such inclusion, if required, will be implemented as commercially
reasonable and within a mutually agreeable timeframe).
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
Operations
----------
1. General. The Co-Branded Site (including the Products and other Content
contained therein) will be *** competitive *** in the business-to-business
industry, with respect to *** in such industry. In addition, ***.
2. Co-Branded Site Infrastructure. DigitalWork will be responsible for all
communications, hosting and connectivity costs and expenses associated with the
Co-Branded Site. DigitalWork will provide all hardware, software,
telecommunications lines and other infrastructure necessary to meet traffic
demands on the Co-Branded Site from the AOL Network. DigitalWork will design and
implement the network between the AOL Service and Co-Branded Site such that (i)
no single component failure will have a materially adverse impact on AOL Members
seeking to reach the Co-Branded Site from the AOL Network and (ii) no single
line under material control by DigitalWork will run at more than 70% average
utilization for a 5-minute peak in a daily period (it being understood and
agreed that this shall not require a dedicated connection between the Parties).
In this regard, DigitalWork will provide AOL, upon request, with a detailed
network diagram regarding the architecture and network infrastructure supporting
the Co-Branded Site. In the event that DigitalWork elects to create a custom
version of the Co-Branded Site in order to comply with the terms of this
Agreement, DigitalWork will bear responsibility for all aspects of the
implementation, management and cost of such customized site.
3. Optimization; Speed. DigitalWork will use *** to ensure that: (a) the
functionality and features within the Co-Branded Site are optimized for the
client software then in use by AOL Members; and (b) the Co-Branded Site is
designed and populated in a manner that minimizes delays when AOL Members
attempt to access such site. At a minimum, DigitalWork will ensure that the Co-
Branded Site's data transfers initiate within fewer than fifteen (15) seconds on
average. Prior to commercial launch of any material promotions described herein,
DigitalWork will permit AOL to conduct performance and load testing of the Co-
Branded Site (in person or through remote communications), with such commercial
launch not to commence until such time as AOL is reasonably satisfied with the
results of any such testing.
4. User Interface. AOL reserves the right to review and approve the user
interface and site design prior to launch of the Promotions and to conduct focus
group testing to assess compliance with respect to such consultation and with
respect to DigitalWork's compliance with the preceding sentence.
5. Technical Problems. DigitalWork agrees to use *** to address material
technical problems (over which DigitalWork exercises control) affecting use by
AOL Members of the Co-Branded Site (a "DigitalWork Technical Problem") promptly
following notice thereof. In the event that DigitalWork is unable to promptly
resolve a DigitalWork Technical Problem following notice thereof from AOL
(including, without limitation, infrastructure deficiencies producing user
delays), AOL will have the right to regulate the promotions it provides to
DigitalWork hereunder until such time as DigitalWork corrects the DigitalWork
Technical Problem at issue.
6. Monitoring. DigitalWork will ensure that the performance and availability
of the Co-Branded Site is monitored on a continuous basis. DigitalWork will
provide AOL with contact information (including e-mail, phone, pager and fax
information, as applicable, for both during and after business hours) for
DigitalWork's principal business and technical representatives, for use in cases
when issues or problems arise with respect to the Co-Branded Site.
7. Telecommunications. Where applicable DigitalWork will utilize encryption
methodology to secure data communications between the Parties' data centers. The
network will be sized such that no single line over which the DigitalWork has
material control runs at more than 70% average utilization for a 5-minute peak
in a daily period (it being understood and agreed that this shall not require a
dedicated connection between the Parties).
8. Security. DigitalWork will utilize Internet standard encryption
technologies (e.g., Secure Socket Layer - SSL) to provide a secure environment
for conducting transactions and/or transferring private member information (e.g.
credit card numbers, and banking/financial information) to and from the Co-
Branded Site. DigitalWork will use *** to utilize Internet standard encryption
technologies (e.g., Secure Socket Layer - SSL) to provide a secure environment
for transfer of member address information to and from the Co-Branded Site
(during transactions, but not with respect to voluntarily publicly posted member
address info, e.g., in message boards, etc.). DigitalWork will facilitate
periodic reviews of the Co-Branded Site by AOL in order to evaluate the security
risks of such site. DigitalWork will promptly remedy any security risks or
breaches of security as may be identified by AOL's Operations Security team.
DigitalWork shall have a reasonable amount of time from the Effective Date, not
to exceed 30 days from the date of execution hereof (and in any event, prior to
initial launch), to ramp up to the obligations in this Section 8. With respect
only to member address information, DigitalWork shall have a reasonable amount
of time from and after launch to ramp up such obligations regarding member
address information in this Section 8.
9. Technical Performance. DigitalWork shall have a reasonable amount of time
from the Effective Date, not to exceed 30 days from the date of execution
hereof, to ramp up to the obligations in this Section 9.
i. DigitalWork will design the Co-Branded Site to support the AOL-client
embedded versions of the Microsoft Internet Explorer 4.XX and 5.XX
browsers (Windows and Macintosh) and the Netscape Browser 4.XX and
make *** to support all other AOL browsers listed at:
http://webmaster.info.aol.com in accordance with DigitalWork standard
policy.
ii. To the extent DigitalWork creates customized pages on the Co-Branded
Site for AOL Members, DigitalWork will develop and
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
employ a methodology to detect AOL Members (e.g. examine the HTTP
User-Agent field in order to identify the "AOL Member-Agents" listed
at: "http://webmaster. info.aol.com; to be accomplished via unique
hostnames for each AOL property)."
iii. DigitalWork will periodically review the technical information made
available by AOL at http://webmaster.info.aol.com.
iv. DigitalWork will design its site to support HTTP 1.0 or later
protocol as defined in RFC 1945 and to adhere to AOL's parameters for
refreshing or preventing the caching of information in AOL's proxy
system as outlined in the document provided at the following URL:
http://webmaster.info.aol.com. DigitalWork is responsible for the
manipulation of these parameters in web-based objects so as to allow
them to be cached or not cached as outlined in RFC 1945.
v. Prior to releasing material, new functionality or features through
the Co-Branded Site ("New Functionality"), DigitalWork will use ***
to (i) test the New Functionality to confirm its compatibility with
AOL Service client software and (ii) provide AOL with written notice
of the New Functionality so that AOL can perform tests of the New
Functionality to confirm its compatibility with the AOL Service
client software. Should any new material, new functionality or
features through the Co-Branded Site be released without notification
to AOL, AOL will not be responsible for any adverse member experience
until such time that compatibility tests can be performed and the new
material, functionality or features qualified for the AOL Service
10. AOL Internet Services DigitalWork Support. AOL will provide DigitalWork
with access to the standard online resources, standards and guidelines
documentation, technical phone support, monitoring and after-hours assistance
that AOL makes generally available to similarly situated web-based partners. AOL
support will not, in any case, be involved with content creation on behalf of
DigitalWork or support for any technologies, databases, software or other
applications which are not supported by AOL or are related to any DigitalWork
area other than the Co-Branded Site. Support to be provided by AOL is contingent
on DigitalWork providing to AOL demo account information (where applicable), a
detailed description of the Co-Branded Site's software, hardware and network
architecture and access to the Co-Branded Site for purposes of such performance
and load testing as AOL elects to conduct.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT F
Standard Online Commerce Terms & Conditions
-------------------------------------------
1. AOL Network Distribution. DigitalWork will not authorize or permit any third
party to distribute or promote the Products or any DigitalWork Interactive Site
through the AOL Network absent AOL's prior written approval to DigitalWork
and/or such third party. The Promotions and any other promotions or
advertisements purchased from or provided by AOL will link only to the Co-
Branded Site, will be used by DigitalWork solely for its own benefit and will
not be resold, traded, exchanged, bartered, brokered or otherwise offered to any
third party.
2. Provision of Other Content. In the event that AOL notifies DigitalWork that
(i) as reasonably determined by AOL, any Content within the Co-Branded Site
violates AOL's then-standard Terms of Service (as set forth on the America
Online brand service at Keyword term "TOS"), for the AOL Service or any other
AOL property through which the affiliated Site is promoted, the terms of this
Agreement or any other standard, written AOL policy or (ii) AOL reasonably
objects to the inclusion of any Content within the Co-Branded Site (other than
any specific items of Content which may be expressly identified in this
Agreement), then DigitalWork will take commercially reasonable steps to block
access by AOL Users to such Content using DigitalWork's then-available
technology. In the event that DigitalWork cannot, through its ***, block access
by AOL Users to the Content in question, then DigitalWork will provide AOL
prompt written notice of such fact. AOL may then, at its option, restrict access
from the AOL Network to the Content in question using technology available to
AOL. DigitalWork will cooperate with AOL's reasonable requests to the extent AOL
elects to implement any such access restrictions.
3. Contests. DigitalWork will take all steps necessary to ensure that any
contest, sweepstakes or similar promotion conducted or promoted through the Co-
Branded Site (a "Contest") complies with all applicable federal, state and local
laws and regulations.
4. Navigation. Subject to the prior consent of DigitalWork, which consent will
not be unreasonably withheld, AOL will be entitled to establish navigational
icons, links and pointers connecting the Co-Branded Site (or portions thereof)
with other content areas on or outside of the AOL Network. Additionally, in
cases where an AOL User performs a search for DigitalWork through any search or
navigational tool or mechanism that is accessible or available through the AOL
Network (e.g., Promotions, Keyword Search Terms, or any other promotions or
navigational tools), AOL shall have the right to direct such AOL User to the Co-
Branded Site, or any other DigitalWork Interactive Site determined by AOL in its
reasonable discretion.
5. Disclaimers. Upon AOL's request, DigitalWork agrees to include within the
Co-Branded Site a product disclaimer (the specific form and substance to be
mutually agreed upon by the Parties) indicating that transactions are solely
between DigitalWork and AOL Users purchasing Products from DigitalWork.
6. AOL Look and Feel. DigitalWork acknowledges and agrees that AOL will own all
right, title and interest in and to the elements of graphics, design,
organization, presentation, layout, user interface, navigation and stylistic
convention (including the digital implementations thereof) which are generally
associated with online areas contained within the AOL Network, subject to
DigitalWork's ownership rights in any DigitalWork trademarks or copyrighted
material within the Co-Branded Site.
7. Management of the Co-Branded Site. DigitalWork will manage, review, delete,
edit, create, update and otherwise manage all Content available on or through
the Co-Branded Site, in a timely and professional manner and in accordance with
the terms of this Agreement. DigitalWork will ensure that the Co-Branded Site is
current, accurate and well-organized at all times. DigitalWork warrants that the
Products and other Licensed Content: (i) will not infringe on or violate any
copyright, trademark, U.S. patent or any other third party right, including
without limitation, any music performance or other music-related rights; (ii)
will not violate AOL's then-applicable Terms of Service for the AOL Service and
any other AOL property through which the Co-Branded Site will be promoted or any
other standard, written AOL policy; and (iii) will not violate any applicable
law or regulation, including those relating to contests, sweepstakes or similar
promotions. Additionally, DigitalWork represents and warrants that it owns or
has a valid license to all rights to any Licensed Content used in AOL
"slideshow" or other formats embodying elements such as graphics, animation and
sound, free and clear of all encumbrances and without violating the rights of
any other person or entity. DigitalWork also warrants that a reasonable basis
exists for all Product performance or comparison claims appearing through the
Co-Branded Site. DigitalWork shall not in any manner, including, without
limitation in any Promotion, the Licensed Content or the Materials state or
imply that AOL recommends or endorses DigitalWork or DigitalWork's Products
(e.g., no statements that DigitalWork is an "official" or "preferred" provider
of products or services for AOL). AOL will have no obligations with respect to
the Products available on or through the Co-Branded Site, including, but not
limited to, any duty to review or monitor any such Products. AOL may require
that the Co-Branded Site be a customized, mirrored version of any DigitalWork
Interactive Site selling the products described on Exhibit D.
8. Duty to Inform. DigitalWork will promptly inform AOL of any information
related to the Co-Branded Site which could reasonably lead to a claim, demand,
or liability of or against AOL and/or its affiliates by any third party.
9. Customer Service. It is the sole responsibility of DigitalWork to provide
customer service to persons or entities purchasing Products through the AOL
Network ("Customers"). DigitalWork will bear full responsibility for all
customer service, including without limitation, order processing, billing,
fulfillment, shipment, collection and other customer service associated with any
Products offered, sold or
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
licensed through the Co-Branded Site, and AOL will have no obligations
whatsoever with respect thereto. DigitalWork will receive all emails from
Customers via a computer available to DigitalWork's customer service staff and
generally respond to such emails within one business day of receipt. DigitalWork
will receive all orders electronically and generally process all orders within
one business day of receipt, provided Products ordered are not advance order
items. DigitalWork will ensure that all orders of Products are received,
processed, fulfilled and delivered on a timely and professional basis.
DigitalWork will *** to ensure customer satisfaction for all AOL Users who
purchase Products through such Co-Branded Site. DigitalWork will bear all
responsibility for compliance with federal, state and local laws in the event
that Products are out of stock or are no longer available at the time an order
is received. DigitalWork will also comply with the requirements of any federal,
state or local consumer protection or disclosure law. Payment for Products will
be collected by DigitalWork (or its designees) directly from customers.
DigitalWork's order fulfillment operation will be subject to AOL's reasonable
review.
10. Production Work. In the event that DigitalWork requests AOL's production
assistance in connection with (i) ongoing programming and maintenance related to
the Co-Branded Site, (ii) a redesign of or addition to the Co-Branded Site
(e.g., a change to an existing screen format or construction of a new custom
form), (iii) production to modify work performed by a third party provider or
(iv) any other type of production work, DigitalWork will work with AOL to
develop a detailed production plan for the requested production assistance (the
"Production Plan"). Following receipt of the final Production Plan, AOL will
notify DigitalWork of (i) AOL's availability to perform the requested production
work, (ii) the proposed fee or fee structure for the requested production and
maintenance work and (iii) the estimated development schedule for such work. To
the extent the Parties reach agreement regarding implementation of the agreed-
upon Production Plan, such agreement will be reflected in a separate work order
signed by the Parties. To the extent DigitalWork elects to retain a third party
provider to perform any such production work, work produced by such third party
provider must generally conform to AOL's standards & practices (as provided on
the America Online brand service at Keyword term "styleguide"). The specific
production resources which AOL allocates to any production work to be performed
on behalf of DigitalWork will be as determined by AOL in its sole discretion.
With respect to any routine production, maintenance or related services which
AOL reasonably determines are necessary for AOL to perform in order to support
the proper functioning and integration of the Co-Branded Site ("Routine
Services"), DigitalWork will pay the then-standard fees charged by AOL for such
Routine Services.
11. Overhead Accounts. To the extent AOL has granted DigitalWork any overhead
accounts on the AOL Service, DigitalWork will be responsible for the actions
taken under or through its overhead accounts, which actions are subject to AOL's
applicable Terms of Service and for any surcharges, including, without
limitation, all premium charges, transaction charges, and any applicable
communication surcharges incurred by any overhead Account issued to DigitalWork,
but DigitalWork will not be liable for charges incurred by any overhead account
relating to AOL's standard monthly usage fees and standard hourly charges, which
charges AOL will bear. Upon the termination of this Agreement, all overhead
accounts, related screen names and any associated usage credits or similar
rights, will automatically terminate. AOL will have no liability for loss of any
data or content related to the proper termination of any overhead account.
