<PAGE>
As filed with the Securities and Exchange Commission on April 12, 2000
Registration No. 333-95895
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 4 to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DIGITALWORK.COM, INC.
(Exact name of Registrant as specified in its charter)
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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)
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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)
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Copies To:
Craig C. Bradley, Esq. Stephen P. Farrell, Esq.
Freeborn & Peters Stephanie M. Gulkin, Esq.
311 South Wacker Drive, Suite 3000 Morgan, Lewis & Bockius LLP
Chicago, IL 60606 101 Park Avenue
(312) 360-6000 New York, NY 10178
(312) 360-6570 (fax) (212) 309-6000
(212) 309-6273 (fax)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed maximum
Title of each class of aggregate Amount of
securities to be registered offering price registration fee
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<S> <C> <C>
Common Stock, par value $0.005 per
share(1).................................. $90,000,000.00(2) $23,760.00(3)
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</TABLE>
(1) Includes certain associated preferred stock purchase rights that will be
issued to each stockholder pursuant to a rights agreement by and between
DigitalWork.com, Inc. and Chase Mellon Shareholder Services, L.L.C., as
Rights Agent.
(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.
(3) Previously filed.
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.
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<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 April 12, 2000
PROSPECTUS
6,250,000 Shares
Common Stock
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This is our initial public offering of shares of common stock. We are
offering 6,250,000 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
$11.00 and $13.00 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 937,500
additional shares of our common stock on the same terms and conditions set
forth above, solely to cover over-allotments, if any.
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.
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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: "The Best Way To Do Business. 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:
"An Example: How to publicize your business."
"Monday, 9:45am: Learn About ItTM.
Paul learns about the power of press releases at DigitalWork.com. He reviews
testimonials from past users, gets a pricing list and checks out available
media outlets."
"Monday, 10:15am: Get It DoneTM.
Paul copies his story into DigitalWork.com's PR template. He targets media
outlets by geography and industry category. Paul reviews the information and
pays for the service online."
"Tuesday, 8:00am: Get Results.
DigitalWork.com sends Paul's press release across the wire and into the
hands of journalists at more than 500 media outlets worldwide."
Across the bottom of the page are five 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: America Online,
Inc., Bank of America, Mail Boxes Etc. USA, Inc., Office Depot and Dell
Computer Corporation.
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, Office.com, Mail
Boxes Etc. USA, Inc., Bank of America, America Online, Inc., Lycos, Inc.,
Prodigy Communications Corporation, iVillage, Inc., Bloomberg.com,
PurchasePro.com, Inc., How2.com and Wells Fargo."
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: "These
. . . plus 40 other business portals and growing."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<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............. 41
Principal Stockholders........... 43
Description of Capital Stock..... 46
Shares Eligible for Future Sale.. 52
Underwriting..................... 54
Legal Matters.................... 56
Experts.......................... 56
Where You Can Find More
Information..................... 57
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.
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 Business
We provide business services to the small business market through the
Internet. Our offering consists of over 30 online services that are designed to
streamline and automate important business functions such as launching a
marketing campaign, recruiting new employees and generating sales leads. We
refer to our service offering as our e-services platform. We enter into
agreements and build relationships with carefully selected business services
suppliers who provide some of the elements of each service. To increase the use
of our services, we have entered into agreements to offer our e-services
platform on over 55 business-oriented Web sites, which we refer to as business
portals. Users of these business portals can directly access a version of our
e-services platform from the business portal's Web site that is co-branded with
our and the business portal's logos. By connecting business service suppliers,
small businesses and business portals through our e-services platform, we have
created a network that facilitates business-to-business e-service transactions.
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. We anticipate that business portal partners will be
our primary means for registering new small business users.
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. Each e-service has
a uniform appearance and execution process, and all of our services utilize our
customer care center. Together, these factors make it easier for small
businesses to complete multiple functions using our e-services platform.
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 license and distribute our
e-services platform to these portals and allow them to integrate our e-services
into their offerings. By expanding the depth and breadth of services business
portals offer to their customers, we provide 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.
We generate revenue from selling e-services to small business customers and
earn fees from business portals and service suppliers for allowing them access
to our e-services platform. For the year ended December 31, 1999, revenues we
received from e-services transactions represented 81% of our total revenues.
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 specific needs of targeted industries,
such as the real estate and retail industries;
. 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.
To implement our growth strategy, we will be making significant expenditures
before our revenues increase to cover these additional costs. We incurred a net
loss of $15.4 million in the year ended December 31, 1999. Among other things,
the success of our business will be tied to the ability of our distribution
partnerships to attract registered users and the acceptance of our e-services
by small businesses.
Additional Information About Our Company
Our principal executive offices are located at 230 West Monroe Street, Suite
2050, 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........ 6,250,000 shares
Common stock to be outstanding 30,341,293 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;
. 4,512,335 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 Three Months Ended
(inception) (unaudited)
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 1,855 3,849 9,254 16,055
-------- -------- -------- -------- ---------- ----------
Operating loss.......... (1,483) (1,125) (1,919) (3,785) (8,896) (15,725)
Interest income, net.... 16 12 62 114 140 328
-------- -------- -------- -------- ---------- ----------
Net loss................ $ (1,467) $ (1,113) $ (1,857) $ (3,671) $ (8,756) $ (15,397)
======== ======== ======== ======== ========== ==========
Basic and diluted net
loss per share......... $ (6.13) $ (2.36) $ (3.15) $ (4.05) $ (4.43) $ (15.62)
======== ======== ======== ======== ========== ==========
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.................. $ (1.22)
==========
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 6,250,000 shares
of common stock in this offering at an assumed initial public offering
price of $12.00 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 $102,001
Working capital......................................... 31,788 100,038
Total assets............................................ 36,918 105,168
Total stockholders' equity ............................. 33,182 101,432
</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 $16.9 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 are not able to estimate the amount of our ongoing loss before we
reach profitability. 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,
approximately 75% of our users registered through a business portal partner,
rather than directly through our Web site. We expect this percentage to
increase in the future. This distribution strategy subjects us to a number of
risks:
. Our distribution partners may not attract significant registered users to
our e-services. We depend on these business portals to attract registered
users to our e-services. 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.
. Some of our agreements with significant distribution partners are new. We
have recently entered into significant agreements with AOL and Dell. The
co-branded sites related to AOL are currently being developed and the co-
branded site with Dell was recently completed. 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.
5
<PAGE>
. Some of our distribution partners require us to pay significant fees. 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. For more information regarding these fees, please refer to
"Business--Distribution Partners" beginning on page 28.
. Our agreements with our distribution partners have termination provisions
and most do not have non-compete provisions. 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.
. Our distribution partners may not meet their obligations to us. 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
had 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 businesses 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.
6
<PAGE>
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.
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 Results of Operations" 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.
7
<PAGE>
We have grown from seven full-time employees in April 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.
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.
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.
8
<PAGE>
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.
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.
9
<PAGE>
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 $8.66 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 will determine 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;
. 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.
10
<PAGE>
After this offering, 30,341,293 shares of common stock will be outstanding.
Of these shares, the 6,250,000 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 31,278,793 and the number of freely tradable shares would increase to
7,187,500 if the underwriters exercise their over-allotment option in full. Our
officers and directors and most of our significant stockholders have entered
into lock-up agreements under 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 total, unconditional 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 approximately in October 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" beginning on
page 52.
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, over
time, for general corporate purposes including making significant expenditures
for sales and marketing, customer acquisition, development and general
administrative functions. 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.
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.
11
<PAGE>
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 49.
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 56.2% of
our outstanding common stock following the completion of this offering, 54.5%
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 43.
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.
USE OF PROCEEDS
We estimate that we will receive net proceeds of $68,250,000 from the sale
of 6,250,000 shares of common stock in this offering, after deducting estimated
offering expenses of $1,500,000 and estimated underwriting discounts and
commissions at an assumed initial public offering price of $12.00 per share. If
the underwriters exercise their over-allotment option in full, we will receive
net proceeds of $78,712,500, after deducting estimated expenses of $1,500,000
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 making significant expenditures for sales
and marketing, customer acquisition, development and general and administrative
functions. 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. We believe that
the net proceeds from this offering, combined with current cash resources, will
be sufficient to meet our working capital and capital expenditure requirements
for the next 18 months.