12. Navigation Tools. Any Keyword Search Terms to be directed to the Co-Branded
Site shall be (i) subject to availability for use by DigitalWork and (ii)
limited to the combination of the Keyword search modifier combined with a
registered trademark of DigitalWork (e.g. "AOL keyword: XYZ Company Name"). AOL
reserves the right to revoke at any time DigitalWork's use of any Keyword Search
Terms which do not incorporate registered trademarks of DigitalWork. DigitalWork
acknowledges that its utilization of a Keyword Search Term will not create in
it, nor will it represent it has, any right, title or interest in or to such
Keyword Search Term, other than the right, title and interest DigitalWork holds
in DigitalWork's registered trademark independent of the Keyword Search Term.
Without limiting the generality of the foregoing, DigitalWork will not: (a)
attempt to register or otherwise obtain trademark or copyright protection in the
Keyword Search Term; or (b) use the Keyword Search Term, except for the purposes
expressly required or permitted under this Agreement. To the extent AOL allows
AOL Users to "bookmark" the URL or other locator for the Co-Branded Site, such
bookmarks will be subject to AOL's control at all times. Upon the termination of
this Agreement, DigitalWork's rights to any Keyword Search Terms and bookmarking
will terminate.
13. Merchant Certification Program. DigitalWork will *** to participate in any
generally applicable "Certified Merchant" program operated by AOL or its
authorized agents or contractors. Such program may require merchant participants
on an ongoing basis to meet certain reasonable, generally applicable standards
relating to provision of electronic commerce through the AOL Network (including,
as a minimum, use of 40-bit SSL encryption and if requested by AOL, 128-bit
encryption) and may also require the payment of certain reasonable certification
fees to the applicable entity operating the program. Each Certified Merchant in
good standing will be entitled to place on its affiliated Interactive Site an
AOL designed and approved button promoting the merchant's status as an AOL
Certified Merchant.
14. Reward Programs. On the Co-Branded Site, DigitalWork shall not offer,
provide, implement or otherwise make available any promotional programs or plans
that are intended to provide customers with rewards or benefits in exchange for,
or on account of, their past or continued loyalty to, or patronage or purchase
of, the products or services of DigitalWork or any third party (e.g., a
promotional program similar to a "frequent flier" program), unless such
promotional program or plan is provided exclusively through AOL's "AOL Rewards"
program, accessible on the AOL Service at Keyword: "AOL Rewards."
15. Search Terms. To the extent this Agreement sets forth any mechanism by
which the Co-Branded Site will be promoted in connection with specified search
terms within any AOL product or service, DigitalWork hereby represents and
warrants that DigitalWork
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
has all consents, authorizaitons, approvals, licenses, permits or other rights
necessary for DigitalWork to use such specified search terms. Notwithstanding
the foregoing, AOL shall have the right to suspend the use of any search term if
AOL has reason to believe continued use may subject AOL to liability or other
adverse consequences.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT G
Standard Legal Terms & Conditions
---------------------------------
1. Promotional Materials/Press Releases. Each Party will submit to the other
Party, for its prior written approval, which will not be unreasonably withheld
or delayed, any marketing, advertising, or other promotional materials,
excluding Press Releases, related to the Co-Branded Site and/or referencing the
other Party and/or its trade names, trademarks, and service marks (the
"Promotional Materials"); provided, however, that either Party's use of screen
shots of the Co-Branded Site for promotional purposes will not require the
approval of the other Party so long as America Online(R) is clearly identified
as the source of such screen shots; and provided further, however, that,
following the initial public announcement of the business relationship between
the Parties in accordance with the approval and other requirements contained
herein, either Party's subsequent factual reference to the existence of a
business relationship between the Parties in Promotional Materials, will not
require the approval of the other Party. Each Party will solicit and reasonably
consider the views of the other Party in designing and implementing such
Promotional Materials. Once approved, the Promotional Materials may be used by a
Party and its affiliates for the purpose of promoting the Co-Branded Site and
the content contained therein and reused for such purpose until such approval is
withdrawn with reasonable prior notice. In the event such approval is withdrawn,
existing inventories of Promotional Materials may be depleted.
2. License. DigitalWork hereby grants AOL a non-exclusive worldwide license to
market, license, distribute, reproduce, display, perform, transmit and promote
the Licensed Content (or any portion thereof) through such areas or features of
the AOL Network as AOL deems appropriate. DigitalWork acknowledges and agrees
that the foregoing license permits AOL to distribute portions of the Licensed
Content in synchronism or timed relation with visual displays prepared by
DigitalWork or AOL (e.g., as part of an AOL "slideshow"). In addition, AOL Users
will have the right to access and use the Co-Branded Site.
3. Trademark License. In designing and implementing the Materials and subject
to the other provisions contained herein, DigitalWork will be entitled to use
the following trade names, trademarks, and service marks of AOL: the "America
Online" brand service, "AOL" service/software and AOL's triangle logo; and AOL
and its affiliates will be entitled to use the trade names, trademarks, and
service marks of DigitalWork for which DigitalWork holds all rights necessary
for use in connection with this Agreement (collectively, together with the AOL
marks listed above, the "Marks"); provided that each Party: (i) does not create
a unitary composite mark involving a Mark of the other Party without the prior
written approval of such other Party; and (ii) displays symbols and notices
clearly and sufficiently indicating the trademark status and ownership of the
other Party's Marks in accordance with applicable trademark law and practice.
4. Ownership of Trademarks. Each Party acknowledges the ownership right of the
other Party in the Marks of the other Party and agrees that all use of the other
Party's Marks will inure to the benefit, and be on behalf, of the other Party.
Each Party acknowledges that its utilization of the other Party's Marks will not
create in it, nor will it represent it has, any right, title, or interest in or
to such Marks other than the licenses expressly granted herein. Each Party
agrees not to do anything contesting or impairing the trademark rights of the
other Party.
5. Quality Standards. Each Party agrees that the nature and quality of its
products and services supplied in connection with the other Party's Marks will
conform to quality standards set by the other Party. Each Party agrees to supply
the other Party, upon request, with a reasonable number of samples of any
Materials publicly disseminated by such Party which utilize the other Party's
Marks. Each Party will comply with all applicable laws, regulations, and customs
and obtain any required government approvals pertaining to use of the other
Party's marks.
6. Infringement Proceedings. Each Party agrees to promptly notify the other
Party of any unauthorized use of the other Party's Marks of which it has actual
knowledge. Each Party will have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide the other Party
with its reasonable cooperation and assistance with respect to any such
infringement proceedings.
7. Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of it
hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, this Agreement
will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in this Agreement. DigitalWork hereby represents and warrants that it
possesses all authorizations, approvals, consents, licenses, permits,
certificates or other rights and permissions necessary to sell the Products.
8. Confidentiality. Each Party acknowledges that Confidential Information may
be disclosed to the other Party during the course of this Agreement. Each Party
agrees that it will take reasonable steps, at least substantially equivalent to
the steps it takes to protect its own proprietary information, during the term
of this Agreement, and for a period of *** following expiration or termination
of this Agreement, to prevent the duplication or disclosure of Confidential
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Information of the other Party, other than by or to its employees or agents who
must have access to such Confidential Information to perform such Party's
obligations hereunder, who will each agree to comply with this section.
Notwithstanding the foregoing, either Party may issue a press release or other
disclosure containing Confidential Information without the consent of the other
Party, to the extent such disclosure is required by law, rule, regulation or
government or court order. In such event, the disclosing Party will provide at
least five (5) business days prior written notice of such proposed disclosure to
the other Party. Further, in the event such disclosure is required of either
Party under the laws, rules or regulations of the Securities and Exchange
Commission or any other applicable governing body, such Party will (i) redact
mutually agreed-upon portions of this Agreement to the fullest extent permitted
under applicable laws, rules and regulations and (ii) submit a request to such
governing body that such portions and other provisions of this Agreement receive
confidential treatment under the laws, rules and regulations of the Securities
and Exchange Commission or otherwise be held in the strictest confidence to the
fullest extent permitted under the laws, rules or regulations of any other
applicable governing body.
9. Limitation of Liability; Disclaimer; Indemnification.
9.1 Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY
TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE CO-BRANDED SITE, OR
ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO,
LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY,
"DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER
PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE
SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION 9.3. EXCEPT AS PROVIDED IN
SECTION 9.3, (I) LIABILITY ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO
DIRECT, OBJECTIVELY MEASURABLE DAMAGES, AND (II) THE MAXIMUM LIABILITY OF ONE
PARTY TO THE OTHER PARTY FOR ANY CLAIMS ARISING IN CONNECTION WITH THIS
AGREEMENT WILL NOT EXCEED THE AGGREGATE AMOUNT OF FIXED GUARANTEED PAYMENT
OBLIGATIONS OWED BY DigitalWork HEREUNDER IN THE YEAR IN WHICH THE EVENT GIVING
RISE TO LIABILITY OCCURS; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE
AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT TO
THE AGREEMENT.
9.2 No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK,
THE AOL SERVICE, AOL.COM OR THE CO-BRANDED SITE, INCLUDING ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING
THE PROFITABILITY OF THE CO-BRANDED SITE.
9.3 Indemnity. Either Party will defend, indemnify, save and hold harmless the
other Party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other Party from any and all third party
claims, demands, liabilities, costs or expenses, including reasonable attorneys'
fees ("Liabilities"), resulting from the indemnifying Party's material breach of
any duty, representation, or warranty of this Agreement.
9.4 Claims. If a Party entitled to indemnification hereunder (the "Indemnified
Party") becomes aware of any matter it believes is indemnifiable hereunder
involving any claim, action, suit, investigation, arbitration or other
proceeding against the Indemnified Party by any third party (each an "Action"),
the Indemnified Party will give the other Party (the "Indemnifying Party")
prompt written notice of such Action. Such notice will (i) provide the basis on
which indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands, and other papers related to the Action and in the
possession of the Indemnified Party. The Indemnifying Party will have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party will be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the Indemnified
Party. The Indemnified Party will cooperate, at the expense of the Indemnifying
Party, with the Indemnifying Party and its counsel in the defense and the
Indemnified Party will have the right to participate fully, at its own expense,
in the defense of such Action. If the Indemnifying Party responds within the
required ten (10) day period and elects not to defend such Action, the
Indemnified Party will be free, without prejudice to any of the Indemnified
Party's rights hereunder, to compromise or defend (and control the defense of)
such Action. In such case, the Indemnifying Party will cooperate, at its own
expense, with the Indemnified Party and its counsel in the defense against such
Action and the Indemnifying Party will have the right to participate fully, at
its own expense, in the defense of such Action. Any compromise or settlement of
an Action will require the prior written consent of both Parties hereunder, such
consent not to be unreasonably withheld or delayed.
10. Acknowledgment. AOL and DigitalWork each acknowledges that the provisions of
this Agreement were negotiated to reflect an informed, voluntary allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
hereunder. The limitations and disclaimers related to warranties and liability
contained in this Agreement are intended to limit the circumstances and extent
of liability. The provisions of this Section 9 will be enforceable independent
of and severable from any other enforceable or unenforceable provision of this
Agreement.
11. Solicitation of AOL Users. During the term of the Agreement and for a ***
period thereafter, DigitalWork will not use the AOL Network (including, without
limitation, the e-mail network contained therein) to solicit AOL Users on behalf
of ***. More generally, DigitalWork will not send unsolicited, commercial
e-mail (i.e., "spam") or other online communications through or into AOL's
products or services, absent a Prior Business Relationship. For purposes of this
Agreement, a "Prior Business Relationship" will mean that the AOL User to whom
commercial e-mail or other online communication is being sent has voluntarily
either (i) engaged in a transaction with DigitalWork or (ii) provided
information to DigitalWork through a contest, registration, or other
communication, which included clear notice to the AOL User that the information
provided could result in commercial e-mail or other online communication being
sent to that AOL User by DigitalWork or its agents. Any commercial e-mail or
other online communications to AOL Users which are otherwise permitted
hereunder, will (a) include a prominent and easy means to "opt-out" of receiving
any future commercial communications from DigitalWork, and (b) shall also be
subject to AOL's then-standard restrictions on distribution of bulk e-mail
(e.g., related to the time and manner in which such e-mail can be distributed
through or into the AOL product or service in question).
12. AOL User Communications. To the extent that DigitalWork is permitted to
communicate with AOL Users under Section 11 of this Exhibit G, in any such
communications to AOL Users on or off the Co-Branded Site (including, without
limitation, e-mail solicitations), DigitalWork will not encourage AOL Users
(specifically identified) to take any action inconsistent with the scope and
purpose of this Agreement, including without limitation, the following actions:
encouraging persons known to be AOL Users (i.e., a communication specifically
targeted to AOL Users, or to an individual DigitalWork knows is an AOL
Purchaser) to (i) use an Interactive Site other than the Co-Branded Site for the
purchase of Products, (ii) use Content other than the Licensed Content; (iii)
bookmark of Interactive Sites; or (iv) change the default home page on the AOL
browser. Additionally, with respect to such AOL User communications, in the
event that DigitalWork encourages a known AOL Purchaser to purchase products
through such communications, DigitalWork shall ensure that (a) the AOL Network
is promoted as the primary means through which such AOL User can access the Co-
Branded Site and (b) any link to the Co-Branded Site will link to a page which
indicates to the AOL User that such user is in a site which is affiliated with
the AOL Network. DigitalWork will not express any preference of the Standard
Site over the Co-Branded Site.
13. Collection and Use of User Information. DigitalWork shall ensure that its
collection, use and disclosure of information obtained from AOL Users under this
Agreement ("User Information") complies with (i) all applicable laws and
regulations and (ii) AOL's standard privacy policies, available on the AOL
Service at the keyword term "Privacy" (or, in the case of the Co-Branded Site,
DigitalWork's standard privacy policies so long as such policies are prominently
published on the site and provide adequate notice, disclosure and choice to
users regarding DigitalWork's collection, use and disclosure of user
information). DigitalWork will not disclose User Information collected
hereunder to any third party in a manner that identifies AOL Users as end users
of an AOL product or service or use Member Information collected under this
Agreement to market another Interactive Service. Notwithstanding anything to
the contrary herein, (a) if end users are required to register to access certain
features within the co-branded areas, such registration processes will be
seamlessly integrated with Netscape's "Universal Registration" or AOL's "SNAP"
system and be consistent with AOL's (or the applicable AOL affiliate's) then-
current privacy policy; (b) AOL and DigitalWork will jointly own all end user
data collected by DigitalWork in conjunction with the use of the Co-Branded Site
during any proactive registration process thereon; and (c) DigitalWork may
provide communications to AOL users that have specifically requested such
communications (e.g., opt-in information about a product or service), provided
that any such communication (i) will only promote those products set forth
herein as permitted in the Co-Branded Site, (ii) will not promote any
Interactive Service or is otherwise inconsistent with the general scope and
terms hereof, and (iii) is consistent with AOL's (or the applicable AOL
affiliate's) then current privacy policy (e.g., provides a meaningful
opportunity to opt back out and terminate receipt of further such
communications).
14. Excuse. Neither Party will be liable for, or be considered in breach of or
default under this Agreement on account of, any delay or failure to perform as
required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
15. Independent Contractors. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or employee of the other
Party. Neither Party will have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other Party. This Agreement will not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
16. Notice. Any notice, approval, request, authorization, direction or other
communication under this Agreement will be given in writing and will be deemed
to have been delivered and given for all purposes (i) on the delivery date if
delivered by electronic mail on the AOL Network (to screenname
"[email protected]" in the case of AOL) or by confirmed facsimile; (ii) on the
delivery date if delivered personally to the Party to whom the same is directed;
(iii)
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
one business day after deposit with a commercial overnight carrier, with
written verification of receipt; or (iv) five business days after the mailing
date, whether or not actually received, if sent by U.S. mail, return receipt
requested, postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available. In the case of AOL, such notice will
be provided to both the Senior Vice President for Business Affairs (fax no. 703-
265-1206) and the Deputy General Counsel (fax no. 703-265-1105), each at the
address of AOL set forth in the first paragraph of this Agreement. In the case
of DigitalWork, except as otherwise specified herein, the notice address will be
the address for DigitalWork set forth in the first paragraph of this Agreement,
with the other relevant notice information, including the recipient for notice
and, as applicable, such recipient's fax number or AOL e-mail address, to be as
reasonably identified by AOL.
17. Launch Dates. In the event that any terms contained herein relate to or
depend on the commercial launch date of the Co-Branded Site contemplated by this
Agreement (the "Launch Date"), then it is the intention of the Parties to record
such Launch Date in a written instrument signed by both Parties promptly
following such Launch Date; provided that, in the absence of such a written
instrument, the Launch Date will be as reasonably determined by AOL based on the
information available to AOL.
18. No Waiver. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to exercise
any right under this Agreement will not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect.
19. Return of Information. Upon the expiration or termination of this
Agreement, each Party will, upon the written request of the other Party, return
or destroy (at the option of the Party receiving the request) all Confidential
Information received from the other Party, documents, manuals and other
materials specified the other Party.
20. Survival. Section 5.3 of the body of the Agreement, Sections 8 through 30
of this Exhibit, and any payment obligations accrued prior to termination or
expiration will survive the completion, expiration, termination or cancellation
of this Agreement.
21. Entire Agreement. This Agreement sets forth the entire agreement and
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein. Neither Party will be bound by, and each Party
specifically objects to, any term, condition or other provision which is
different from or in addition to the provisions of this Agreement (whether or
not it would materially alter this Agreement) and which is proffered by the
other Party in any correspondence or other document, unless the Party to be
bound thereby specifically agrees to such provision in writing.
22. Amendment. No change, amendment or modification of any provision of this
Agreement will be valid unless set forth in a written instrument signed by the
Party subject to enforcement of such amendment, and in the case of AOL, by an
executive of at least the same standing to the executive who signed the
Agreement.
23. Further Assurances. Each Party will take such action (including, but not
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or continuing
performance of this Agreement.
24. Assignment. DigitalWork will not assign this Agreement or any right,
interest or benefit under this Agreement without the prior written consent of
AOL. Assumption of the Agreement by any successor to DigitalWork (including,
without limitation, by way of merger or consolidation) will be subject to AOL's
prior written approval. Subject to the foregoing, this Agreement will be fully
binding upon, inure to the benefit of and be enforceable by the Parties hereto
and their respective successors and assigns.
25. Construction; Severability. In the event that any provision of this
Agreement conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction over the
Parties to this Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law, and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect.
26. Remedies. Except where otherwise specified, the rights and remedies
granted to a Party under this Agreement are cumulative and in addition to, and
not in lieu of, any other rights or remedies which the Party may possess at law
or in equity.
27. Applicable Law. Except as otherwise expressly provided herein, this
Agreement will be interpreted, construed and enforced in all respects in
accordance with the laws of the State of New York except for its conflicts of
laws principles.
28. Export Controls. Both Parties will adhere to all applicable laws,
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the other
Party or the direct product of such technical data to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized.
29. Headings. The captions and headings used in this Agreement are inserted
for convenience only and will not affect the meaning or interpretation of this
Agreement.
30. Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will constitute one
and the same document
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT H
Customization of Co-Branded Sites
DigitalWork shall create, at its sole expense, a fully customized site for the
AOL Business Property and warrants that it also shall implement, at its sole
expense, any appropriate infrastructure additions to the Customized Site to
support the projected traffic growth on such Customized Site. Such
customization shall include, without limitation:
(a) Standard Customization
--- ----------------------
(i) the inclusion of a toolbar (the parameters, specifications and
format of which are listed below) at the top and bottom of each
page of the DigitalWork Internet Site, which, among other
things, will provide navigation back to the AOL Network;
(ii) various additional co-branding elements to be specified;
(iii) the creation of links in connection with communication services
on the Customized Site to the corresponding or equivalent
communication services or areas of the Customized Site of the
appropriate AOL Property (e.g., chat from the Customized Site
of the AOL Service will link to the chat area on the AOL
Service); and
(iv) the linking of the Customized Site to an URL which contains the
location code for the AOL Business brand (e.g.,
www.DigitalWork.aolbusinessbrand.com) or any such other URL as
determined by AOL in its sole discretion).
(e) Cobranding example: Netscape Netcenter.
- --- --------------------------------------
DigitalWork/Netscape Netcenter co-branded as follows: (x) displaying on each
page of the DigitalWork-Netcenter Site headers, footers and left navigation
sidebar of size and type determined by AOL and which contain both Netscape and
DigitalWork branding, links to Netscape Netcenter, a search box, two (2)
promotional spaces to be programmed by AOL, and advertising space ***; (y)
programming each page of the DigitalWork-Netcenter Site with a co-branded domain
name (e.g., DigitalWork.netscape.com) and (z) matching the look and feel of
Netscape Netcenter on the DigitalWork-Netcenter Site. Within navigation
sidebar, where subdepartments exist under Netcenter Department headings, these
will be broken out for navigational purposes.
NETSCAPE: DigitalWork shall create a version of the DigitalWork Internet Site
customized for distribution through Netscape Netcenter (the "DigitalWork-NS
Site") by: (a) displaying a "C-frame" header, footer and left-side menu bar on
each page of the DigitalWork-NS Site (or any other mutually agreed alternatives)
as well as the additional standard programming elements as set forth in the
Programming Plan, with such C-frame of size and type determined by AOL with the
headers and footers containing both Netscape and DigitalWork branding, links to
Netscape Netcenter, a search box and *** promotional spaces to be programmed by
AOL, (b) eliminating the use of "pop-up" windows, screens and similar types of
functionality in connection with the display of advertising, promotions or
sponsorships on the DigitalWork-NS Site, (c) programming each page of the
DigitalWork-NS Site with a co-branded domain name (e.g., insweb.netscape.com)
and (d) matching the Look and Feel, templates (including sponsorship positions)
and navigation of Netscape Netcenter on the DigitalWork-NS Site. Detailed co-
branding requirements can be found at http://proto.mcom.com:888/nc20/html/. AOL
will have design approval of any co-branding (on an ongoing basis) over all
pages.
<PAGE>
Exhibit 10.21
THIS DOCUMENT IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST ON FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION. WHERE APPROPRIATE, THE CONFIDENTIAL
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND REPLACED WITH *** OR
*** CONFIDENTIAL TREATMENT REQUESTED ***.
Final 12-22-99
MASTER SERVICES AGREEMENT
This agreement ("Agreement") is entered into as of the 22nd day of
December, 1999 ("Effective Date"), by and between DigitalWork,com, Inc. .
("Company"), and Dell Products, L.P. ("Dell"), a Texas Limited Partnership. Dell
Computer Corporation ("DCC") and any of its corporate subsidiaries or affiliates
may purchase Services (as defined below) and enjoy the benefits of this
Agreement, but all liabilities and obligations incurred by Dell, DCC, or any of
DCC's subsidiaries or affiliates under this Agreement will be the sole
responsibility of Dell.
RECITALS
A. Whereas, Company offers portal services on the World Wide Web at
www.digitalwork.com wherein it provides search services and navigation as well
as community, business and consumer e-commerce solutions from its service
partners. Company syndicates and bundles these portal services for resale by
third parties; and
B. Whereas, Dell is a leading global retailer of computer products and
maintains a site on the Internet at <www.dell.com> which, among other things,
allows its users to purchase computer products. Dell desires to expand its
services to its customers through a unique World Wide Web site; and
C. Whereas, Dell and Company desire to create a Dell-branded small
business portal called "DellBizNet" which will offer the best in class content,
communications, community and e-commerce functionality of Company and its
service partners to Dell customers; and
D. Whereas, Dell and Company desire to set forth in writing their mutual
intent and understanding of the scope and terms of such engagement.
AGREEMENT
Now, therefore, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings, unless the context otherwise requires. Certain other terms are
defined elsewhere in this Agreement.
1.1 "Acceptance" means the acceptance by Dell of a Deliverable specified
in a Work Statement as described in Section 2.
1.2 "Affiliate" means, with respect to either party, any individual or
entity that, by virtue of a majority ownership interest, directly or indirectly
through one or more intermediaries controls, is controlled by or is under common
control with that party.
1.3 "Agreement" means this Master Services Agreement between Dell and
Company, as amended from time to time.
1.4 "Code" means all computer programming code (both object and source,
unless otherwise specified) and application program interfaces ("APIs"), as
modified or enhanced from time to time by Company, including, without
limitation, all interfaces, navigational devices, menu structures or
arrangements, icons, help, operational instructions, commands, syntax, HTML
(hyper-text markup language), design, templates written in ASP source code,
Java, Javascript, VB Script, or other scripting languages and any code created
by Cold Fusion,
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
FrontPage, DreamWeaver or any other HTML editor and the literal and non-literal
expressions of ideas that operate, cause, create, direct, manipulate, access or
otherwise affect the Content whether created or licensed from third parties by
Company including, without limitation, any copyrights, trade secrets and other
intellectual or industrial property rights therein.
1.5 "Confidential Information" means, except as otherwise specifically
provided in the Agreement, each party's (a) trade secrets under applicable law
(including, without limitation, financial information, processes, formulas,
specifications, programs, instructions, technical know-how, methods and
procedures for operation, and benchmark test results); (b) any confidential or
other proprietary information, whether of a technical, business or other nature
that is of value to the owner of such information and is treated as confidential
(including, without limitation, End-User Data, information about employees,
customers, marketing strategies, services, business or technical plans and
proposals, in any form); (c) any other information identified by a party as
"Confidential Information"; (d) any other information relating to party that is
or should be reasonably understood to be confidential or proprietary; and (e)
the terms of this Agreement.
1.6 "Content" means all text, graphics, animation, audio and/or digital
video components and all other components of the Deliverables and the selection
and arrangement thereof including all Intellectual Property Rights therein, but
does not include Code whether created by Company or provided by Dell for
purposes of developing the Deliverables.
1.7 "Cookie(s)" means a small data packet that is placed on a End-User's
computer once they have accessed a Web site.
1.8 "Cookie Information" means any information that resides in or is
associated with the use of a Cookie, including, without limitation, a log file.
1.9 "Deliverables" means all Code, Content and other online materials and
services to be produced by Company hereunder as more fully described in a Work
Statement. Deliverables also include all reports, project reviews, inspection
and tests conducted during the course of performance hereunder, and all
documentation such as technical manuals and other written materials that relate
to particular Code, which may include materials useful for design (e.g., logic
manuals, flow charts, and principals of operation); provided, however, that
documentation does not include end-user instructions, manuals or other operating
documentation or materials.
1.10 "Dell Competitor" means any entity or Affiliate thereof listed in
Exhibit 1. Not more than once per quarter, Dell may update this list of
competitors.
1.11 "Dell Content Modules" means a collection of Dell Content which is
integrated and bundled based on specific Dell products or services including,
without limitation, links to elements of Dell.com, Gigabuys.com, and Special
Offers from Dell.
1.12 "DellBizNet" means the Dell-branded and owned World Wide Web site,
namely www.DellBizNet.com or other Dell-designated domain, to be developed and
maintained by Dell with participation by Company pursuant to this Agreement.
1.13 "DigitalWork.com Workshop pages" means those pages that will be
supplied by Company that refer to specific workshop utilities of Company.
1.14 "DigitalWork.com Service pages" means all pages beneath each workshop
page, including those pages which are accessed through the "Learn About It" and
"Get It Done" links.
1.15 "Special Offers from Dell " means a collection of World Wide Web
pages which are presently hosted at Dell.com and are dedicated to delivering
unique service offerings to Dell customers.
1.16 "End-User(s)" means any person or entity that accesses DellBizNet or
uses the services therein.
1.17 "DigitalWork.com Registered User(s)" means any person or entity that
voluntarily submits to abide by Company's Terms of Service.
Page 2
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
1.18 "DigitalWork.com E-Commerce Customer" means any DigitalWork.com
Registered User that generates e commerce gross revenue as defined in
section 1.21.
1.19 "End-User Data" means any information or data associated with an End-
User which is received, stored, or processed by Company in providing its
Services under this Agreement and includes, without limitation, aggregate
information, usage and traffic data, transactional or financial information,
account names and passwords, registration information, Cookie Information,
click-through rates, and conversions.
1.20 "Enhancements" means changes or additions, including new releases
made by Company to its Services that add significant new functions or
substantially improve the performance of Company's Services by changes in system
design or coding and related documentation and materials utilized by Company
with its Services.
1.21 "E-Commerce Gross Revenue" means all top line revenue recognized by
DigitalWork.com for e-commerce transactions on the DellBizNet site.
1.22 "Intellectual Property Right(s)" means any patent, copyright,
trademark, trade secret, trade dress, mask work, moral right, right of
attribution or integrity or other intellectual or industrial property rights or
proprietary rights arising under the laws of any jurisdiction (including,
without limitation, all claims and causes of action for infringement,
misappropriation or violation thereof and all rights in any registrations and
renewals).
1.23 "Launch Date" means the first day that DigitalWork.com provided
services become available on the World Wide Web to end users through this
partnership with Dell.
1.24 "Preexisting Work" means (a) any Content, Code and similar original
works of authorship that existed prior to the date of this Agreement and (b) any
other Content, Code or similar original works of authorship that (i) exist prior
to the date of a particular Work Statement, (ii) are specifically identified on
the Work Statement, and (iii) were not created, developed, or derived for Dell
under this Agreement.
1.25 "Service" means any and all services provided by Company under
Section 2 of this Agreement for the development, hosting, servicing, and
maintenance of the Deliverables and DellBizNet.
1.26 "Service Level Agreement" means the Service Level Agreement attached
to this Agreement as Exhibit 2.
1.27 "Company Service Partners" mean any Affiliates of Company or third
parties with strategic relationships with Company that offer additional Content
and functionality to DellBizNet as a component of the Services.
1.28 "Company Resource Centers" means a unique collection of Company
Content which is integrated and bundled based on specific topics or services.
1.29 "Specifications" shall mean the requirements for the development of
the Deliverables, including operational and functional capabilities and
performance criteria.
1.30 "Term" has the meaning ascribed to it in Section 8.
1.31 "World Wide Web" or "Web" means a global computer network of servers
and files containing text and graphics accessible through use of hypertext
transfer protocol.
1.32 "Work Product" has the meaning ascribed to it in Section 10.
1.33 "Work Statement" means the schedule attached hereto as Exhibit 3 or
any successors thereto, as revised by the parties from time-to-time, which shall
contain at a minimum (i) a description of the Deliverables (including
Specifications) to be delivered and any related services to be performed by
Company for Dell, (ii) a schedule detailing benchmarks and delivery dates, and
(iii) a description of the payment obligations of the parties. The Work
Statement also may include provisions for written and/or oral progress reports
by Company, detailed functional and technical specifications and standards for
all services and Deliverables, including quality standards, documentation
standards, lists of any special equipment to be procured by Company
Page 3
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
or provided by Dell for use in performance of the work, test plans and scripts,
and such other terms and conditions as agreed upon by the parties.