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" beginning 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 $12.00 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 $102,001
======== ======== ========
Long-term portion of capital lease
obligations................................... $ 263 $ 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 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, 30,341,293
shares issued and outstanding, pro forma as
adjusted.................................... 20 120 152
Additional paid-in capital................... 61,008 61,008 129,226
Stockholders' receivables.................... (5,960) (5,960) (5,960)
Deferred stock compensation.................. (5,123) (5,123) (5,123)
Accumulated deficit.......................... (16,863) (16,863) (16,863)
-------- -------- --------
Total stockholders' equity................. 33,182 33,182 101,432
-------- -------- --------
Total capitalization....................... $ 33,445 $ 33,445 $101,695
======== ======== ========
</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;
. 4,512,335 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 48 and note 5 to
our financial statements.
14
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was approximately $33.2
million, or $1.38 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 in this
offering at an assumed initial public offering price of $12.00 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
December 31, 1999 would have been approximately $101.4 million, or $3.34 per
share. This represents an immediate increase in net tangible book value of
$1.96 per share to existing stockholders and an immediate dilution of $8.66 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.................... $12.00
Net tangible book value per share before this offering... $1.38
Increase in net tangible book value attributable to new
investors............................................... 1.96
------
Net tangible book value per share after offering........... 3.34
------
Dilution in net tangible book value per share to new
investors................................................. $ 8.66
======
</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 $12.00
(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... 24,091,293 79.4% 52,306,000 41.1% $ 2.17
New investors........... 6,250,000 20.6 75,000,000 58.9 12.00
---------- ----- ----------- ----- ------
Total............... 30,341,293 100.0% 127,306,000 100.0% $ 4.20
========== ===== =========== ===== ======
</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;
. 4,512,335 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 48 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 58 55 3,616 3,729
--------- --------- ---------- ---------- ---------- ----------
Total operating
expenses........... 1,455 1,097 1,855 3,849 9,254 16,055
--------- --------- ---------- ---------- ---------- ----------
Operating loss.......... (1,483) (1,125) (1,919) (3,785) (8,896) (15,725)
Interest income, net.... 16 12 62 114 140 328
--------- --------- ---------- ---------- ---------- ----------
Net loss................ $ (1,467) $ (1,113) $ (1,857) $ (3,671) $ (8,756) $ (15,397)
========= ========= ========== ========== ========== ==========
Basic and diluted net
loss per share......... $ (6.13) $ (2.36) $ (3.15) $ (4.05) $ (4.43) $ (15.62)
========= ========= ========== ========== ========== ==========
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 ................. $ (1.22)
==========
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share..... 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.
16
<PAGE>
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 6,250,000 shares
of common stock in this offering at an assumed initial public offering
price of $12.00 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 $102,001
Working capital............................................. 31,788 100,038
Total assets................................................ 36,918 105,168
Total stockholders' equity.................................. 33,182 101,432
</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 notes 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" on page 13 and elsewhere in
this prospectus.
Overview
We provide business services to the small business market through the
Internet. Our offering consists of over 30 online services that are designed to
streamline and automate important business functions such as launching a
marketing campaign, recruiting new employees and generating sales leads. We
refer to our service offering as our e-services platform. We enter into
agreements and build relationships with carefully selected business services
suppliers who provide some of the elements of each service. To increase the use
of our services, we have entered into agreements to offer our e-services
platform on over 55 business-oriented Web sites, which we refer to as business
portals. Users of these business portals can directly access a version of our
e-services platform from the business portal's Web site that is co-branded with
our and the business portal's logos. 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
August 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 58 55 3,616
----- ----- ----- ------- ------- ------- -------
Total operating
expenses............ 193 415 847 1,097 1,855 3,849 9,254
----- ----- ----- ------- ------- ------- -------
Net operating loss...... (195) (415) (873) (1,125) (1,919) (3,785) (8,896)
Interest income, net ... 1 3 12 12 62 114 140
----- ----- ----- ------- ------- ------- -------
Net loss................ $(194) $(412) $(861) $(1,113) $(1,857) $(3,671) $(8,756)
===== ===== ===== ======= ======= ======= =======
</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 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.
Marketing and Strategic Alliances. Marketing and strategic alliances expense
consists primarily of employee compensation, advertising, customer acquisition
costs, amortization of strategic marketing payments,
19
<PAGE>
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 $5.9 million for options granted in 1999. We recognized a total
of $780,682 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 $2.7 million in 2000, $1.4 million in
2001, $750,521 in 2002 and $264,177 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.
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
20
<PAGE>
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 $31.8 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, strategic alliances, hiring additional employees and
expanding the e-services we offer. For more information, please refer to
"Business--Our Growth Strategy" beginning on page 25. 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. Currently, we do not have any specific plans for
further equity offerings in the future.
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 $6.0 million 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 three-year warrant to AOL
to purchase 276,000 shares of our common stock at $8.36 per share. 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
under which Dell offers 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. The terms of the agreement
provide that 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 up
to a $2.0 million fee for integrating our co-branded site 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 two-year warrant to Dell to purchase 150,000 shares
of our common stock at $8.36. We have included the value of the warrant, as
calculated using the Black-Scholes method, in non-cash charges as of December
31, 1999.
On March 17, 2000, we entered into an agreement with VerticalNet, which
enhances our ability to implement our vertical market growth strategy.
Specifically, VerticalNet will sell to us 120 co-branded storefronts for our
use or resale to our customers. Storefronts are Web pages hosted by VerticalNet
that are accessed by a link contained on VerticalNet Web sites that serve as
online communities for various industries.
21
<PAGE>
Each storefront contains graphical and text information about our or one of our
customer's products and services and links to our and our customers' Web sites.
We agreed to pay VerticalNet $800,000 for these storefronts and to purchase
advertisements over the term of the agreement. VerticalNet has indicated an
interest to purchase $1.5 million of common stock in this offering at the
initial public offering price per share.
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 provide business services to the small business market through the
Internet. Our offering consists of over 30 online services that are designed to
streamline and automate important business functions such as launching a
marketing campaign, recruiting new employees and generating sales leads. We
refer to our service offering as our e-services platform. We enter into
agreements and build relationships with carefully selected business services
suppliers who provide some of the elements of each service. To increase the use
of our services, we have entered into agreements to offer our e-services
platform on over 55 business-oriented Web sites, which we refer to as business
portals. Users of these business portals can directly access a version of our
e-services platform from the business portal's Web site that is co-branded with
our and the business portal's logos. By connecting business service suppliers,
small businesses and business portals through our e-services platform, we have
created a network that facilitates business-to-business e-service transactions.
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. We anticipate that business portal partners will be
our primary means for registering new small business users.
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 Association, businesses with less than 500 employees:
. employ 53% of the private workforce;
. contribute 47% of all sales; and
. represent 50% of the private gross domestic product.
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.
23
<PAGE>
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 to complement their current and future offerings 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 uniform appearance and
execution process. 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.
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 license and distribute our e-services
platform to these portals and allow them to integrate our e-services into their
offerings. By expanding the depth and breadth of services business portals
offer to their customers, we provide them the benefits of increased customer
traffic, improved customer retention and new revenue streams. Our services are
24
<PAGE>
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 will increase the opportunity to offer our customers services
targeted to their specific needs, which will drive 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. In March 2000, we entered into an agreement with
VerticalNet, which enhances our ability to implement our vertical market growth
strategy. Specifically, VerticalNet will sell to us 120 co-branded storefronts
for our use or resale to our customers. Storefronts are Web pages hosted by
VerticalNet that are accessed by a link contained on VerticalNet Web sites that
serve as online communities for various industries. Each storefront contains
graphical and text information about our or one of our customer's products and
services and links to our customers' Web sites.
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.
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.