2. Company's Services
2.1 Scope of Services. Company shall author, design, create, develop,
test, and produce the Deliverables in accordance with the Work Statement for the
purpose of establishing and hosting content that makes up a portion of
DellBizNet and providing the services therein. The initial Work Statement agreed
to by the parties is dated as of Effective Date of this Agreement, is signed by
the parties and is attached hereto as Exhibit 3. At any time during the term of
this Agreement, Dell may request changes, additions to Content or additional
services to be performed by Company in connection with DellBizNet and Company's
Services, including any Enhancements, updates, or upgrades. Except as provided
by this Agreement, such additional work shall be agreed upon by the parties and
set forth in a revised Work Statement, which shall be subject to the terms of
this Agreement and become effective upon execution by authorized representatives
of both parties. If a conflict arises between any of the Agreement, or Work
Statement, the terms of the documents will be followed according to the
following order of precedence: (1) the Work Statement, and (2) this Agreement.
2.2 Acceptance. Unless modified pursuant to the terms of this Agreement,
Company shall deliver the Deliverables at the times and in the manner specified
in the Work Statement. Conformity with the Work Statement and its Specifications
will be the sole basis for determining Dell's Acceptance of the Deliverables.
Dell will, within fifteen (15) days of receipt of each Deliverable as described
in each Work Statement advise Company of Dell's Acceptance (or rejection) of the
Deliverable. The Acceptance criteria for each Deliverable is included in each
Work Statement. Company will, upon receipt of notice of rejection and written
authorization of Dell, promptly correct any deficiencies identified in writing
by Dell. If a deficiency cannot be corrected to Dell's satisfaction within
fifteen (15) days of notification by Dell, in addition to all other remedies
available to Dell, Dell will have the option of requiring Company to refund all
amounts previously paid by or on behalf of Dell within ten (10) days of Dell's
request for payment.
2.3 Time of Performance. Company shall use its best efforts to complete
the Deliverables in a timely manner according to the Work Statement. Company
shall submit performance reports as Dell may reasonably request from time to
time. Company agrees to notify Dell promptly of any factor, occurrence, or event
coming to its attention that may affect Company's ability to meet the
requirements of the Work Statement, or that is likely to cause any material
delay in delivery of the Deliverables. Unless such anticipated material delay is
the sole fault of Dell, upon receiving such notification, Dell may (i) require
the parties to renegotiate the terms of the Work Statement, including the amount
of compensation payable to Company, to account for any anticipated delays and
loss of benefits to Dell as a result thereof or (ii) terminate this Agreement
with no further obligation if Dell determines that an anticipated delay is
material.
2.4 Maintenance and Ongoing Services. Company shall support any and all
functions, protocols, methodologies, processes, and customer service necessary
to fully access and utilize the Services in accordance with the Service Level
Agreement. Company shall ensure that (i) DellBizNet has the functionality and
appearance specified in the Work Statement, (ii) a designated Company
representative is available during regular business hours to provide technical
support and respond to Dell's inquiries on a reasonably prompt basis, and (iii)
DellBizNet and the services therein function appropriately when viewed using
recent versions of standard Internet browser software. Company shall hold and
maintain a complete back-up copy of all Content in storage for the duration of
this Agreement. Company shall provide Dell with maintenance, including minor
corrections/alterations, during the term of this Agreement for all Content and
functions relating to Company's design and development of DellBizNet and
provisioning of its Services. Company shall not be responsible for such
maintenance if any person or entity other than Dell makes any major changes to
DellBizNet's functions that were designed or developed by Company, unless such
changes were authorized, inspected and confirmed by Company; provided, however,
Dell may perform all necessary maintenance, addition or changes to Content,
upgrades, changes or additions to DellBizNet, excluding DigitalWork.com.'s
Workshop and Service pages or Dell's mainframe or computer network systems, and
Company shall resolve any errors or difficulties in DellBizNet that are not
caused by changes made by Dell. Upon written request from Dell, Company agrees
to assist in remedying any problems in the DigitalWork.com
Page 4
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Workshop and Service pages in DellBizNet that are not covered hereunder at the
standard rates charged by Company for such work.
2.5 Hosting; Content. Except as set forth in a Work Statement, the
following requirements govern the hosting and governance of Content on
DellBizNet:
2.5.1 Dell. Unless otherwise expressly agreed, Dell shall have the
right of prior approval of the general design, layout, Content, function, and
operation of DellBizNet Subject to Company's rights and duties under Section
2.5.2 and Company's template-based architecture, Dell shall have exclusive
approval and control over the posting, editing, renewal or update of any Content
on DellBizNet, including, without limitation, Dell Content Modules. Dell shall
ensure that any Content it provides will be and remain fully compatible with
servers and software supporting DellBizNet; provided, however, upon request from
Dell, Company shall assist Dell in resolving any Content related compatibility
problems. Dell shall have the option of replacing any of Company's Content or
applications with Dell provided Content; provided that Dell retains a minimum of
six workshops and a majority of the associated services contained therein. Dell
will review this requirement on a quarterly basis beginning three months after
the launch date of the service to consider, in good faith, the possibility of
adding additional workshops. Dell has the right to replace or delete any Content
of a Company Resource Center that Dell finds objectionable. Dell shall have the
right to supplement DellBizNet with additional content from other third party
suppliers as set forth in Section 2.12 of Exhibit 3 Work Statement.
2.5.2 Dell Branding. DellBizNet will be a seamless Dell-branded
portal. All Web pages, home pages, tabs, search results and highlighted links
served by Company for DellBizNet will contain Dell branding and replace any
Company branding, including, without limitation, any rich media content pages,
Web directories, and guides. However, all DigitalWork.com Service pages, which
reside beneath DigitalWork.com Workshop pages will contain branding which states
"Powered by DigitalWork.com" above the fold in a size not to exceed 160 by 35
pixels. This branding will be consistent with Company's color scheme.
Furthermore, Dell retains right to suppress any symbols representing services of
Company in DigitalWork.com Workshop and Service pages.
2.5.3 Company. Company shall be responsible for all aspects of
hosting, operating, and maintaining specified pages under DellBizNet in
accordance with the Specifications set forth on the Work Statement and all
applicable laws and regulations. Company is responsible for reviewing with Dell
the text, graphics, animation, audio and/or digital video components prior to
uploading such content onto DellBizNet. Upon Dell's request (whether oral, in
writing or by e-mail), Company shall promptly upload new material or items, or
make any alterations, to existing Content. Company will use its best efforts to
(i) provide service consistent with the Service Level Agreement; (ii) protect
specified pages under DellBizNet from unauthorized interruptions, viruses and
outside attacks (including, without limitation, by installing appropriate
firewalls, backup systems and other protective devices); (iii) maximize the
online accessibility of specified pages under DellBizNet to End-Users; and (iv)
collect such information regarding End-Users as Dell may reasonably request.
2.5.4 Company Service Partners. Dell shall have the option to use all
current and future Content and functionality of the Company Service Partners
available to Company.
2.6 Work Statement Changes. Changes in the Work Statement shall become
effective only upon written agreement of the parties. Company shall accept any
change requests made by Dell that (i) reduce the cost or magnitude of
performance, provided that an equitable adjustment in compensation is made for
the out-of-pocket costs of any performance or preparation already undertaken, or
(ii) increase the cost or magnitude of performance, provided that the proposed
changes are reasonable in scope and Dell establishes a commensurate increase in
compensation.
2.7 Materials; Expenses. Except for materials Dell specifically provides,
Company shall furnish at its own expense and cost all labor, equipment, Content,
Code, telecommunications, supplies and transportation necessary for the
performance of Company's obligations under this Agreement. Dell shall provide
Company with all hardware required to host and support Company's pages within
DellBizNet at prices to be determined at a later date. Dell will provide a
technical contact to Company to coordinate all support activities. Company will
be solely responsible for any and all claims of any nature made by or on behalf
of any persons performing labor and for any and all damage to or loss of
equipment or supplies.
Page 5
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
2.8 Enhancements. Unless specifically directed by a Work Statement,
Enhancements to DellBizNet and the Services therein will be deployed and made
available by Company as they are introduced to customers of Company's own Web
site(s) or those of its Service Partners.
2.9 Ownership.
----------
2.9.1 Deliverables. Except as may be specifically provided to the
contrary on a Work Statement, all materials or equipment (i) furnished to
Company by Dell to perform this Agreement, (ii) paid for by Dell, or (iii) the
cost of which is amortized in the cost of the Services will be and remain the
property of Dell, and Company will bear the risk of loss of and damage to the
property, normal wear and tear excepted. Whenever Company has in its possession
any property of Dell (including, without limitation, intangible property such as
the DellBizNet domain name), the property will at all times be properly housed
and maintained by Company at the location(s) Dell may specifically approve from
time to time; will not be commingled with the property of Company or that of a
third party; will be used only for performing the Services; will be kept free of
all liens and encumbrances without expense to Dell; and will, upon Dell's
request, be immediately delivered to Dell at any location designated by Dell.
Dell will have the right enter onto Company's premises or any other location at
which any of the property may be kept at all reasonable times to inspect the
property.
2.10 Applicable Policies. In consultation with Company, Dell shall
designate all terms and conditions which apply to DellBizNet, including, without
limitation, the terms and conditions of use, any disclaimers, use guidelines and
privacy policies. Company will clearly communicate at the point of registration
to become a DigitalWork.com End-User the transition to be governed by Company's
Terms of Service applicable to the services within DellBizNet.
2.11 Exclusivity. Nothing in this Agreement will require Dell to purchase
from Company any or all of its requirements for services in excess of the
majority services contained in six workshop pages that are of the same or
similar to the Services, and Dell may purchase similar or identical services
from others.
3. Dell's Responsibilities
3.1 General. Dell shall, to the extent reasonably necessary for Company to
fulfill its responsibilities under this Agreement, (i) obtain the domain name
for DellBizNet which will be owned exclusively by Dell, unless the parties agree
otherwise; (ii) furnish information requested by Company, and (iii) provide
reasonable access to Dell personnel. All such requests by Company for
information or access to Dell personnel shall be in writing and shall establish
a reasonable date by which Dell's response is required. Any delays attributable
to Dell's failure to respond to reasonable requests by Company will extend any
and all deadlines for an amount of time equal to Dell's delay. Dell reserves the
right to make any necessary equipment or software upgrades, changes or
modifications.
3.2 End-User Installations. Dell has the right, but not the obligation, to
pre-load the Universal Service Locator ("URL") for the DellBizNet
domain or a related third-level domain (e.g., "aaa.dell.net") on all
Dell-branded computer systems or as the default URL for all Dell-
branded ISP services.
3.3 Marketing. Dell will actively marketing DellBizNet to current and
potential Dell customers. Dell and Company will agree on a joint
marketing strategy for DigitalWork.com End-Users, to be attached as an
addendum to this contract, within 45 days of the effective date.
3.4 Head end page. Dell shall create and host the first page of the Dell
BizNet.com site. Dell will integrate a gateway to Company's services
in a prominent position above the fold.
4. End-User Data
4.1 Collection of End-User Data. Through the use of Cookies or similar
means, Company shall electronically tag and track each End-User as
they access and use DellBizNet. Dell may make requests from
Page 6
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Company to provide End-User Data regarding DellBizNet collected from individual
End-Users, subject to Company's ability to capture such data. These requests
will be no more frequently than twice monthly.
4.2 Usage Reports. As described in the applicable Work Statement, Company
shall provide Dell with monthly standard usage reports via email ("Usage
Reports"). The parties may, by mutual written agreement, alter the content of
the Usage Reports. At Dell's request, Company shall make commercially reasonable
efforts to provide Dell any End-User Data that is processed, collected, or
stored by Company in a form to be mutually agreed upon by the parties.
4.3 Registration of End-Users. Dell shall have the right to customize, if
technically feasible, any registration process, including the look and feel
thereof, for any End-User of DellBizNet.
4.4 Ownership; Use. Dell will own all End-User Data. All End-Users will be
deemed to be customers of Dell, and the collection, retention and use of such
information will be subject exclusively to Dell's then current privacy policy.
Dell will have the sole right to exploit or use any End-User data. All of the
End-User Data shall be treated as Confidential Information of Dell unless
otherwise agreed in writing. Company shall keep and store all such data in a
safe and secure environment and shall not provide access to the data to any
third party without the express written consent of Dell. Neither Company nor any
Company Service Partner shall solicit or target any End-User without the express
written consent of Dell.
4.5 Company Ownership. Any user who registers to become a DigitalWork.com
End-User must agree to the Terms of Service of Company and "opt into" a
relationship with Company. All such user data will be jointly owner by Company
and Dell. Company may contact registered DigitalWork.com End-Users on behalf of
Dell in order to execute the overall service experience and to promote Dell and
Company's co-branded services. However, Dell must approve any and all promotion
via email prior to release to the End User.
5. Advertising
5.1 General. Dell will have sole right, but not the obligation, to sell,
serve, invoice, and collect for any and all advertising in DellBizNet. Except as
set forth in a Work Statement, any advertising revenue earned by DellBizNet will
be retained solely by Dell. If Dell elects to serve ads, Company through
DellBizNet will call the banner ads from Dell's or its designee's ad server. As
a part of its Services performed under this Agreement, Company shall cooperate
with Dell and make such additions or modifications to the operation and
functionality of DellBizNet as Dell deems necessary in its sole discretion to
service any advertisements.
5.2 Competitors. Notwithstanding any Work Statement, Dell shall have the
right to refuse or block advertising on DellBizNet for any Dell Competitor. A
listing of Dell Competitors is provided in Exhibit 1.
6. Payments
6.1 Services Payment. The amount to be paid to Company for all of the
Services is stated in each Work Statement. In addition, any amounts to be paid
to Dell by Company as commissions or bounties is stated in each Work Statement.
Upon Acceptance of the Deliverables as specified in the Work Statement, Dell
will pay Company the fees stated in such Work Statement for which Company has
provided Services. Dell will pay or reimburse Company for any applicable sales,
use, and similar taxes associated with Dell's acquisition of the Services,
except that Dell will have no liability for any taxes based on Company's net
assets or net income, or for which Dell has an appropriate resale or other
exemption. Dell will reimburse Company for all pre-approved actual, reasonable,
documented out-of-pocket expenses, including travel expenses, incurred by
Company at Dell's request which are in accordance with Dell policy.
6.2 Payment Terms. One-time expenses such as set-up fees or other
administrative fees will be paid forty-five (45) days from Dell's receipt of
Company's invoice. Unless otherwise specified in a Work Statement, all fees are
to be paid within thirty (30) days following the month which gave rise to the
payment obligation. All payments will be in U.S. currency unless otherwise
agreed to on a Work Statement. No invoice will be sent prior to the performance
of the related Services. In the event that Company is in default of any of its
obligations under this Agreement, Dell may withhold payment of any part of the
unpaid price for the Services until
Page 7
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Company has, to Dell's satisfaction, completely remedied the breach. All
Services purchased by Dell from Company will aggregate for calculating any
discounts.
6.3 Billing Contact. All invoices will reference this Agreement and be
mailed to:
Dell Computer Corporation
Attn: Accounts Payable
One Dell Way
Round Rock, TX 78682-1810
6.4 Reports. With respect to the Services performed under this Agreement,
Company shall keep proper and accurate records and books in accordance with
applicable laws and regulations. Dell shall have the right to reasonable access
and review of Company's books and records relating to the rendering of part or
all of the Services or any payment therefor during Company's normal business
hours. Company shall retain all records relating to its performance of the
Services for a period of no less than two (2) years or such longer time period
as specified by law. To the extent required by Dell, Company shall establish and
maintain an electronic format for data communication acceptable to Dell at no
charge to Dell.
6.5 Most Favored Pricing. Company represents and agrees that no other
customer of similar services and scope is receiving or will receive prices,
discounts, performance or terms better than those which are given Dell. Should
Company enter into an arrangement with a third party to provide substantially
the same DellBizNet services on terms which in their totality are more favorable
to the third party than the terms specified in this Agreement, then Dell shall
be given the right to convert the relevant terms in this Agreement to match all
of the more favorable terms provided the third party.
7. Audits
Each party hereby grants to the other the right to designate a certified
public accountant to inspect the other party's records on which revenues in
Section 6 are based, provided that such accounting firm will hold such records
in confidence except as necessary to report to both parties on the accuracy of
the calculation of the fees. A party's determination of fees due under this
Agreement will be deemed conclusive unless, within twelve (12) months after the
date of payment, the other party objects in writing to such payment, such
objection to be based upon the review by the accounting firm or otherwise. If an
inspection shows that the party calculating the fee has understated the amount
due to the other by more than ten percent (5%) for any calendar year, the party
understating the amount to be paid will pay, in addition to the amount due, the
accounting firm's fees up to an amount equal to the understatement, unless the
error and its discovery resulted from a good faith discussion between the
parties as to how to interpret the agreement. Each party agrees to give the
other at least thirty (30) days written notice of its intention to have the
records of the other party audited and further agrees to limit the number of
audits to no more than three per year (commencing and based on the date of this
Agreement).
8. Term
8.1 Agreement. This Agreement shall remain in full force and effect for a
period of two (2) years, unless the Agreement is terminated by either party as
provided in Section 9. If Dell gives Company notice of renewal, this Agreement
will be renewed for additional one-year terms (the "Renewal Term") upon the
expiration of the Initial Term and any subsequent Renewal Term. Notice of
renewal, if given, shall be given in writing by Dell to Company not less than
thirty (30), nor more than sixty (60), calendar days before the expiration of
the Initial Term or of any Renewal Terms thereof.
8.2 Work Statements. Each Work Statement will continue for a term equal to
the period stated on the Work Statement, unless otherwise terminated under the
terms of this Agreement. Completion of work under any specific Work Statement
will not terminate this Agreement.
Page 8
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
9. Termination
9.1 Termination for Convenience. Either party may terminate this Agreement
or any Work Statement without cause upon sixty (60) days prior written notice.
However, the agreement cannot be terminated by either party during the first six
months of the agreement as measured from the launch date. Unless specifically
stated in the notice, the termination of one or more Work Statements will not
terminate this Agreement.
9.2 General Termination for Cause. Either party may terminate the
Agreement upon thirty (30) days written notice if the other party:
(a) materially breaches its obligations hereunder and such breach
remains uncured for thirty (30) days following written notice to the breaching
party of the breach;
(b) becomes insolvent or bankrupt, admits in writing its inability to
pay its debts as they mature, or makes an assignment for the benefit of
creditors; or the other party applies for or consents to the appointment of any
receiver, trustee or similar officer for it or for all or any substantial part
of its property (or such receiver, trustee or similar officer is appointed
without its consent); or the other party institutes any bankruptcy, insolvency,
reorganization, moratorium, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it under the laws of any
jurisdiction, or any such proceeding is instituted against the other party and
is not dismissed within sixty (60) days; or any judgment, writ, warrant or
attachment or execution of similar process is issued or levied against a
substantial part of the property of the other party and remains unsatisfied for
sixty (60) days; or
(c) dissolves, liquidates or otherwise terminates its existence as an
entity, or consolidates with or merges with or into any entity which is a direct
competitor of the terminating party (as defined in the attached schedules), or
sells, leases or otherwise disposes of all or substantially all of its assets to
a direct competitor of the terminating party (as defined in the attached
schedules), or incurs a substantial amount of indebtedness other than in the
ordinary course of its business except for transactions which do not result in
the acquisition of a company which is a direct competitor of the terminating
party, in each case whether in a single transaction or in a series of related
transactions the other party or the person or persons in control of the other
party shall (or shall threaten to) sell, assign, part with or cease to carry on
its business or that of its business relating to the maintenance and support of
computer hardware and software and related products.
9.3 Termination by Dell. Dell may terminate this Agreement immediately at
any time if Company comes under the effective control of a party not reasonably
acceptable to Dell or an Affiliate of such a party. Further, Dell may terminate
the Agreement, any Schedule, or discontinue offering a particular service of the
Agreement upon sixty (60) days notice:
(a) if there are five or more errors, failures or outages of the
Services in any thirty (30) day period and Company is unable to remedy the
problem within thirty (30) days following Company's receipt of written notice of
the problem; or
(b) if there is a shift in market demand as evidenced by, without
limitation: (a) during a three-month period at least thirty (30) percent of
Dell's customers request the option to use different portal options or a
provider of services different than Company; (b) more than thirty (30) percent
of Dell's customers are dissatisfied with Company's products or services as
measured by mutually agreeable standards; or (c) significant changes in
technology that render more than 30% of Company's Services accessed through
DellBizNet less than best in breed as evaluated in Dell's sole discretion.
9.4 Obligations Upon Termination. Upon termination or expiration of this
Agreement or any particular Work Statement:
9.4.1 Return of Confidential Information. Each party shall at its own
expense return to the other party or otherwise dispose of as the owner may
instruct, any information (including the Confidential Information) and all other
documents, papers and information whatsoever sent to a party (including
electronically sent) and relating to the business of the other party (other than
correspondence between the
Page 9
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
parties) and all property of the other party. Each party shall be entitled to
retain a copy of such information for archival purposes only. Such records will
be treated as the owners Confidential Information in accordance with Section 15.
9.4.2 Company Obligations. Upon termination or expiration of this
Agreement, or a Work Statement or portion of a Work Statement, Company will, in
addition to any other obligations of Company on termination or expiration; (i)
cease all performance of the terminated Services and furnish to Dell all
Deliverables (including, without limitation, all Work Product that is not
Preexisting Work) and work in progress; (ii) shall not maintain or hold any
versions of the DellBizNet except as a backup; (iii) provide a complete back-up
copy, in the form(s) agreed upon by the parties, of all Work Product, End-User
Data, (iv) within thirty (30) days provide a final accounting which itemizes all
Services related to the terminated Services that have been performed in
accordance with this Agreement but for which Company has not yet received
payment, and (v) if Company terminates the agreement, Company shall continue to
pay Dell 12% of gross revenues on services purchased by DigitalWork.com End-
Users for a period of two years. Unless otherwise agreed by the parties, if the
Agreement is terminated prior to the completion of the Deliverables (i) Dell
will only be responsible for payment for those portions of the Deliverables that
Company has completed in accordance with the Specifications, and (ii) Dell shall
receive a full refund of all monies paid for any Deliverable for which it had
made any payment but which do not conform to the Specification.
9.4.3 Payments. All payments described under Section 6 that have
accrued prior to the termination or expiration of the Agreement will be payable
in full within thirty (30) days thereof.
9.4.4 Transition Period. During a period not to exceed ninety (90)
days following termination or expiration (the "Transition Period"), Company
shall provide to Dell reasonable assistance in the transition of the
responsibility for the Services to Dell or to a party designated by Dell, such
assistance to consist of the following: (a) reasonable documentation and other
materials relating to or used in the performance of the Services (excluding
documentation belonging exclusively to Company in which Company claims in good
faith a trade secret interest), (ii) other services or activities reasonably
requested by Dell related to the smooth transition of responsibility for
performance of the Services. Company will cooperate in good faith during the
Transition Period. In the event that Dell is responsible for paying the costs of
the transition, Dell shall pay Company's charge at Company's then current time
and materials charges for any transition assistance. Any communications by Dell
or Company to an End-User related to the expiration, termination or transition
of any Services must be approved in advance and in writing by Dell. If Company
terminates this agreement, then Company cannot market its services to any
DigitalWork.com Registered User and E-Commerce Customer for a period of two
years from the date of termination.
10. Intellectual Property Rights
10.1 General Reservation. Neither party grants any license to the other
except as specifically set forth in this Section 10. Except as is expressly set
forth under this Section 10, both parties expressly reserve all of their right,
title and interest in their respective Intellectual Property Rights.
10.2 Ownership.
----------
10.2.1 Work For Hire. The parties acknowledge that some or all of the
Deliverables and Services will be based, in whole or in part, on Company's
existing products and services, but that Dell will contribute valuable
intellectual property to the process of the creation of the Deliverables and
Services intended to foster a unique user experience and competitive advantage
to Dell. Therefore, all right, title and interest in the Content of the
Deliverables (including all Specifications, written copy, drawings,
modifications and designs and any other development work in support of Company's
performance for Dell) created or modified by Company uniquely for Dell, as it
relates to other Dell provided services, or as stated in a separate statement of
work produced under this Agreement that embodies or is based on intellectual
property provided to Company by Dell or that is created specific to the
Deliverables and Services, shall be held by Dell, and shall be considered a
"work made for hire" under applicable copyright law including common law,
federal, and foreign copyright law, the copyright of which shall be owned
solely, completely and exclusively by Dell (collectively, "Work
Page 10
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Product"). Dell's right, title and interest in the Deliverables include all
components that comprise the "look and feel" of DellBizNet, including, without
limitation, the visual display, functionality, graphical user interfaces,
navigation tools, and menu structures. To the extent that any aspect of the
Deliverables created uniquely for Dell are not considered a "work made for hire"
under applicable copyright law, for whatever reason, all right, title and
interest of any kind, nature, or description that Company may have in and to
such Work Product in any and all countries of the world will automatically be
assigned, transferred, and conveyed completely and exclusively to Dell. Company
agrees to furnish any and all further documentation and to take any action as
Dell may reasonably require to evidence or effect Dell's ownership of the Work
Product. If Dell elects to seek copyright registration or otherwise seek
protection for valuable property that incorporates some or all of Company's
work, Company will cooperate fully with Dell. Dell will reimburse Company for
actual reasonable, documented expenses incurred by Company at Dell's request in
connection with obtaining such protection.
10.2.2 End-User Data. All right, title, and interest in any
DigitalWork.com End-User Data, including without limitation, usage data and
registration information, shall be held jointly by Dell and DigitalWork.com. All
right, title, and interest in any DigitalWork.com End-User Data, including,
without limitation, usage data and registration information, shall be held
jointly Dell and DigitalWork.com.
10.2.3 Pre-existing Work. Without limiting the provisions of 10.2.1
above or Section 12 ("Indemnification"), Dell acknowledges that Work Product
does not (i) incorporate Pre-existing Works owned by Company, (ii) incorporate
works licensed by Company from third parties, (iii) include third-party
materials needed to generate or use the Work Product, or (iv) include Work
Product created concurrently but independent of providing the Services under
this Agreement. All of (i), (ii), (iii) and (iv) in this Section will be
collectively referred to as "Licensed Materials." Dell acknowledges that Company
owns all right and title to the Licensed Materials. To the extent that any
Licensed Materials are incorporated into the Work Product or are included with
Work Product and needed to generate or use the Work Product, Company will grant
to Dell or procure for Dell, a non-exclusive, worldwide, royalty-free License
for the term of the Agreement solely to: (1) use, execute, produce, display,
perform, copy, and distribute (internally or externally) copies of, and prepare
derivative works based upon the Licensed Materials and their derivative works to
produce and maintain the Deliverables and the Services, and (2) authorize others
to do any, some, or all of the foregoing.
10.3 Dell's License Grants. Subject to the terms and conditions of this
Agreement, Dell hereby grants to Company, during the term of this Agreement, a
nonexclusive, nontransferable license to link to the DellBizNet and to use
Dell's Content as well as Dell's trade names, trademarks, service names and
similar proprietary marks as specifically designated by Dell (the "Dell's
Marks") and which are reasonably necessary to perform Company's obligations
under this Agreement; provided, however, that any link, promotional materials or
other documentation of any kind containing Dell's trade name or proprietary
marks will be subject to Dell's prior written approval, not to be unreasonably
withheld. Company will not be deemed by anything contained in this Agreement or
done to it to acquire any right, title or interest in or to any Dell Marks, or
any portion of any Dell Marks. Company acknowledges Dell's exclusive right,
title and interest in all Dell Marks.
10.4 Company's License Grants. Subject to the terms and conditions of this
Agreement, Company hereby grants to Dell, during the term of this Agreement, a
nonexclusive, nontransferable license to use Company's Pre-existing Work,
Content and Code as well as Company's trade names, trademarks, service names and
similar proprietary marks as is reasonably necessary to perform its obligations
under this Agreement; provided, however, that any link, promotional materials or
other documentation of any kind containing Company's trade name or proprietary
marks will be subject to Company's prior written approval, not to be
unreasonably withheld. Dell will not be deemed by anything contained in this
Agreement or done to it to acquire any right, title or interest in or to any
Company Marks, or any portion of any Company Marks. Dell acknowledges Company's
exclusive right, title and interest in all Company Marks.
10.5 General Limitation. Neither party will use the other party's
proprietary marks in a manner that disparages the other party or its products or
services, or portrays the other party or its products or services in a false,
competitively adverse or poor light. Each of party will comply with the other
party's requests as to the use of the other party's proprietary marks and will
avoid any action that diminishes the value of such marks. Either party's
unauthorized use of the other's proprietary marks is strictly prohibited.
Page 11
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
10.6 Promotional Use. Company shall have the right, at its own expense,
subject to the reasonable review of Dell, to refer to Dell and the Services in
its promotional materials provided no confidential or proprietary information is
disclosed. Dell shall have the right to review and approve promotional material
referencing Dell. Such approval shall not be unreasonably withheld. Company
shall not issue any press releases, advertisements or other public disclosures
concerning the existence of or the actual terms and conditions of this
Agreement, or other information regarding the relationship of the parties to
this Agreement without the prior review and written consent of Dell, which
consent shall be granted in Dell's sole discretion.
11. Representations and Warranties
11.1 General. Company represents and warrants to Dell that: (a) it has the
right and power to perform its obligations and to grant the rights granted
herein; (b) Company's performance under this Agreement will not violate any
agreement or obligation between Company and a third party or any applicable law
or regulation; and (c) no Content, Code or other material available or collected
at the DellBizNet (including, without limitation, all Content supplied by End-
Users) or provided by Company to Dell does now or will in the future infringe
upon or violate any Intellectual Property Right or other proprietary or non-
proprietary right of any third party.
11.2 Quality; Conformity. Company warrants that each of the Services and
the Deliverables therein will (a) be completed in a timely, good and workmanlike
manner consistent with the requirements of a Work Statement and in accordance
with highest industry standards as well as in strict accordance with standards
of performance specified in the Service Level Agreement; (b) comply with the
description of Services stated on each Work Statement and with all of the other
terms and conditions of this Agreement; (c) be completed by duly qualified and
skilled personnel; (d) be free from defects in material, design, workmanship and
title; (e) function properly under ordinary use; and will perform in accordance
with all materials published by Company.
11.3 Good Title. Company further warrants that the Services and any goods
will be provided free and clear of all liens, restrictions, reservations,
encumbrances and security interests of any kind. Company further warrants that
it is a duly organized corporation in good standing under the laws of the State
of Delaware, that it is qualified to transact business in all states where the
ownership of its properties or nature of its operations requires qualification,
that it has full power and authority to enter in and perform this Agreement,
that the execution and delivery of this Agreement has been duly authorized, and
that this Agreement does not violate any law or breach any other Agreement to
which Company is a party or is bound.
11.4 Duration; Correction. All warranties will apply for the longer of
twelve (12) months from Acceptance by Dell of the Services or for a longer
period as may be specified by Company. Company agrees to promptly correct any
part of the Services not conforming to any of the warranties in this Section 11,
without expense to Dell, when notified of such non-conformity by Dell.