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<PAGE>
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
</TABLE>
<TABLE>
<CAPTION>
Workshop E-Service
<S> <C>
Credit . Accept Credit Cards
. Buy a Credit Report
. Collect Bad Debts
Market Research . Company Research
. Monitor Industries
. Purchase Business
Tech Support Software
. Online File Storage
. Backup Your Computer
Training . Take Online Tutorials
. Buy Business Books
. Buy Management
Business Planning Software
. Buy Direct Marketing
Software
. Make Travel
Travel Reservations
</TABLE>
<TABLE>
<S> <C>
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
</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.
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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:
[CUSTOMER SUPPORT LOGO]
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.
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Distribution Partners
Over 55 business portals are distribution partners for our e-services
platform. Currently, these distribution partners include:
About.com Encanto Office.com
Advancing Women Fortune Financial Group Office Depot
America Online, Inc. FreeAgent.com Old Kent Bank
AT&T Business Networking FreeDrive Online Inc.
Bank of America Hispanic Business Orbit Commerce
BellSouth How2.com PR Newswire
Bigstep.com IBM Small Business Prodigy
Black Enterprise IBM Business Partners Prodigy Business
Black Stocks (New Visions) InfoUSA Solutions
Bloomberg iVillage.com PurchasePro.com
CCH JIAN Region Online (12
ChamberBiz KiraCom regional portals)
Citibank LA Times RR Donnelley & Sons
ClickAction libertynet.com (Growth Curve.net)
dbusiness.com Lycos smalloffice.com
Dell Computer Corporation Mail Boxes Etc. Spare Time
EmployeeMatters NewsReal staffleasing.com
theGlobe.com
Wells Fargo
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. We paid AOL a $6.0 million fee to enter into this
agreement. Under the terms of the agreement, AOL has committed to provide a
minimum number of times that promotions for the co-branded site will be viewed
by AOL users 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 to
us. This agreement can be terminated by either of the parties if there is a
material breach of the agreement that is not cured within 30 days, the other
party publicly releases information about the relationship without the other's
consent, or the other party declares bankruptcy or becomes insolvent. AOL may
terminate the agreement if there is a change of control of either party as long
as AOL refunds a pro rata portion of the fee we paid. In connection with this
agreement, we also issued a three-year warrant to AOL to purchase 276,000
shares of our Series D preferred stock at $8.36.
Dell Computer Corporation. In December 1999, we entered into an agreement
with Dell, under which Dell offers 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. The agreement provides that 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 $2.0 million fee for integrating
our co-branded site 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 two-year warrant to Dell to purchase 150,000 shares
of our common stock at $8.36 per share. In addition, in December 1999, Dell
purchased 598,086 shares of our Series D preferred stock for $5.0 million.
Mail Boxes Etc. In September 1999, we signed a two year agreement to be 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
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their businesses. This agreement may be terminated by either party if a
material breach of the other party is not cured within 30 days. In December
1999, Mail Boxes Etc. purchased 239,234 shares of our Series D preferred stock
for $2.0 million.
PurchasePro.com. We signed a one-year 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. We paid a
$50,000 license fee and will pay a $575,000 subscription fee to PurchasePro.com
under this agreement. Either party may terminate this agreement if a material
breach by the other party is not cured within 60 days. In December 1999,
PurchasePro.com purchased 179,425 shares of our Series D preferred stock for
$1.5 million.
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. Either party may
terminate this agreement by providing written notice 30 days prior to the
termination date. In addition, we are engaged in multiple online and offline
joint marketing initiatives. In December 1999, Smalloffice.com purchased
119,617 shares of our Series D preferred stock for $1.0 million.
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
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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 allow rapid expansion, 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.
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. We have submitted applications to the Patent and
Trademark Office to register some of our service marks, including the name of
our company. Currently, the Patent and Trademark Office is reviewing the most
significant of our service marks through an office action. We expect that the
Patent and Trademark Office will submit these service marks for publication in
the near future. While we will diligently work to register our most important
service marks, we cannot assure you that the Patent and Trademark Office will
register any of our service marks.
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 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 Onvia.com;
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. 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 ranging from termination for convenience to termination for a breach
of the agreement, 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.
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.
The Federal Trade Commission, or FTC, adopted regulations effective April
21, 2000 regarding the collection and use of personal identifying information
obtained from individuals when accessing Web sites. These regulations include
requirements that companies establish certain procedures prior to April 21,
2000 to, among other things:
. give adequate notice to consumers regarding information collection and
disclosure practices;
. provide consumers with the ability to have personal identifying
information deleted from a company's database;
. provide consumers with access to their personal information and with the
ability to rectify inaccurate information; and
. clearly identify affiliations or a lack of affiliations with third
parties that may collect information or sponsor activities for a services
membership.
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These regulations also include enforcement and redress provisions. We are
currently implementing programs designed to ensure that we comply with these
regulations. We do not believe these regulations will result in significant
additional costs or that they will materially affect our ability to obtain new
customers.
The FTC has also begun investigations into the privacy practices of
companies that collect information on the Internet. One investigation resulted
in a consent decree pursuant to which an Internet company agreed to establish
programs to implement the principles noted above. We may become subject to a
similar investigation, or the FTC's regulatory and enforcement efforts may
adversely affect our ability to collect demographic and personal information
from customers. This, in turn, could have an adverse effect on our ability to
provide highly targeted opportunities for advertisers and electronic commerce
marketers.
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 received a letter from from CDL Capital Corp., successor-in-interest to
Invest Linc Capital Corp., asserting that 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 consulting services it rendered to us under an
agreement. We believe 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.
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 entered into a letter of
intent to lease office space in another building in Chicago, Illinois.
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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
David Cerino............. 34 Vice President of Product and Customer Experience
Randy Grudzinski......... 31 Senior Vice President of Marketing and
Service Development
Doug Mulderink........... 35 Vice President of Technology and Development
Gordon Paulson........... 31 Vice President, General Counsel
Brian Petula............. 33 Vice President of Business Development
Loreen Sieroslawski...... 34 Vice President of Finance and Business Operations
Raj Atluru(1)(2)......... 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.
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John Banta has served as our vice president of strategic alliances since
February 1999, having been an investor in the company prior to joining us. From
September 1994 to February 1999, Mr. Banta served as vice president of
corporate services for PaineWebber Incorporated. He currently serves as a
director of the Investment Management Consultants Association. Mr. Banta also
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.
David Cerino was named our vice president of product and customer experience
in January 2000. From August 1999 to January 2000, Mr. Cerino was vice
president of Internet customer experience for First USA Bank. From November
1994 to August 1999, he served as senior director of marketing and product
management for Amadeus Global Travel Distribution. Mr. Cerino holds a B.S. in
mathematics and computer science from Wake Forest University and an M.B.A. from
Florida Atlantic University.
Randy Grudzinski was recently named our senior vice president of marketing
and service development. Prior to this appointment, he had 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.
Gordon Paulson was named our vice president, general counsel on February 29,
2000. From April 1999 to February 2000, Mr. Paulson was an associate at
Freeborn & Peters, where he represented our company in corporate and financing
matters. From March 1997 to April 1999, he was an associate with Bryan Cave LLP
in St. Louis, Missouri. From March 1995 to April 1999, he was an associate at
Sidley & Austin in Chicago, Illinois. Mr. Paulson holds a B.A. with honors in
economics from Michigan State University and a J.D. cum laude from the
University of Michigan.
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.
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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 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. Mr. Coppola has been with The Macerich
Company since 1977. 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 six directors upon the consummation
of this offering. Messrs. Atluru and Packard were elected to the board of
directors through 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.