11.5 No Waiver. Neither Dell's inspection, failure to inspect, payment,
failure to pay or Acceptance of any Services will preclude Dell's right to
reject non-conforming or inadequate Services, to revoke its Acceptance, or to
exercise any other right or remedy granted in this Agreement or by law. These
rights will inure to Dell notwithstanding Dell's knowledge of the defect, the
substantiality of the defect, the ease of the discovery of the defect, or Dell's
failure to earlier reject the Services or revoke its Acceptance.
11.6 EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, COMPANY MAKES NO OTHER
EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ANY AND ALL CONTENT OR
OTHER MATERIALS PROVIDED BY DELL PURSUANT TO THIS AGREEMENT ARE PROVIDED "AS IS"
WITHOUT WARRANTY OF ANY KIND. THE ENTIRE RISK AS TO SUCH CONTENT AND MATERIALS
IS ASSUMED BY COMPANY. DELL DISCLAIMS ALL WARRANTIES EITHER EXPRESSED OR IMPLIED
WITH RESPECT TO CONTENT OR MATERIALS AND TO ANY INTELLECTUAL PROPERTY RIGHT
INCLUDING, BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE AND NONINFRINGEMENT.
Page 12
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
12. Indemnification
12.1 Indemnity. Either party shall indemnify, defend, and hold harmless
the other Party, their Affiliates and their respective officers, directors,
employees, representatives, and agents from and against any and all third-party
claims, legal proceedings, demands, damages, losses, liabilities, judgement,
settlements, costs and expenses, including, without limitation, reasonable
attorneys' fees, arising from or related to any alleged or actual:
(a) claims arising from Content on DellBizNet;
(b) claims by or on behalf of either Parties' subcontractors, suppliers,
employees, representatives or agents arising from either Parties' acts or
omissions;
(c) violations of applicable laws or regulations including, without
limitation, employment laws by either Party of their employees,
subcontractors, agents or representatives;
(d) infringement or violation, or misappropriation of any Intellectual
Property Rights or non-proprietary right or any End-User Data related to
the performance of Services or delivery of product under this Agreement by
either Party or their employees, subcontractors, agents or representatives
provided such infringement, violation or misappropriation was not caused by
the other Party or their employees, subcontractors, agents or
representatives or Company's strict adherence to Dell's Specifications set
forth in a Work Statement;
(e) claims by End-Users or other third parties related to either Party of
their employees, Subcontractors, agents or representatives, negligence in
properly performing the Services under this Agreement;
(f) any actual or alleged loss, damage to or destruction of tangible
property, and/or illness, injury or death to any person, including, without
limitation, employees or invitees of the indemitee's, arising out of either
Party's performance of, or failure to perform, any of the Services, or any
of its other obligations under this Agreement; and
(g) breach of either Party's representations and/or warranties set forth
in this Agreement.
EITHER PARTY'S OBLIGATION TO INDEMNIFY WILL APPLY REGARDLESS OF WHETHER THE
DAMAGE, LOSS, LIABILITY, COST OR EXPENSE IN QUESTION ARISES IN WHOLE OR IN PART
FROM ANY NEGLIGENT ACT OR OMISSION OF AN INDEMNIFIED PERSON OR ENTITY, FROM
STRICT LIABILITY IN TORT OF AN INDEMNIFIED PERSON OR ENTITY, OR OTHERWISE, BUT
IN SUCH EVENT THE PARTY WILL NOT BE RESPONSIBLE FOR THAT PORTION OF THE DAMAGE,
LOSS, LIABILITY, COST OR EXPENSE THAT RESULTS FROM THE NEGLIGENT ACT OR OMISSION
OF AN INDEMNIFIED PERSON OR ENTITY, OR ENTITY.
12.2 Proportionality. Either party's obligation to indemnify the other
arising under Paragraph 12.1 will be proportional to the adjudicated respective
fault of the parties with regard to the acts or omissions that gave rise to the
indemnitable claims.
12.3 Indemnification Procedures. The party entitled to indemnity under
this Section (the "Indemnified Party") shall give the other party (the
"Indemnifying party") written notice of any claims resulting in an obligation of
indemnification under this Section. The Indemnified Party shall grant the
Indemnifying Party control of the defense and settlement of such claim provided
that the Indemnified Party may be represented by counsel of its own choice at
its own expense. The Indemnified Party shall provide reasonable assistance in
the defense and the settlement of a claim at the Indemnifying Party's expense.
The Indemnifying Party shall not settle a claim without the written consent of
the Indemnified Party; such consent shall not be unreasonably withheld.
12.4 Cover. In the event of an action for infringement, Company shall, at
Company's own expense, (i) obtain for Dell the right to use the infringing
materials or Services (which may include Deliverables); (ii) modify the
infringing materials or Services so as to render them non-infringing but still
consistent with the specifications in the applicable Work Statement; (iii)
provide Dell with functionally equivalent non-infringing
Page 13
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
materials or Services; or (iv) if none of the other options stated in this
paragraph can reasonably be achieved within a reasonable time, without limiting
or waiving its remedies, Dell may immediately terminate this Agreement or the
applicable Work Statement.
13. Limitation of Liability
EXCEPT FOR ANY BREACH OF THE TERMS STATED IN SECTION 10 ("INTELLECTUAL
PROPERTY"), SECTION 15 ("CONFIDENTIALITY"), OR FOR ANY LIABILITY UNDER SECTION
12 ("INDEMNIFICATION"), NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR ANY
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY TYPE, INCLUDING LOST
PROFITS, THIRD PARTY CLAIMS, OR LOST DATA, ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT OR THE SERVICES, EVEN IF A PARTY HAS BEEN ADVISED BY THE OTHER
PARTY OF THE POSSIBILITY OF THE DAMAGE AND EVEN IF A PARTY ASSERTS OR
ESTABLISHES A FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED IN
THIS AGREEMENT. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE OR BECOME LIABLE TO
THE OTHER PARTY FOR ANY AMOUNT IN EXCESS OF THE CONSIDERATION RECEIVED
HEREUNDER, AS SET OUT ON EACH SCHEDULE.
14. Disputes
14.1 Equitable Relief. The parties agree that any breach of either of the
parties' obligations regarding trademarks, service marks or trade names,
confidentiality and/or user data may result in irreparable injury for which
there may be no adequate remedy at law. Therefore, in the event of any breach or
threatened breach of a party's obligations regarding trademarks, service marks
or trade names or confidentiality, the aggrieved party will be entitled to seek
equitable relief in addition to its other available legal remedies in a court of
competent jurisdiction.
14.2 Obligation of Good Faith. Before either party initiates a lawsuit
against the other relating to a dispute or claim under this
Agreement, the parties agree to work in good faith to resolve between
them all disputes and claims arising out of or relating to this
Agreement, the parties' performance under it, or its breach. To this
end, either party may request, after informal discussions have failed
to resolve a dispute or claim, that each party designate an officer
or other management employee with authority to bind the party to meet
in good faith and attempt to resolve the dispute or claim. During
their discussions, each party will honor the other's reasonable
requests for information which is not privileged and which relates to
the dispute or claim. This Section will not apply should the
expiration of the statute of limitations for a cause of action be
imminent.
14.3 Disputes
14.3.1 Equitable Relief. The parties agree that any breach of either
of the Parties' obligations regarding trademarks, service
marks or trade names, confidentially and/or user data may
result in irreparable injury for which there may be no
adequate remedy at law. Therefore, in the event of any breach
or threatened breach of a Party's obligations regarding
trademarks, service marks or trade names or confidentiality,
the aggrieved Party will be entitled to seek equitable relief
in addition to its other available legal remedies in a court
of competent jurisdiction.
14.3.2 Obligation to Mediate in Good Faith. Except as provided in
this Section 14.3.3, before either Party initiates a lawsuit
against the other relating to this Agreement, the Parties
agree to mediate all disputes and claims arising out of or
relating to this Agreement, the Parties' performance under
it, or its breach. To this end, either Party may request,
after informal discussions have failed to resolve a dispute
or claim, that each Party designate an officer or other
management employee with authority to bind the Party to meet
in good faith and attempt to resolve the dispute or claim
through mediation. During their
Page 14
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
discussions, each Party will honor the other's reasonable
requests for information that is not privileged and relates
to the dispute or claim. This Section does not apply (i)
should the expiration of the statute of limitations for a
cause of action be imminent, or (ii) if a Party is seeking an
injunction pursuant to Section 14.3.1
14.3.3 Cover for Intellectual Property Right Infringement. In the
event of an action for infringement of any Intellectual
Property Right or other proprietary or non-proprietary right
of any third party arising out of the Services, Company
shall, at Company's own expense, (i) obtain for Dell the
right to use the infringing materials, (ii) modify the
infringing materials or services so as to render them
non-infringing but still consistent with the specifications
in this Agreement, or (iii) provide Dell with functionally
equivalent non-infringing materials or services;
provided, however, that if none of the other options stated
in this Section 14.3.3 can be achieved within thirty (30)
calendar days, in lieu thereof, Company or Dell may
immediately terminate this Agreement.
14.4 Warrant to Purchase Series D Preferred Stock of the Company. The
Company agrees to provide Dell with a warrant to purchase 150,000 shares of the
Series D Preferred Stock of the Company, pursuant and subject to a separate
Warrant to be executed by Dell and the Company concurrent with the execution of
this Agreement. The Warrant shall (a) have a term of 2 years, (b) vest
immediately upon execution of this Agreement, (c) be exercisable for $8.36 per
share, (d) contain all terms equal to Series D Preferred Stock as referenced in
Exhibit 5, (e) include a net share settlement provision, and (f) contain other
customary terms and conditions.
15. Confidentiality
15.1 General Obligation. Each party agrees that the Confidential
Information of the other party will be held in confidence to the same extent and
the same manner as each party protects its own Confidential Information, but
each party agrees that in no event will less than reasonable care be used. Each
party shall, however, be permitted to disclose relevant aspects of such
Confidential Information to its officers or employees on a need-to-know basis,
provided that they have undertaken to protect the Confidential Information to
the same extent as required under this Agreement. Each party agrees to use all
reasonable steps to ensure that the other party's Confidential Information
received under this Agreement is not disclosed in violation of this Section.
Notwithstanding the foregoing, Company may not disclose any Confidential
Information to any third party, including, without limitation, its Affiliates,
directors or shareholders without Dell's consent which shall not be unreasonably
withheld.
15.2 Exceptions. The obligations set forth in this Section 15 do not apply
if and to the extent the party receiving Confidential Information ("Receiving
Party") establishes that: (i) the information disclosed to the Receiving Party
was already known to the Receiving Party, without obligation to keep it
confidential; (ii) the Receiving Party received the information in good faith
from a third party lawfully in possession thereof without obligation to keep
such information; (iii) the information was publicly known at the time of its
receipt by the Receiving Party or has become publicly known other than by a
breach of this Agreement; (iv) the information is independently developed by the
Receiving Party without use of the other party's Confidential Information; or
(v) the information is required to be disclosed by applicable statute or
regulation or by judicial or administrative process; provided that, in the case
of (i) through (v) above, such circumstances are demonstrated with written
evidence thereof and that, in the case of (v) above, the Receiving Party will
use reasonable efforts under the circumstances to notify the other party of such
requirements so as to provide such party the opportunity to obtain such
protective orders or other relief as the compelling court or other entity may
grant.
Page 15
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
16. Subcontractors
Company represents and agrees that it is solely responsible for the quality
and quantity of the Services. If Company delegates or subcontracts an
obligation, Company shall (i) obtain a written agreement of confidentiality from
such delegate or subcontractor that is consistent with Section 15, (ii) shall be
solely responsible for any payments owed to such delegates or subcontractors for
performing any of Company's obligations, (iii) remain primarily responsible for
ensuring that all permitted delegates or subcontractors produce the Deliverables
and/or perform the hosting services in strict accordance with this Agreement and
abide by, and be subject to, all terms and conditions set forth herein, and (iv)
immediately provide names to Dell of any subcontractors who are performing any
service on DigitalWork.com Workshop or Service pages.
17. Remedies
In addition to the remedies provided to Dell in Section 2.2 ("Acceptance")
of this Agreement and without limitation of any other rights or remedies Dell
may have at law or in equity, if Company is in default of any of its obligations
under this Agreement, or if the Services do not conform to Company's warranties,
Dell may, at its option, (i) require Company to promptly tender conforming
Services at Company's reasonable expense, or, (ii) alternatively, Dell may
procure similar conforming Services from one or more other providers, in which
case Company will pay to Dell the difference between the costs incurred by Dell
in obtaining the similar Services and the contract price Cure of nonconforming
Services may only be made after Company obtains the written permission of Dell.
18. Insurance
Company shall obtain and at all times during the term of this Agreement
maintain at its own expense, with insurance companies rated "A" or better by AM
Best and acceptable to Dell the minimum insurance coverages set forth in
Exhibit 2.
19. Force Majeure
19.1 Excuse from Performance. Neither party shall be liable for any delay
or failure to perform its obligations under this Agreement, where such delay or
failure results from any cause beyond such party's reasonable control including,
without limitation, any (a) act of God (fire, storm, floods, earthquakes, etc.);
(b) civil disturbances; (c) mechanical, electronic or communications failure; or
(d) disruption of telecommunications, power or other essential services;
provided that it gives the other party written notice thereof promptly and, in
any event within fifteen (15) days of discovery thereof and uses its best
efforts to cure the delay. Notwithstanding the foregoing, either party may
terminate this Agreement upon written notice to the other party in the event
such failure to perform continues unremedied for a period of thirty (30) days in
the aggregate.
20. General
20.1 Amendments. Any term of this Agreement may be amended and the
observance of any term may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the parties.
20.2 Waivers. The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same unless the same is waived in writing. No
waiver by a party of any condition or any breach of any term, covenant,
representation or warranty contained in this Agreement shall be effective unless
in writing, and no waiver of any one or more instances shall be deemed to be a
further or continuing waiver of any such condition or breach in other instances
or a waiver of any other condition or breach of any other term, covenant,
representation or warranty. A valid waiver is limited to the specific situation
for which it was given.
20.3 Assignment. This Agreement may not be assigned, or otherwise
transferred, in whole or in part, by either party without the prior written
consent of the other party, which the other party will not unreasonably
Page 16
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
withhold, condition or delay except that Dell may assign this Agreement, or any
of its rights or obligations under this Agreement, to any of DCC's subsidiaries
or Affiliates without consent of Company. Any attempted assignment in violation
of the foregoing will be void.
20.4 Compliance. Company agrees to comply with all applicable laws, rules,
regulations and orders of the United States and any other state or country with
jurisdiction over Company or Company's activities in performance of its
obligations under this Agreement, including without limitation all applicable
import or export regulations and all licensing or permitting requirements.
20.5 Construction. This Agreement has been negotiated by the parties and
their respective counsel and will be interpreted fairly in accordance with its
terms and without any strict construction in favor of or against either party.
20.6 Counterparts; Translations. This Agreement may be executed in two or
more counterparts in the English language, and each counterpart will be deemed
an original, but all counterparts together will constitute a single instrument.
The English language version of this Agreement will control regardless of any
subsequent translations of this Agreement.
20.7 Forms. Dell and Company agree that, except as specified in Section 2
of this Agreement, the use of preprinted forms, such as acknowledgments or
invoices, is for convenience only and all terms and conditions stated on the
forms are void and of no effect.
20.8 Choice of Law; Venue. This Agreement will be governed by and
construed in accordance with the laws of the State of Texas, without regard to
principles of conflicts of law. Company hereby irrevocably and unconditionally
submits to the exclusive jurisdiction of any state or federal court sitting in
Austin, Texas over any suit, action or proceeding arising out of or relating to
this Agreement.