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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. 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
Senior Vice President of Marketing and
Business Development
Loreen J. Sieroslawski.................. $101,000 $ 4,200 125,200
Vice President of Finance and Business
Operations
</TABLE>
36
<PAGE>
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
$12.00 per share 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 $1,398,000 $2,173,785 $3,299,828
50,000 5 $1.20 10/09 540,000 897,653 1,435,607
200 0 $2.40 12/09 1,920 3,382 5,598
Randy Grudzinski........ 25,000 2 $1.20 10/09 270,000 448,827 717,803
200 0 $2.40 12/09 1,920 3,382 5,598
Loreen J. Sieroslawski.. 100,000 9 $0.35 1/09 1,165,000 1,811,487 2,749,857
25,000 2 $1.20 10/09 270,000 448,827 717,803
200 0 $2.40 12/09 1,920 3,382 5,598
</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. These
shares, except for 35,000 shares sold to Mr. Aniol, are subject to our option
to repurchase the shares if the executive leaves his employment with the
company within four years which purchase option will be reduced by 25% each
year. To purchase the shares, Mr. Schultz issued us a $270,000 promissory note,
Mr. Terrill issued us a $240,000 promissory note, and Mr. Aniol issued us a
$276,000 promissory note. Each of the promissory notes has a five-year term
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.
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<PAGE>
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>
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. Under 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 4,512,335 shares
reserved for issuance under the Amended and Restated 1998 Stock Option Plan. On
January 1 of each year beginning in 2001, the number of shares reserved
automatically increases by the lesser of 1.5 million, 4% of the outstanding
shares, or an amount determined by the board of directors.
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
38
<PAGE>
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, Cerino, Grudzinski, Mulderink, Paulson and Petula 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.
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 Mr. Grudzinski is terminated following a change
of control he will be entitled to receive four months compensation and
accelerated vesting of 50% of his unvested options. In the event that Messrs.
Banta, Cerino, Mulderink, Paulson 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.
39
<PAGE>
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 under
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.
40
<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 36.
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 Investment Management
Inc........................... -- -- 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.
41
<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 business consulting
services he performed for us. This warrant will expire in November 2008. The
terms of the warrant were based upon the value of our stock at the time and the
amount we would pay an unaffiliated third party for similar services.
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 48.
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" beginning 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.
42
<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 30,341,293 shares outstanding
immediately following the completion of this offering. The percentage of shares
owned after this offering as set forth in the third 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% 4.9%
Craig A. Terrill (2)...................... 1,550,000 6.4 5.1
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 19.0
Warren Packard (7) (8).................... 5,766,833 23.9 19.0
Marc Benioff.............................. 100,105 * *
All directors and executive officers as a
group (11 people)........................ 9,842,236 40.9 32.4
Other Five Percent Stockholders
Draper Fisher Jurvetson (7) (9)........... 5,766,833 23.9 19.0
TL Ventures (7) (10)...................... 4,065,255 16.9 13.4
Attractor Investment Management Inc. (7)
(11)..................................... 1,552,686 6.4 5.1
Edward C. Coppola (7) (12)................ 1,584,423 6.6 5.2
</TABLE>
- --------
* Less than 1%
(1) Consists of the following:
. 889,087 shares of common stock owned by Mr. Schultz individually;
. 230,152 shares of common stock owned by a trust controlled by Mr.
Schultz; and
. 355,761 shares of common stock owned by family trusts and relatives
of Mr. Schultz.
43
<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:
. 148,337 shares of common stock owned by Maroons Capital 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.
(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) Does not include shares of common stock that may be purchased under 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 9 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.
Warren Packard currently exercises the voting control over these shares.
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.
Gary J. Anderson currently exercises the voting control over these shares.
TL Venture's address is The 700 Building, 435 Devon Park Drive, Wayne,
Pennsylvania 19087.
44
<PAGE>
(11) Consists of the following:
. 889,087 shares of common stock owned by Attractor QP LP;
. 230,152 shares of common stock owned by Attractor LP;
. 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.
Gigi Brisson and Harvey Allison currently exercise the voting control over
these shares. Attractor Investment Management Inc.'s address is 1440
Chapin Avenue, Suite 201, 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
45
<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 4,020,040 shares of common stock
outstanding. Upon completion of this offering and after the automatic
conversion of all of our outstanding shares of preferred stock into common
stock, we will have 30,341,293 shares of common stock outstanding. 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
As of December 31, 1999, we had 20,071,253 shares of preferred stock
outstanding. Upon completion of this offering and after the automatic
conversion of our outstanding shares of preferred stock 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
11.
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.
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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 of the right, as such, will not have any rights as a
stockholder, including the right to vote or receive dividends on those rights.
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,
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 of an
acquiring person 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.
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
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$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 4,512,335 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 52% of the outstanding common stock, will have registration
rights. These registration rights may permit these stockholders to resell
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<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" beginning on page 10.
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.
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
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<PAGE>
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.
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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 have applied for quotation of the common stock on the Nasdaq National
Market under the trading symbol "DWRK."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
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
30,341,293 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 6,250,000 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 24,091,293 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.
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, 20,224,537 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 303,413 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. Beginning 91 days after the date of this prospectus, 2,554,024 shares will
be eligible for sale. 4,359,305 shares will not become eligible for sale until
December 2, 2000.
Rule 144(k). 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. 3,059,004
shares of our common stock will qualify as "144(k) shares" within 180 days
after the date of this prospectus.
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
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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 4,512,335 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 180 days from the date of this
prospectus. See "Description of Capital Stock--Registration Rights" beginning
on page 48.
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, under 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.
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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 of
Underwriter Shares
----------- ---------
<S> <C>
Lehman Brothers Inc.............................................
U.S. Bancorp Piper Jaffray Inc..................................
Prudential Securities Incorporated..............................
---------
Total....................................................... 6,250,000
=========
</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 937,500 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>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $1,500,000.
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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 be acting as an underwriter of this offering.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
AdvisorSM, a full service brokerage firm program, may view offering terms and a
prospectus online and place orders through their financial advisors.
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 most of our significant stockholders 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 52.
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.
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
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<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 625,000 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. Six employees and one
former employee 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.
Each of the employees of Lehman Brothers Inc. who own shares of our capital
stock have agreed under lock-up agreements, that they will not, directly or
indirectly, offer, sell, pledge, or otherwise dispose of any shares of our
capital 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.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered in this
offering 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 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.
56
<PAGE>
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 its exhibits. 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 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.
57
<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............................. -- 533,181
----------- ------------
Total current assets.............. 1,405,926 35,261,133
Restricted cash....................... -- 575,685
Other assets.......................... -- 98,272
Property and equipment, net........... 72,369 983,034
----------- ------------
Total assets...................... $ 1,478,295 $ 36,918,124
=========== ============
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
----------- ------------
Total liabilities................. 246,003 3,736,473
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 (liquidation preference at
December 31, 1999 of $51,556,769).. 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 61,008,366 61,008,366
Stockholders' receivables........... (30,000) (5,959,750) (5,959,750)
Deferred stock compensation......... -- (5,123,575) (5,123,575)
Accumulated deficit................. (1,467,127) (16,863,846) (16,863,846)
----------- ------------ -----------
Total stockholders' equity........ 1,232,292 33,181,651 $33,181,651
----------- ------------ ===========
Total liabilities and
stockholders' equity............. $ 1,478,295 $ 36,918,124
=========== ============
</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 3,729,178
----------- ------------
Total operating expenses.......................... 1,455,289 16,055,224
----------- ------------
Operating loss...................................... (1,483,555) (15,725,233)
Interest expense.................................... -- (25,700)
Interest income..................................... 16,428 354,214
----------- ------------
Net loss............................................ $(1,467,127) $(15,396,719)
=========== ============
Basic and diluted net loss per share................ $ (6.13) $ (15.62)
=========== ============
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)........................................ $ (1.22)
============
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 to
founders, net
of issuance
costs of
$2,408......... -- -- 2,800,000 14,000 53,592 -- -- -- 67,592
Proceeds from
the issuance of
common stock... -- -- 8,000 40 160 -- -- -- 200
Issuance of
series A
convertible
preferred
stock, net of
issuance costs
of $6,049...... 1,738,672 8,693 -- -- 311,260 -- -- -- 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....... 128,000 640 87,240 436 25,104 -- -- -- 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... -- -- -- -- 5,904,257 -- (5,904,257) -- --
Amortization of
deferred stock
compensation... -- -- -- -- -- -- 780,682 -- 780,682
Net loss........ -- -- -- -- -- -- -- (15,396,719) (15,396,719)
---------- -------- --------- ------- ----------- ----------- ----------- ------------ ------------
Balance at
December 31,
1999........... 20,071,253 $100,356 4,020,040 $20,100 $61,008,366 $(5,959,750) $(5,123,575) $(16,863,846) $ 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) $(15,396,719)
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 3,729,178
Change in assets and liabilities:
Accounts receivable.......................... (11,704) (1,011,436)
Prepaid expenses and other current assets.... -- (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............... -- 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...................... $ -- $ 5,904,257
=========== ============
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. DigitalWork.com was
originally incorporated in Delaware on March 18, 1998 as DigitalWork, Inc.
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. DigitalWork.com's revenues are
divided into two categories: e-services transactions and network fees. For the
F-9
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
year ended December 31, 1999, e-services transactions represented approximately
81% of total revenues, while network fees represented approximately 19% of
total revenues. For the period from March 18, 1998 (inception) through December
31, 1998, e-services transactions represented approximately 70% of total
revenues, while network fees represented approximately 30% of total revenues.
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) $(15,396,719)
=========== ============
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) $ (15.62)
=========== ============
Pro forma (unaudited):
Net loss.......................................... $(15,396,719)
============
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.... $ (1.22)
============
</TABLE>
F-10
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
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 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
Options to employees to purchase 1,100,000 shares of common stock under
DigitalWork.com's 1998 Stock Plan were exercised in exchange for full recourse
notes receivable. In addition, DigitalWork.com issued 655,000 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 $5,146,250 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. In May 1998, DigitalWork.com issued an
aggregate of 1,866,672 shares of Series A convertible preferred stock at
$0.1875 per share for net cash proceeds of $319,953 and services valued at
$23,999. In October 1998, DigitalWork.com issued 2,374,000 shares of Series B
convertible preferred stock for net cash proceeds of $2,367,414. In May 1999,
DigitalWork.com issued 11,471,276 shares of Series C convertible preferred
stock for net cash proceeds of $12,343,243 including the conversion of the
promissory notes totaling $600,000. In December 1999, DigitalWork.com issued
4,359,305 shares of Series D convertible preferred stock for net cash proceeds
of $31,236,912 and stockholders' receivables of $5,146,250. 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>
F-12
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
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 in which the aggregate
gross proceeds to DigitalWork.com are at least $10 million and the market value
of DigitalWork.com is at least $50 million 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 in which the
aggregate gross proceeds to DigitalWork.com are at least $20 million and the
market value of DigitalWork.com is at least $350 million 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.
F-13
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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
F-14
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
$5,904,257 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
$780,682 for the year ended December 31, 1999 included in non-cash charges in
the statements of operations.
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 $4.29 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) $ (15,396,719)
Pro forma.................................. $(1,475,106) $ (15,443,614)
Net loss per share basic and diluted:
As reported................................ $ (1.22)
Pro forma.................................. $ (1.22)
</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.
F-15
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
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).
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 fair value of the warrant, as calculated using the Black-
Scholes method, totaled $1.4 million. The warrant was exercisable on the date
of issuance and expires on December 4, 2004.
In connection with a third-party agreement (see Note 7), 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.
F-16
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
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>
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 DigitalWork.com's
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 $2.0 million 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 will record
and amortize the fee 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.
F-17
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
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 $6.0 million 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).
10. Events Subsequent to Date of Auditors' Report (unaudited)
Option Activity
From January 1, 2000 to March 10, 2000, options to purchase 1,201,500 shares
of common stock were granted to employees pursuant to the 1998 Stock Plan with
exercise prices of between $3.00 and $4.20 per share. The options vest over a
four-year term and have a maximum life of ten years. The Company estimates that
additional deferred compensation of $10.6 million will be recorded as a result
of these option grants and will be amortized to expense using the graded
vesting method.
Amended and Restated 1998 Stock Option Plan
In February 2000, DigitalWork.com amended the 1998 Stock Option Plan (the
Amended Plan), subject to Board of Director and stockholder approval. Under the
Amended Plan, up to 8,257,560 shares of DigitalWork.com's common stock may be
granted to employees, directors, or consultants. On January 1 of each year
beginning in 2001, the number of shares reserved automatically increases by the
lesser of 1,500,000 shares, 4% of outstanding shares, or an amount determined
by the Board of Directors. The types of awards that may be made under the
Amended Plan include the grant of incentive stock options and the grant of
nonqualified stock options. The exercise price for incentive stock options may
not be less than 100% of the fair market value of DigitalWork.com's common
stock on the date of grant.
2000 Employee Stock Purchase Plan
In February 2000, DigitalWork.com adopted the 2000 Employee Stock Purchase
Plan (the "2000 Purchase Plan"), subject to Board of Director and stockholder
approval. A total of 750,000 shares of common stock have been
F-18
<PAGE>
DIGITALWORK.COM, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
reserved for issuance under the 2000 Purchase Plan. The 2000 Purchase Plan
permits eligible employees to acquire shares of DigitalWork.com's common stock
through periodic payroll deductions of up to 10% of total compensation. No
employee may purchase common stock with a fair value of more than $25,000 in
any calendar year. Each purchase period will have a maximum duration of 6
months. Purchases occur on the last day of each June and December of each
offering period. The price at which the commons stock may be purchased is 85%
of the lesser of the fair market value of DigitalWork.com's common stock on
each employee's applicable enrollment date or on the last day of the respective
purchase period. The initial purchase period commences on the effectiveness of
the initial public offering and will end on the last business day of December
2000. The 2000 Purchase Plan will terminate ten years from the date of
adoption.
F-19
<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 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.
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."
<PAGE>
6,250,000 Shares
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 6,250,000 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............ 95,000
Blue Sky Fees and Expenses.................................... 3,000
Printing and Engraving Expenses............................... 250,000
Legal Fees and Expenses....................................... 400,000
Accounting Fees and Expenses.................................. 400,000
Director and Officer Securities Act Liability Insurance....... 300,000
Transfer Agent and Registrar Fees............................. 12,000
Miscellaneous Expenses........................................ 6,740
----------
Total..................................................... $1,500,000
==========
</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. The price
per share was negotiated among the founders. 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 as a transaction
by an issuer not involving a public offering. Based upon information we
provided to Messrs. Schultz, Terrill and Getner and their relationship with our
company, each had adequate access to information about our company. We did not
make any offer to sell the securities by means of a general solicitation or
general advertising within the meaning of Rule 502 of Regulation D under the
Securities Act.
Also during May 1998, we issued 1,733,339 shares of Series A convertible
preferred at $0.1875 per share of our capital stock, for an aggregate purchase
price of approximately $325,001 to seven individual and entity accredited
investors. We determined the price per share through arms-length negotiations
with the 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 and Section 4(2) of the
Securities Act. Based upon representations made to us by the investors,
information we supplied to the investors and the relationship among us and the
investors, all investors had adequate access to information about our company.
In addition, based upon representations made by the investors to us, the
investors were able to bear the financial risk of the investment. The investors
represented their intentions to acquire the securities for investment only and
not with a view to offer for sale in connection with any distribution thereof
and appropriate legends were affixed to the certificates representing the
securities. We did not make any offer to sell the securities by means of a
general solicitation or general advertising within the meaning of Regulation D
of the Securities Act.
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
business consulting services and (ii) 95,240 shares of
II-2
<PAGE>
Common Stock in exchange for $200 and business consulting services. The price
per share was set by us with Invest Line through arms length negotiations. 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. We determined
the price per share through arms-length negotiations with the 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 and Section 4(2) of the Securities Act. Based upon
representations made to us by the investors, information we supplied to the
investors and the relationship among us and the investors, all investors had
adequate access to information about our company. In addition, based upon
representations made by the investors to us, the investors were able to bear
the financial risk of the investment. The investors represented their
intentions to acquire the securities for investment only and not with a view to
offer for sale in connection with any distribution thereof and appropriate
legends were affixed to the certificates representing the securities. We did
not make any offer to sell the securities by means of a general solicitation or
general advertising within the meaning of Regulation D of the Securities Act.