20.9 Headings. The headings contained in this Agreement are for the
purposes of convenience only and are not intended to define or limit the
contents of this Agreement.
20.10 Independent Contractors. The parties are independent contractors and
neither party is an employee, agent, servant, representative, partner, or joint
venturer of the other. Neither party has the right or ability to bind the other
to any agreement with a third party or to incur any obligation or liability on
behalf of the other party without the other party's written consent. Company
will be solely responsible for all materials and work until Acceptance by Dell,
and Dell will have no direction or control of Company, or any person employed by
or contracted for by Company, except in the results to be obtained.
20.11 Notices. Any notice or other communication (other than telephone
maintenance or support or requests for maintenance or support) must be in
writing, in English, and either actually delivered (including delivery by
facsimile, telex, courier or similar means) or deposited in the United States
mail in registered or certified form, return receipt requested, postage prepaid,
addressed to the receiving party at the address stated below or to another
address as such party may indicate by notice in accordance with this Section.
Notice will be effective on the date that it is delivered or, if sent by mail in
accordance with this Section, five (5) days after the date of mailing.
For Dell:
Name: Paul Bell or Vice President of Dell Home and Small Business
------------------------------------------------------------
group.
------
Address: Mail Code 8124, One Dell Way Round Rock, Texas, 78682
----------------------------------------------------------
Telephone: 512.723.9536
--------------------------------------------------------
Fax: 512.283.1111
--------------------------------------------------------------
With a copy to: Attention: Legal Department-Allen Hull
For Company:
Name: President
---------------
Address: 230 West Monroe, Suite 1950 Chicago, Il 60606
----------------------------------------------------------
Telephone: 312.261.4000
--------------------------------------------------------
Page 17
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Fax: 312.261.4010
-------------------------------------------------
With a copy to: Attention Legal Department-Dave Aniol
-----------------------------------------------------
20.12 Severance. Whenever possible, each provision of this Agreement will
be interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Agreement is found to violate a law, it will
be severed from the rest of the Agreement and ignored.
20.13 Survival of Terms. Regardless of the circumstances of termination or
expiration of this Agreement or any Work Statement or portion thereof, the
provisions of Sections 10 ("Warranty"), 11 ("Indemnification"), 12 ("Limitation
of Liability"), 14 ("Disputes"), 9 ("Intellectual Property"), 15
("Confidentiality"), 17 ("Remedies"), and 20 ("General") will survive the
termination or expiration and continue according to their terms.
20.14 Time. Whenever reference is made in this Agreement to "days," the
reference means calendar days, not business days, unless otherwise specified.
20.15 Attorneys' Fees. If any party hereto brings an action or proceeding
for the declaration of the rights of the parties hereunder, for injunctive
relief, or for an alleged breach or default of, or any other action arising out
of this Agreement or the transactions contemplated hereby, the prevailing party
in any such action shall be entitled to an award of reasonable attorneys' fees
and any court costs incurred in such action or proceeding, in addition to any
other damages or relief awarded, regardless of whether such action proceeds to
final judgment.
20.16 Taxes. The parties to this Agreement shall pay all applicable United
States federal, state and local taxes and other national, provincial or local
taxes, or other tariffs of any jurisdiction in which one of the parties to this
Agreement resides or is otherwise subject, in accordance with the laws of the
United States or any such other jurisdiction as then in effect.
20.17 Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and
merges all prior written or oral communications, understandings, and agreements
with respect to the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives, to be effective as of the Effective Date stated
above.
<TABLE>
<CAPTION>
DigitalWork.com, Inc. DELL PRODUCTS L.P.
<S> <C>
By: /S/ By: /S/ Craig A. Terrill
_________________________________ _________________________________
Printed Name: _______________________ Printed Name: _______________________
Title: ______________________________ Title: ______________________________
Date: _______________________________ Date: _______________________________
</TABLE>
Page 18
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 1
DELL COMPETITORS
Direct competitors include, but are not limited to:
. Acer Computer Corporation
. Apple Computer Corporation
. AST/Samsung Computers
. Compaq Computer
. CompUSA
. IBM Corp.
. Hewlett Packard
. EMachines/FreePC.com
. Fujitsu
. Gateway
. Micron Electronics, Inc.
. Digital Equipment Corporation
. Packard Bell (NEC)
. pcOrder.com
. Microwarehouse
. Computer Discount Warehouse
. SHL
. Siemens Nixdorf (SNI)
. Toshiba
. Vobis
Page 1
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 2
SERVICE LEVEL AGREEMENT
This Service Level Agreement ("SLA") sets forth the service level and
performance requirements, including technical support, operational requirements
and customer care required under Section 2.4 of the Master Service Agreement
("Agreement") between Dell Products L.P. ("Dell") and Digital Work, Inc.
("Company"). In addition to any service level requirements specified in any
agreements between Company and its subcontractors, Company shall ensure that the
following service level and performance requirements are satisfied for all
DigitalWork.com supplied services:
I. OPERATIONAL AND TECHNICAL MEASURES
A. Server Quality Measurements
1. Web. Company shall maintain an uptime of * * * for the web server
system which supports End-Users including, without limitation, any Digital Work
supplied content or, measured on a monthly basis, as a percentage of total hours
of uptime for the month.
2. Registration. Company shall maintain an uptime of * * * for the
registration server system which supports End-Users, measured on a monthly basis
as a percentage of total hours uptime for the month. Company will provide
advance notice of any activities that will increase registration activities by a
factor of more than * * * from the previous month's peak number of End-Users
simultaneously connected to the registration server. Company will cooperate with
Dell's efforts to install a unified registration process to the portal including
but not limited to working with a Dell Chosen Internet access provider with
unique registration requirements.
3. Authentication. Company shall maintain an uptime of * * * for the
authentication server system which supports End-Users, measured on a monthly
basis as a percentage of total hours uptime for the month.
4. Transactional. Company shall maintain an uptime of * * * for the
transactional server system, including, without limitation, security
requirement, which supports End-Users, measured on a monthly basis as a
percentage of total hours uptime for the month.
5. Security. Company shall use secure servers for the collection of all,
transactional information. Company shall maintain an uptime of * * * for all
secure server systems which support Customer or End-Users, measured on a monthly
basis as a percentage of uptime for the month.
6. Company Uploads. Company shall provide * * * of the time, with a
maximum * * * minute delay to synchronize new Content, all upload processes made
available to Company for updating Content.
7. Network Throughput Performance. Company shall ensure enough throughput
performance between its servers, gateway servers and the Internet backbone so
that End-Users do not experience degraded service.
B. Systems Management
1. Monitoring. Company shall proactively manage and monitor all
application server hardware devices and software to ensure optimal performance
and reliability as well as to detect abnormal event or exceeded utilization or
performance thresholds. Company shall proactively monitor the status of the
operating systems (e.g., CPU, disk I/O, memory, processes, etc.), critical
application layer daemons and processes and trigger appropriate even
notification alarms caused by errors, exceeded thresholds, etc.
2. Maintenance. All servers, applications and networks supporting the
Services will be operated, monitored and administered by Company on a 7/24/365
basis. In order to provide such coverage, Company may utilize a mixture of on-
site and on-call support staff, automated server monitoring and automated paging
technology. Unless otherwise agreed by Company, all scheduled routine
maintenance will be performed between Friday, 4:00 a.m. (ET) and 6:00 a.m. (ET).
Page 1
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
3. Change Control. Company shall install new equipment, software,
releases, upgrades, fixes, patches and other items necessary to maintain its
servers and systems to leading industry standards. Company shall proactively
gather information from appropriate server, peripheral, operating system or
database vendors regarding upgrades, defect patches or fixes.
4. Notice. Company shall give Dell three (3) days notice prior for all
non-routine management, maintenance, change control or other actions by Company
that may materially impact the Service adversely.
C. Backup/Restore
1. Backups. Company shall provide incremental daily backups and weekly
full back-ups without error of all Content associated with the provisioning of
Company's Services and all Customer Content, including, without limitation, End-
User data. Backups will be scheduled to begin no earlier than 2:00 a.m. (EST)
and to be completed no later than 6:00 a.m. (EST).
2. Archives. Company shall archive full back-ups in a separate facility
not more than ten (10) days following their creation. Company shall maintain any
archives for a period not to exceed one year from the date of their creation or
the termination of the Agreement.
3. Restoration. Company shall provide full data restoration as is
commercially reasonable to maintain its Services and within 5 hours of a
request by Company.
D. Service Improvement Actions
Company will provide to Dell a monthly summary report of actions taken or
planned to remedy any failure by Company to meet any of the above-specified
service quality objectives or measurements.
E. Remedies
The remedies set forth in this Section are available only if Company fails
to meet the Server Quality Measures set forth above. The parties acknowledge and
agree that if the remedies set forth in this Section are applied, any failure of
Company to meet the requirements in this Schedule shall not constitute a
material breach of this Agreement as to event giving rise to use of the
remedies. If Company misses any of the seven objectives described in Section A
of this agreement for two consecutive months, Dell shall receive service credit
from Company for the subsequent month and any consecutive month in which any of
the objectives have not been met.
In no event shall the credit owed by Company in any month exceed * * * of
the amount otherwise to be paid to Company in the applicable month. No remedies
will be available if failure to meet the objectives is attributable to reasons
of Force Majeure (as defined in the Agreement), previously scheduled system and
network maintenance performed during regular maintenance windows (which shall in
all cases be between Midnight and 6AM local time), or the acts, systems, or
applications of Company or End-Users.
II. END-USER SUPPORT
A. Proactive Problem Detection.
Company shall monitor all systems so as to insure all incidents impacting
any Services are detected and addressed prior to Dell or End-User inquiry * * *
of the time.
B. End-User Care and Technical Support Services
1. Services Available. The care and technical support services that will
be available to End-Users will include all support required or which Company in
consultation with Dell deems advisable to help End-Users use and understand the
Services and to help End-Users resolve problems with using the Services. These
services will include, without limitation: billing inquiry, dispute resolution,
registration assistance, usage instructions and inquiries regarding the terms of
service.
2. Online Services. Care and technical support services for End-Users
will be available online through the Services, including without limitation,
frequently asked questions ("FAQ") list, database inquiries,
Page 2
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
searching and e-mail messages to the Company's staff. Responses to e-mail
messages to technical support staff will be made within four (4) hours from the
time that the message was sent. Responses to e-mail messages to the staff will
be within 24 hours on billing issues from the time that the message was sent.
Company shall ensure that its care and technical support services are performed
and updated in a timely and professional manner. Without limiting the generality
of the foregoing, Company shall seek to address End-User inquiries and resolve
End-User complaints as promptly as possible and in a manner that reflects
positively upon the name, goodwill and reputation of Company, Company and the
Services.
3. Services by Representatives.
Company's existing Live Online Support will be made available to all users
of DellBizNet when user is accessing a DigitalWork.com. supplied page. Care and
technical support services for End-Users will be available through a human
operator via a toll free telephone number. Calls to the care and technical
support representatives shall be answered according to the standards and
schedule set forth below:
<TABLE>
<CAPTION>
Type of Service Launch thru 6/30/00 7/1/00 thru 9/30/00 10/1/00 ongoing
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Online Technical Support Email within * * * Email within * * * Email within * * *
9:00am - 5:00pm CST 7:00am - 7:00pm CST M-F 24X7 7 days a week
M-F
- --------------------------------------------------------------------------------------------------------------
Online Product Support Email within * * * Email within * * * Email within * * *
9:00am - 5:00pm M-F 7:00am - 7:00pm M-F 7:00am - 7:00pm
Seven days a week
- --------------------------------------------------------------------------------------------------------------
Online Billing Support Email within * * * Same Same
- --------------------------------------------------------------------------------------------------------------
Live person chat Start within * * * of Start within * * * Start within * * *
request 9 - 5 M-F 7am - 7pm M-F 7am - 7pm M-F
- --------------------------------------------------------------------------------------------------------------
Outbound product support Customer specified time Customer specified time Same
within * * * within * * *
9 - 5 M-F 7am - 7pm M-F
- --------------------------------------------------------------------------------------------------------------
Inbound 800 # Product N/A N/A As indicated in 3a.
- --------------------------------------------------------------------------------------------------------------
Inbound 800# Technical N/A As indicated in 3b. As indicated in 3b.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
a. End-User Care Standard. End-User calls shall be answered within *
* * by either a human operator or an automated system ("ACD"). If an ACD is used
to initially queue or answer a call, a human operator shall be available within
* * * thereafter. This standard shall be achieved for * * * of the calls during
each month. At a minimum, the care service shall be available * * *, * * *,
each day of the year.
b. Technical Support Standard. End-User calls shall be answered
within * * * by either a human operator or an ACD. If an ACD is used to
initially queue or answer a call, a human operator shall be available within * *
* thereafter. This standard shall be achieved for * * * of the calls during each
month. At a minimum, the technical support service shall be available 24x7x365.
c. Support Levels. Company shall attempt to answer any End-User
inquiries to Company's representatives at the time of inquiry in the following
manner:
Page 3
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
(1) First Level Support. After 7/1/00, First Level Support can be
defined as a "pool" of Company representatives who handle the majority of End-
User inquiries and support requests. Responsibilities involved in first level
support can be generally defined as follows: support request creation and
maintenance, verify priority and severity information, search technical
documentation for all known issues and possible matches, document all customer
interactions, close support requests, escalate to second level support, if
necessary. First level support shall also include coordination of account
registration and testing and ongoing account monitoring and maintenance.
Company's service representatives shall answer service inquiries as
"DellBizNet".
(2) Second Level Support. Second Level Support can be defined as a
"pool" of Company representatives who maintain specialized skills and are at a
different organizational level than the first level support group. Skills not
available in the first level are transferred to the second level, where more
specialized skills and an increased technical depth exist. Responsibilities
involved in second level support can be generally defined as follows: ensure
quality of information provided to first level representatives, manage
relationship with first level representative, verify information received in
escalated support requests, analyze support request to identify specific issues,
create and maintain new trouble reports, create interim and final resolutions as
necessary. Second Level Support should be sufficient to resolve any End-User
need. In the event, the Second Level Support cannot correct or answer an inquiry
at the time of inquiry, the Second Level Support shall respond to the End-User
in accordance with Section 3 below. Company's service representatives shall
answer service inquiries as "DellBizNet".
3. Response Standards
A. Inquiry. Company shall respond within * * * of receipt of an inquiry
from Dell to Company's designated point of contact, and * * * for End-Users as
described above.
B. Updates; Response Time. The frequency of updates and response time
objectives for reported troubles will be dependent upon the severity of the
problem. Company shall fulfill the following objectives to respond to inquiries
by Company or End-Users:
Page 4
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
<TABLE>
<CAPTION>
Priority Initial Update Update Interval Response Time
(minutes) (minutes) Objective
(minutes)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Critical/1/ * * * * * * * * *
- --------------------------------------------------------------------------------
Major/2/ * * * * * * * * *
- --------------------------------------------------------------------------------
Important/3/ * * * * * * * * *
- --------------------------------------------------------------------------------
</TABLE>
C. Cure. Company shall use all commercially reasonable efforts to correct
any errors or problems that adversely effect its Services.
D. Reporting. Company shall deliver to Dell monthly reports on all
service level inquiries.
- --------------------------
/1/Critical problems are those which seriously degrade Provider's Service
or impact the majority of End-Users.
/2/Major problems are those which affect multiple End-Users or degrade the
overall quality of the Service.
/3/Important problems are those which affect single End-Users or do not
degrade the overall quality of connectivity.