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 $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.
We determined the price per share based upon arms length negotiations with the
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 and Section 4(2) of the Securities Act. Based
upon representations made to us by the investors, information we supplied to
the investors and the relationship among us and the investors, all investors
had adequate access to information about our company. In addition, based upon
representations made by the investors to us, the investors were able to bear
the financial risk of the investment. The investors represented their
intentions to acquire the securities for investment only and not with a view to
offer for sale in connection with any distribution thereof and appropriate
legends were affixed to the certificates representing the securities. We did
not make any offer to sell the securities by means of a general solicitation or
general advertising within the meaning of Regulation D of the Securities Act.
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 and
Section 4(2) of the Securities Act. Based upon representations made to us by
the investors, information we supplied to the investors and the relationship
among us and the investors, all investors had adequate access to information
about our company. In addition, based upon representations made by the
investors to us, the investors were able to bear the financial risk of the
II-3
<PAGE>
investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to offer for sale in
connection with any distribution thereof and appropriate legends were affixed
to the certificates representing the securities. We did not make any offer to
sell the securities by means of a general solicitation or general advertising
within the meaning of Regulation D of the Securities Act.
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 and Section 4(2) of the
Securities Act.
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. We issued these shares and
warrants in reliance upon an exemption from registration under Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
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 $0.025 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.
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-4
<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 Employment Agreement between Registrant and Robert A.
Schultz
10.11 Employment Agreement between Registrant and Craig A.
Terrill
10.12 Employment Agreement between Registrant and David P. Aniol
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.
10.22* Form of Rights Agreement between DigitalWork.com, Inc. and
Chase Mellon Shareholder Services L.L.C. as Rights Agent
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
23.1 Consent of Ernst & Young LLP
23.2* Consent of Freeborn & Peters (contained in Exhibit 5.1)
23.3* Consent of Edward C. Coopola
24.1* Power of Attorney (See page II-6)
27.1* Financial Data Schedule
</TABLE>
- --------
* Previously filed.
+ Subject to a confidential treatment request.
*** To be filed by amendment.
(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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on April 12, 2000.
DigitalWork.com, Inc.
/s/ Robert A. Schultz
By: _________________________________
Robert A. Schultz,
Chairman of the Board of Directors
and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities indicated on April 12, 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)
* President and Chief Operating Officer
___________________________________________
Craig A. Terrill
* Chief Financial Officer (Principal
___________________________________________ Financial and Accounting Officer)
David Aniol
* Director
___________________________________________
Raj Atluru
* Director
___________________________________________
Warren Packard
* Director
___________________________________________
</TABLE> Marc Benioff
/s/ Robert A. Schultz
*By: ________________________________
Robert A. Schultz
Attorney-in-Fact
II-7
<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 Employment Agreement between Registrant and Robert A. Schultz
10.11 Employment Agreement between Registrant and Craig A. Terrill
10.12 Employment Agreement between Registrant and David P. Aniol
10.18* 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-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
10.22* Form of Rights Agreement between DigitalWork.com, Inc. and
Chase Mellon Shareholder Services L.L.C. as Rights Agent.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Freeborn & Peters (contained in Exhibit 5.1)
23.3* Consent of Edward C. Coopola
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
- --------
*Filed previously.
+Subject to a confidential treatment request.
***To be filed by amendment.
II-9
<PAGE>
EXHIBIT 10.4
This Warrant has not been registered under the Securities Act of 1933, as
amended, or any applicable state securities laws, and may not be sold or
transferred unless such sale or transfer is in accordance with the registration
requirements of such Act and applicable laws or an opinion of counsel reasonably
satisfactory to DigitalWork.com, Inc. that such registration is not required.
SERIES D CONVERTIBLE PREFERRED STOCK
PURCHASE WARRANT
Warrant No. Attractor Number of Shares _____________
DIGITALWORK.COM, INC.
1. Issuance. This Warrant is issued to Attractor Institutional LP by
--------
DigitalWork.com, Inc., a Delaware corporation (hereinafter with its successors
called the "Company").
2. Exercise of Warrant to Purchase Series D Preferred Stock. Subject to
--------------------------------------------------------
the terms and conditions hereinafter set forth, the registered holder of this
Warrant (the "Holder"), commencing on the date set forth on the signature page
hereof, is entitled upon surrender of this Warrant with the subscription form
annexed hereto duly executed, at the office of the Company, 230 West Monroe
Street, Suite 1950, Chicago, Illinois 60606, or such other office as the
Company shall notify the Holder of in writing, to purchase from the Company that
certain number of shares as determined in the formula set forth in Section 2 of
that certain Warrant Purchase Agreement among the Company and the Holder, among
others, dated December 2, 1999, fully paid and nonassessable shares of Series D
Convertible Preferred Stock of the Company, par value $0.005 per share ("Series
D Preferred Stock") at $8.36 per share (the "Purchase Price"), which price is
identical to the purchase price per share of Series D Preferred Stock the
Company sold to the Purchasers set forth in that certain Series D Preferred
Stock Purchase Agreement among the Company and the Purchasers dated as of
December 2, 1999 (the "Purchase Agreement"),.
3. Payment of Purchase Price.
-------------------------
(a) The Purchase Price may be paid (i) in cash or by check, (ii) by
the surrender by the Holder to the Company of any promissory notes or other
obligations issued by the Company, with all such notes and obligations so
surrendered being credited against the Purchase Price in an amount equal to the
principal amount thereof plus accrued interest to the date of surrender, (iii)
through delivery by the Holder to the Company of other securities issued by the
Company, with such securities being credited against the Purchase Price in an
amount equal to the Fair Market Value thereof, as determined below.
(b) The Holder may elect to receive, without the payment by the
Holder of any additional consideration, shares equal to the value of this
Warrant or any portion hereof by the surrender of this Warrant or such portion
to the Company, with the net issue election notice
Page 1 of 6
<PAGE>
annexed hereto duly executed, at the office of the Company. Thereupon, the
Company shall issue to the Holder such number of fully paid and nonassessable
shares of Series D Preferred Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where
X = the number of shares to be issued to the Holder pursuant to this
Section 3(b).
Y = the number of shares covered by this Warrant in respect of which
the net issue election is made pursuant to this Section 3(b).
A = the Fair Market Value of one share of Series D Preferred Stock at
the time the net issue election is made pursuant to this Section 3(b).
B = the Purchase Price.
Where "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 multiplied by the number of shares of Common Stock a share of
Series D Preferred would then convert into. 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
for the five (5) trading days before such date, 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 multiplied by the number of shares of Common
Stock a share of Series D Preferred would then convert into;
(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 the five (5) trading days before such date, the Fair
Market Value of a share of Series D Preferred shall be a determined in good
faith by the mutual agreement of the parties.
Page 2 of 6
<PAGE>
4. Partial Exercise. This Warrant may be exercised in part, and the
----------------
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which this
Warrant shall not have been exercised.
5. Issuance Date. The person or persons in whose name or names any
-------------
certificate representing shares of Series D Preferred Stock is issued hereunder
shall be deemed to have become the holder of record of the shares represented
thereby as at the close of business on the date this Warrant is exercised with
respect to such shares, whether or not the transfer books of the Company shall
be closed.
6. Expiration Date; Automatic Exercise. This Warrant shall expire at the
-----------------------------------
close of business on December 2, 2004 (i.e. five years from the execution of the
Purchase Agreement), and shall be void thereafter.