Page 5
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 3
WORK STATEMENT
This Exhibit 3 is subject to the terms and conditions of the Master Service
Agreement ("Agreement") between DigitalWork.com. Inc. ("Company"), and Dell
Products L.P. ("Dell") effective as of December 22, 1999. To the extent the
terms of this Work Statement and the Agreement conflict, this Work Statement is
controlling; otherwise, the Agreement shall remain in full force and effect.
1. Definitions
As used in this Work Statement, the following terms shall have the
following meanings, unless the context otherwise requires. Certain other terms
are defined elsewhere in the Agreement and Work Statement.
1.1 "Above-the Fold" means, situated within the portion of a page that is
designed to be visible on a standard computer screen with a resolution of 800
pixels by 600 pixels without requiring the user to scroll horizontally or
vertically through the page.
1.2 "Advertising Revenues" means the aggregate fees and other revenues
collected plus the fair market value of other compensation received by or on
behalf of a party or any Affiliate thereof arising from the license or sale of
promotional, advertising, sponsorship or marketing services or rights related to
any portion of DellBizNet less customary and reasonable sales commissions.
1.3 "Average Daily Page Views" means the aggregate number of unique page
views by End-Users accrued during a thirty (30) day period divided by 30.
Average Daily Page Views shall include all End-User page turns served from
Company-provided Content during each End-User session.
1.4 "Gross Margin" means all revenue, less any refunds granted to
customers, earned by or from DellBizNet by Company from subscriptions, fees,
sales of services or Content, bounties or commissions and e-commerce activities,
other than Advertising Revenue.
1.5 "Segments" means the unique business segments of Dell described in
Section 2.4.
2. Description of Deliverables and Services
2.1 General. In order to assist Dell with its efforts to create a business
portal, Company shall provide Dell with content making up a portion of the Dell-
branded Web-based service, DellBizNet. DellBizNet will be seamlessly branded by
Dell and DigitalWork.com Service pages will be micro-branded by Company. The
Dell logo or other logo designated by Dell will be placed prominently Above-the-
Fold in the header at the top of DellZone, with placement at Dell's option.
Company will configure DigitalWork.com Workshop and Service pages according to
Dell's requirements and consistent with the terms of this agreement.
2.2 Domain Name Hosting Dell shall register the DellBizNet domain,
<www.DellBizNetcom>. All right, title and interest in the domains shall belong
exclusively to Dell.
2.3 International Rollout. Company will work with Dell to roll-out
international/localized versions of and will work in concert with Dell to select
the regions and deployment schedule. Initially regions should include Canada,
UK, Europe, Japan, Asia-Pacific, Australia, and Latin America (not necessarily
in that order).
2.4 Selection. Dell will retain the option of replacing Company's small
business services offer with a Dell-provided small business services offer
provided that at least six workshops and a majority of collective services
therein are retained. Dell will review in good faith on a quarterly basis the
possibility of adding additional workshops into DellBizNet. 2.5 ISP/Portal
Registration. Company shall work with Dell to create a combined ISP and portal
universal registration application. Should the development of the joint
registration not be completed by February 15, 2000, Company shall provide all
End-User registration information to Dell until such time as the joint
registration process is in place.
2.6 Search Services. Upon user-initiated searches in key categories be
designated by Dell, Company shall surface Dell-negotiated e-commerce
relationships in premium position above Company-negotiated
e-commerce/sponsorship relationships.
2.7 Purchase of Dell Hardware. Company agrees that any
Page 1
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
additional servers, desktops, and notebooks required to accommodate additional
traffic to DigitalWork.com pages will be purchased from Dell (as long as Dell is
no more than * * * than next closest competitor on price) per Company's
specifications. Dell will provide Company with hardware with pricing to be
determined at a later date.
2.8 End-User E-Mail. Dell will have the option of using a Dell-provided
e-mail application. If Dell provides the e-mail application, Dell will retain
* * * generated from the e-mail application.
2.9 Page Selection. Dell shall have the right to select specific tools and
applications from DigitalWork.com that it will offer to users. Furthermore,
DigitalWork.com will prohibit users who access these solutions from navigating
to additional solutions not approved by Dell. Any development work required to
accomplish this measure will be the sole responsibility of Digital Work.
2.10 'Return to DellBizNet' buttons. Company will place a 1 inch by 1 inch
button at the top of all Dell provided pages which contains a link back to the
DellBizNet home page. Button will be placed above the fold in the top left
portion of the page.
2.11 Change in pages. Dell retains sole discretion to increase or
decrease the number of DigitalWork.com provided pages that are offered on the
DellBizNet portal, provided it maintains a minimum of six workshops and a
majority of the services contained therein. The required six workshops will be
reviewed in good faith on a quarterly basis.
2.12 Additional Partners. Dell retains the right to supplement DellBizNet
with additional content from other third party suppliers regardless of whether
or not similar services are offered by DigitalWork.com. At Dell's sole
discretion, DigitalWork.com will integrate these services onto the DellBizNet
platform according to the following definitions. Level One Integration requires
Company to integrate the specified services into the DigitalWork.com Business
Partner Program, which includes the DigitalWork.com Learn About It format. Dell
can request up to five Level One Integration projects per 30-day period. The fee
for Level One Integration will be * * * of the Company's standard Business
Partner Program fee. Level Two Integration requires the Company to integrate the
specified service and provide the UI, customer support, billing and settlement.
Dell may request up to two Level Two Integration services in any 30-day period.
The Company will provide Dell with a scope of work estimate for each Level Two
service. The Company and Dell will mutually agree to the implementation. Company
will cover the first 320 man-hours of integration work per month. Dell will pay
for any additional work during the same 30-day period at the rate of * * *
dollars per hour. Level Two integration will be available after April 1st. Prior
to April 1st, Company will perform Level Two Integration projects on a best
efforts basis. Financial considerations of Level Two Integration projects will
be mutually agreed upon on a case by case basis.
3. Reporting
3.1 General. Company shall provide Dell with weekly online traffic reports
and appropriate Web-based traffic reporting tools. After March 1st, Company will
provide daily traffic reports and appropriate Web-based traffic reporting tools.
3.2 Account Manager. Company shall provide Dell with a dedicated account
manager and access to additional resources if necessary in order for Dell to
accurately interpret the usage information and End-User Data.
3.3 Payments. Company shall provide Dell with accurate monthly reporting
of all payments derived from DellBizNet which are payable under Section 5 of
this Work Statement.
3.4 Progress Reports. Upon reasonable request by Dell, representatives of
the parties shall meet for a formal progress presentation during which Company
shall describe the status of the work required under the Work Statement. Such
presentation shall provide projections of the time of completion, and the status
of Company's services, and shall address any problems that have come to
Company's attention and Company's views as to how such problems may be resolved.
Page 2
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
4. Advertising
Consistent with Section 5 of the Agreement, Dell will retain the right to
sell advertising on all DellBizNet Web pages under the existing advertising
revenue share model with Company. The price of such advertising by Dell must be
equal to or more than the current Company standard advertising rate card.
5. Promotion of DellBizNet
5.1 Registered User newsletter: Company grants Dell the right to market
its solutions to its registered user base on a monthly basis. Newsletter will be
Dell branded and will incorporate a DigitalWork.com micro-brand.
6. Fees and Other Payment Terms
6.1 E-commerce Transaction Fees. Company shall pay Dell * * *.
6.2 Advertising Revenue. Company shall pay Dell a fee equal to * * * of
the total revenue generated from advertising on DigitalWork.com pages supplied
to the DellBizNet portal.
6.3 Registered user fees: DigitalWork.com will pay Dell * * * for each
user who registers to become a DigitalWork.com end user and affirms the
DigitalWork.com Terms of Service.
6.4 E-Commerce Registered User fees. Company will pay Dell * * * for each
DigitalWork.com E-Commerce Customer.
6.4 Setup and maintenance fees: none.
6.5 Dell E-Commerce Relationships. Dell will retain all revenue derived
from Dell-negotiated non DigitalWork.com provided e-commerce relationships
promoted on DellBizNet derived from the independent marketing and sales efforts
of Dell. Dell will retain complete flexibility in promotion and positioning of
Dell-negotiated e-commerce relationships on DellBizNet. However, financial
considerations of any Level Two Integration Projects performed by Company will
be settled pursuant to Section 2.12 of Exhibit 3 Work Statement.
6.6 Dell warrants in DigitalWork.com: The Company agrees to provide Dell
with a warrant to purchase 150,000 shares of the Series D Preferred Stock of the
Company as discussed on section 14.4.
6.7 Performance fees: Dell will pay Company * * * for the difference
between * * * and the total number of DigitalWork.com E-Commerce Customers
delivered in the first twelve months from the launch date.
6.8 Mail Revenues. Dell will retain all revenue derived from any Dell-
provided e-mail application integrated with DellBizNet.
6.9 Management fees. Dell will pay Company exactly one year from the launch
date of DellBizNet.com a management fee not to exceed * * *. The amount of the
fee will be determined as follows: * * * CONFIDENTIAL TREATMENT REQUESTED * * *
multiplied by $50. The parties believe that the combination of the Management
Fee and DigitalWork.com e-commerce customer revenue will not be less than * * *.
Furthermore, each e-commerce customer delivered by Dell to the Company will
generate a minimum of * * * during the first twelve months after launch.
6.10 Contract Slotting fee. Company will pay Dell a * * * exactly one year
from the launch date of DellBizNet.com in order to maintain relationship with
DigitalWork.com Registered Users.
6.11 Payments from Company to Dell will be due within * * * of the end of
each calendar quarter. With each payment, DigitalWork.com will provide to DELL
documentation reasonably detailing the calculation of the payment.
7. Special Terms
In the event of any material error in the Services that could not
reasonably have been discovered prior to acceptance of the Services and is not
discovered until after acceptance of the Services, as Dell's sole and
Page 3
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
exclusive remedy therefor, Company shall use commercially reasonable efforts to
remedy such error in a prompt manner. If such error is not remedied in such
manner, then Dell shall be entitled to a refund of an equitable portion of fees
paid to Company on a pro rata basis in the same proportion as the error reduces,
if at all, the value to Dell of the Web site to which such error relates.
8. Implementation; Work Schedule
8.1 Schedule and Performance Milestones. This schedule sets the target
dates and Performance Milestones for the preparation and delivery of the
Services by Company.
<TABLE>
<CAPTION>
Performance Milestone Responsible Party Target Date
- ------------------------------------------- ----------------------------- ------------------------------------
<S> <C> <C>
Work Statement Executed Dell/Company * * *
Preliminary draft of DW portal pages Company * * *
prepared
Dell finalizes specific pages that will be Dell * * *
used
Dell branding and `Return to DellBizNet' Company * * *
buttons in place on all DigitalWork.com
pages
Site fully prepared for launch Dell/Company * * *
</TABLE>
8.2 Testing Procedures (if any)
(in each case, involving both quality and function)
8.3 Location of Work Facilities. Substantially all of the work will be
conducted by Company at its regular office located in Chicago, Illinois.
9. Term.
This Work Statement will have the same Term as the Agreement.
<TABLE>
<CAPTION>
DigitalWork.com, INC. DELL PRODUCTS L.P.
<S> <C>
By: /s/ Craig A. Terrill By:
__________________________________ __________________________________
Printed Name: ________________________ Printed Name: ________________________
Title: _______________________________ Title: _______________________________
Date: ________________________________ Date: ________________________________
</TABLE>
Page 4
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 4
INSURANCE COVERAGE
Statutory workers compensation insurance in the state(s) or jurisdiction in
which Company's employees perform services for Dell, and employer's liability
insurance with limits of not less than $500,000: (i) for each accident; and (ii)
for each employee for occupational disease; or (iii) policy limit for disease.
Such policy shall be endorsed to name Dell as Alternate Employer to prevent
Company's workers' compensation carrier from denying coverage based on a claim
of employment status. Company hereby waives all claims and causes of action
against Dell, its officers, directors and employees for any and all injuries
suffered by Company's employees.
Commercial General Liability insurance with limits for bodily injury and
property damage liability of not less than $1,000,000 personal injury each
occurrence, $2,000,000 general aggregate and products/completed operations
coverage which shall include premises/operations liability, independent
contractors liability, and broad form contractual liability specifically in
support of, but not limited to, the indemnity provisions set forth in this
Agreement. This policy shall include a waiver of subrogation in favor of Dell;
will be endorsed to include Dell as Additional Named Insured; will contain
cross-liability and severability of interest coverage and shall state that such
insurance is primary insurance as regards any other insurance carried by Dell.
Business automobile liability insurance with a limit of not less than
$1,000,000 per occurrence for bodily injury and property damage liability
written to cover all owned, hired and non-owned automobiles arising out of the
use thereof by or on behalf of the Company and its employees. This policy shall
include a waiver of subrogation favor of Dell, be endorsed to include Dell as an
Additional Named Insured, and shall state that such insurance is primary
insurance as respects any insurance carried by Dell.
Prior to the commencement of any work or service as provided for herein,
Company shall furnish to Dell insurance certificates on standard Accord form,
endorsements, or evidence of coverage signed by authorized representatives of
the companies providing the coverage required under the terms of this Agreement.
All policies providing coverage shall contain provisions that no cancellation,
non-renewal or material changes in the policy shall become effective, except on
thirty (30) days' written notice thereof to Dell. Upon request and without
expense, Company shall furnish Dell with certified copies of said insurance
policies signed by authorized representatives of the insurance companies
providing the coverage as required herein.
Failure to secure the insurance coverages, or the failure to comply fully
with any of the insurance provisions of this Agreement as may be necessary to
carry out the terms and provisions of this Agreement shall be deemed to be a
material breach of this Agreement. The lack of insurance coverage does not
reduce or limit Company's responsibility to indemnify Dell as set forth in this
Agreement.
Any and all deductibles and premiums associated with the above described
insurance policies shall be assumed by, for the account of, and at the sole risk
of Company.
Dell reserves the right to review the insurance coverage requirements of
this Agreement and to make reasonable adjustments to such requirements or to
require other types of policies to support the level of Services being performed
by Company or the purchases being made by Dell from Company at any time, at
Company's sole cost, unless otherwise agreed to by Dell.
Page 1
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 26,
2000 with respect to DigitalWork.com, Inc. in the Registration Statement (Form
S-1) and related Prospectus of DigitalWork.com, Inc. for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
Chicago, Illinois
February 1, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> OTHER YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> MAR-18-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 1,394,222 33,751,312
<SECURITIES> 0 0
<RECEIVABLES> 11,704 1,023,140
<ALLOWANCES> 0 46,500
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,405,926 36,261,133
<PP&E> 79,153 1,170,523
<DEPRECIATION> 6,784 187,489
<TOTAL-ASSETS> 1,478,295 38,918,124
<CURRENT-LIABILITIES> 246,003 3,473,183
<BONDS> 0 0
0 0
21,203 100,356
<COMMON> 9,976 20,100
<OTHER-SE> 1,201,113<F1> 33,061,195<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,478,295 38,918,124
<SALES> 32,800 1,916,588
<TOTAL-REVENUES> 32,800 1,916,588
<CGS> 61,066 1,586,597
<TOTAL-COSTS> 61,066 1,586,597
<OTHER-EXPENSES> 1,455,289 15,975,499
<LOSS-PROVISION> 0 46,500
<INTEREST-EXPENSE> 0 25,700
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,483,555) (15,645,508)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,467,127) (15,316,994)
<EPS-BASIC> (6.13) (15.54)
<EPS-DILUTED> (6.13) (15.54)
<FN>
<F1> Includes Additional P-1-C, Stockholder receivables, deferred stock
compensation (1999 only) and accumulated deficit.</FN>
</TABLE>