7. Reserved Shares; Valid Issuance. The Company covenants that it will at
-------------------------------
all times from and after the date hereof take such action as is necessary to
reserve and keep available such number of its authorized shares of Series D
Preferred Stock and Common Stock, $0.005 par value (the "Common Stock"), free
from all preemptive or similar rights therein, as will be sufficient to permit,
respectively, the exercise of this Warrant in full and the conversion into
shares of Common Stock of all shares of Series D Preferred Stock receivable upon
such exercise. The Company further covenants that such shares as may be issued
pursuant to such exercise and conversion will, upon issuance, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
8. Stock Dividends. If after the date hereof the Company shall subdivide
---------------
the Series D Preferred Stock, by split-up or otherwise, or combine the Series D
Preferred Stock, or issue additional shares of Series D Preferred Stock in
payment of a stock dividend on the Series D Preferred Stock, the number of
shares issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination, and the Purchase Price
shall forthwith be proportionately decreased in the case of a subdivision or
stock dividend, or proportionately increased in the case of a combination.
9. Mergers and Reclassifications. If after the date hereof there shall be
-----------------------------
any reclassification, capital reorganization or change of the Series D Preferred
Stock (other than as a result of a subdivision, combination or stock dividend
provided for in Section 8 hereof), or any consolidation of the Company with, or
merger of the Company into, another corporation or other business organization
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
outstanding Series D Preferred Stock), or any sale or conveyance to another
corporation or other business organization of all or substantially all of the
assets of the Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or conveyance, lawful
provisions shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the Holder, so that the
Holder shall thereafter have the right to purchase, at a total price not to
exceed that payable upon the exercise of this Warrant in full, the kind and
amount of shares of stock and other securities and property receivable upon such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Series D Preferred Stock which
might have been purchased by the Holder immediately prior to such
reclassification, reorganization, change,
Page 3 of 6
<PAGE>
consolidation, merger, sale or conveyance (or, if there are no holders of Series
D Preferred Stock at such time, by a holder of the number of shares of Common
Stock which might have been acquired by the Holder immediately prior to such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance upon the exercise of this Warrant in full and the conversion into
shares of Common Stock of all shares of Series D Preferred Stock receivable upon
such exercise), and in any such case appropriate provisions shall be made with
respect to the rights and interest of the Holder to the end that the provisions
hereof (including without limitation, provisions for the adjustment of the
Purchase Price and the number of shares issuable hereunder) shall thereafter be
applicable in relation to any shares of stock or other securities and property
thereafter deliverable upon exercise hereof.
10. Fractional Shares. In no event shall any fractional share of Series D
-----------------
Preferred Stock be issued upon any exercise of this Warrant. If, upon exercise
of this Warrant as an entirety, the Holder would, except as provided in this
Section 11, be entitled to receive a fractional share of Series D Preferred
Stock, then the Company shall issue the next higher number of full shares of
Series D Preferred Stock, issuing a full share with respect to such fractional
share.
11. Notices of Record Date, Etc. In the event of:
---------------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company, or
sale or conveyance of all or substantially all of its assets, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.
12. Other Warrants. This Warrant is one of a series of warrants
--------------
(collectively, the "Warrants") that were issued by the Company to members of the
Attractor Group pursuant to the Purchase Agreement.
13. Warrant Register; Transfers, Etc.
---------------------------------
(a) The Company will maintain a register containing the names and
addresses of the registered holders of the Warrants. The Holder may change its
address as shown on the
Page 4 of 6
<PAGE>
warrant register by written notice to the Company requesting such change. Any
notice or written communication required or permitted to be given to the Holder
may be given by certified mail or delivered to the Holder at its address as
shown on the warrant register.
(b) Subject to compliance with applicable federal and state
securities laws, this Warrant may be transferred by the Holder with respect to
any or all of the shares purchasable hereunder. Upon surrender of this Warrant
to the Company, together with the assignment hereof properly endorsed, for
transfer of this Warrant as an entirety by the Holder, the Company shall issue a
new warrant of the same denomination to the assignee. Upon surrender of this
Warrant to the Company, together with the assignment hereof properly endorsed,
by the Holder for transfer with respect to a portion of the shares of Series D
Preferred Stock purchasable hereunder, the Company shall issue a new warrant to
the assignee, in such denomination as shall be requested by the Holder hereof,
and shall issue to such Holder a new warrant covering the number of shares in
respect of which this Warrant shall not have been transferred.
(c) In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company,
provided, however, that so long as Holder is the registered holder of this
Warrant, no indemnity shall be required other than its written agreement to
indemnify the Company against any loss arising from the issuance of such new
warrant.
14. Registration Rights Agreement, Stockholders Agreement and Purchase
------------------------------------------------------------------
Agreement. Each of the Holder and the Company covenants to execute, and become
- ---------
a party to, the Amended and Restated Registration Rights Agreement among the
Company and the Purchasers of the Series D Preferred Stock and the Company's
Series C Convertible Preferred Stock ("Series C Preferred Stock") dated December
2, 1999 (pursuant to which the holder of this Warrant will become an Investor
thereunder and the shares of Series D Preferred Stock purchased pursuant to this
Warrant shall be Registrable Stock and Series D Registrable Stock (each as
defined therein)) and the Amended and Restated Stockholders Agreement among the
Company and the Purchasers of the Series D Preferred Stock and the Series C
Preferred Stock dated December 2, 1999, with respect to the shares of Series D
Preferred Stock subject to this Warrant. The holder of this Warrant shall be
entitled to the benefits and subject to the obligations set forth in the
Purchase Agreement with respect to the shares of Series D Preferred Stock it
purchases pursuant to this Warrant.
15. No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation, as amended, or through any reclassification, capital
reorganization, consolidation, merger, sale or conveyance of assets,
dissolution, liquidation, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder.
Page 5 of 6
<PAGE>
16. Governing Law. The provisions and terms of this Warrant shall be
-------------
governed by and construed in accordance with the internal laws of the State of
Delaware.
17. Successors and Assigns. This Warrant shall be binding upon the
----------------------
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns. 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 Series D Preferred; 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 Series D Preferred
held or acquired by affiliated persons or persons under common management shall
be aggregated together and treated as one such holder.
Dated: December 31, 1999 DigitalWork.com, Inc.,
A Delaware Corporation
By: __________________________________________
Name: Craig A. Terrill
Attest: Title: President and Chief Operating Officer
__________________________________
Page 6 of 6
<PAGE>
Subscription
To: ________________________________ Date: _______________________________
The undersigned hereby subscribes for ______________ shares of Series D
Preferred Stock covered by this Warrant. The undersigned hereby represents and
warrants to the Company all of the representation and warranties set forth in
Article III of that certain Series D Convertible Preferred Stock Purchase
Agreement dated as of December 2, 1999 as though the same were full set forth
herein. The certificate(s) for such shares shall be issued in the name of the
undersigned or as otherwise indicated below:
________________________________________
Signature
________________________________________
Name for Registration
________________________________________
Mailing Address
Net Issue Election Notice
To:_________________________________ Date:________________________________
The undersigned hereby elects under Section 3(b) to surrender the right to
purchase _______ shares of Eligible Preferred Stock pursuant to this Warrant.
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.
________________________________________
Signature
________________________________________
Name for Registration
________________________________________
Mailing Address
<PAGE>
Assignment
For value received ____________________________ hereby sells, assigns
and transfers unto
________________________________________________________________________.
Please print or typewrite name and address of Assignee
______________________________________________ the within Warrant, and does
hereby irrevocably constitute and appoint ______________________________ its
attorney to transfer the within Warrant on the books of the within named Company
with full power of substitution on the premises.
Dated:_______________________
________________________________
In the Presence of:
_____________________________
<PAGE>
EXHIBIT 10.6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
DIGITALWORK.COM, INC.
STOCK SUBSCRIPTION WARRANT
December 29, 1999
1. General.
-------
(a) THIS CERTIFIES that, for value received, AMERICA ONLINE, INC.
("AOL"), or assigns, is entitled to subscribe for and purchase from
DIGITALWORK.COM, INC., a Delaware corporation (the "Corporation"), at any time
or from time to time during the period (the "Exercise Period") commencing with
the date hereof and ending on the earlier of (i) the third (3rd) anniversary of
the Corporation's initial firmly written public offering of Common Stock, $0.005
par value (the "Common Stock") of the Corporation (the "IPO") and (ii) the fifth
(5th) anniversary of the date hereof, on the terms and subject to the provisions
hereinafter set forth, up to 276,000 of shares (subject to adjustment as
provided herein) of fully paid and non-assessable shares of Series D Preferred
Stock, $0.005 par value, of the Corporation, at a price per share (the "Warrant
Price") of $8.36 (subject to adjustment as provided herein) or in the event the
Preferred Stock shall prior to exercise or exchange of this Warrant have been
converted into Common Stock, $0.005 par value (the "Common Stock") of the
Corporation as a result of an automatic conversion event (as defined in Article
IV, Section 3.2 of the Amendment of the Amended and Restated Certificate of
Incorporation of the Corporation), that number of shares of Common Stock into
which such number of shares of Preferred Stock is converted ("Mandatory
Conversion Event") at any time or from time to time during the Exercise Period.
The shares of capital stock of the Corporation issuable upon exercise or
exchange of this Warrant are sometimes hereinafter referred to as the "Warrant
Shares," and, in connection therewith, all references herein to Warrant Shares
shall mean Preferred Stock until the occurrence of a Mandatory Conversion Event,
and upon and at all times after, the occurrence of a Mandatory Conversion Event,
shall mean Common Stock.
2. Exercise of Warrant.
-------------------
The rights represented by this Warrant may be exercised by the holder
hereof in whole or in part, at any time or from time to time during the Exercise
Period, by the surrender of
<PAGE>
this Warrant (properly endorsed) at the office of the Corporation at 230 West
Monroe Street, Suite 1950, Chicago, Illinois 60606, or at such other agency or
office of the Corporation in the United States of America as it may designate by
notice in writing to the holder hereof at the address of such holder appearing
on the books of the Corporation, and by payment (either in cash, by check, by
cancellation of indebtedness and/or in shares of capital stock of the
Corporation valued at Fair Market Value (as hereinafter defined) on the date of
such exercise) to the Corporation of the Warrant Price for each Warrant Share
being purchased. In the event of the exercise of the rights represented by this
Warrant, a certificate or certificates for the Warrant Shares so purchased,
registered in the name of the holder, and if this Warrant shall not have been
exercised for all of the Warrant Shares, a new Warrant, registered in the name
of the holder hereof, of like tenor to this Warrant, shall be delivered to the
holder hereof within a reasonable time, not exceeding ten days, after the rights
represented by this Warrant shall have been so exercised. The person in whose
name any certificate for Warrant Shares is issued upon exercise of this Warrant
shall for all purposes be deemed to have become the holder of record of such
shares on the date on which the Warrant was surrendered and payment of the
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Corporation are closed,
such person shall be deemed to have become the holder of such shares at the
close of business on the next succeeding date on which the stock transfer books
are open.
3. Exchange of Warrant.
-------------------
(a) In addition to, and independent of, the rights of the holder of
this Warrant set forth in Section 2 hereof, the holder hereof may at any time or
from time to time elect to receive, without the payment by the holder of any
additional consideration, that number of Warrant Shares determined as
hereinafter provided in this Section 3 by the surrender of this Warrant or any
portion hereof to the Corporation, accompanied by an executed Notice of Exchange
in substantially the form thereof attached hereto (the "Net Issue Election").
Thereupon, the Corporation shall issue to the holder hereof such number of fully
paid and nonassessable Warrant Shares as is computed using the following
formula:
X = Y (A-B)
-------
A
where X = the number of Warrant Shares to be issued to the holder pursuant to
this Section 3.
Y = the number of Warrant Shares covered by this Warrant in respect of
which the Net Issue Election is made pursuant to this Section 3.
A = the Fair Market Value (as hereinafter defined) of one Warrant Share
determined at the time the Net Issue Election is made pursuant to
this Section 3 (the "Determination Date").
B = the Warrant Price in effect under this Warrant at the time the Net
Issue Election is made pursuant to this Section 3.
2
<PAGE>
For purposes of the above calculation, "Fair Market Value" of one Warrant Share
as of the Determination Date shall mean:
(i) if as a result of a Mandatory Conversion Event the Warrant
Shares mean Common Stock as set forth in Section 1, then (A) if the Common Stock
of the Corporation is not then traded on a national securities exchange, the
average of the closing prices quoted on the National Association of Securities
Dealers, Inc. Automated Quotation National Market System, if applicable, or the
average of the last bid and asked prices of the Common Stock quoted in the over-
the-counter-market or (B) if the Common Stock is then traded on a national
securities exchange, the average of the high and low prices of the Common Stock
listed on the principal national securities exchange on which the Common Stock
is so traded, in each case for the twenty (20) trading days immediately
preceding the Determination Date;
(ii) in the event of a Warrant Exchange in connection with a
Corporate Transaction, the value per share of Common Stock received or
receivable by each holder thereof (assuming, in the case of a sale of assets,
the Corporation is liquidated immediately following such sale and the
consideration paid to the Corporation is immediately distributed to its
stockholders); and
(iii) in all other circumstances, the fair market value per share
of Common Stock as determined by (i) the Corporation's Board of Directors in
good faith after taking into consideration all factors it deems appropriate,
including, without limitation, recent sale and offer prices of the capital stock
of the Corporation in private transactions negotiated at arm's length, or (ii) a
nationally recognized independent investment banking firm jointly selected by
the Corporation and the holder of this Warrant or, if such selection cannot be
made within five business days after delivery of the Notice of Exchange referred
to above, by a nationally recognized independent investment banking firm
selected by the American Arbitration Association then obtaining, at the sole
discretion of AOL.
The closing of any Warrant Exchange shall take place at the offices of the
Corporation on the date specified in the Notice of Exchange (the "Exchange
Date"), which shall be not less than five and not more than 30 days after the
delivery of such Notice. At such closing, the Corporation shall issue and
deliver to the holder or its designee a certificate or certificates for the
Warrant Shares to be issued upon such Warrant Exchange, registered in the name
of the holder or such designee, and if such Warrant Exchange shall not have been
for all Warrant Shares, a new Warrant, registered in the name of the holder, of
like tenor to this Warrant for the number of shares still subject to this
Warrant following such Warrant Exchange.
4. Adjustment of Warrant Price.
---------------------------
(a) The Warrant Price and number of Warrant Shares shall be subject
to adjustment from time to time as follows:
(i) If, at any time during the Exercise Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common
3
<PAGE>
Stock or by a subdivision or split-up of shares of Common Stock, then, following
the record date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or split-up, the Warrant Price shall
be appropriately decreased and the number of shares of Preferred Stock issuable
upon the exercise of this Warrant or the Common Stock issuable upon conversion
of the Preferred Stock shall be appropriately increased, in each case in
proportion to such increase in outstanding shares.
(ii) If, at any time during the Exercise Period, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Warrant Price shall be appropriately increased and the number
of shares of Preferred Stock issuable upon the exercise of this Warrant or the
Common Stock issuable upon conversion of the Preferred Stock shall be
appropriately decreased, in each case, in proportion to such decrease in
outstanding shares.
(iii) All calculations under this Section 4 shall be made to the
nearest one tenth (1/10) of a cent or to the nearest one tenth (1/10) of a
share, as the case may be.
(b) Whenever the Warrant Price shall be adjusted as provided in this
Section 4 the Corporation shall forthwith file, at the office of the Corporation
or any transfer agent designated by the Corporation for the Common Stock, a
statement, signed by its chief financial officer, showing in detail the facts
requiring such adjustment and the adjusted Warrant Price. The Corporation shall
also cause a copy of such statement to be sent by first-class certified mail,
return receipt requested, postage prepaid, to each holder of a Warrant at his or
its address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions set forth immediately below.
(c) In the event the Corporation shall propose to take any action of
the types described in Section 4(a)(i) or (ii) or Section 11, the Corporation
shall give notice to each holder of a Warrant in the manner set forth herein,
which notice shall specify the record date, if any, with respect to any such
action and the date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Warrant Price then in effect and the number,
kind or class of shares or other securities or property which shall be delivered
or purchasable upon the occurrence of such action or deliverable upon exercise
of this Warrant. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 20 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 30
days prior to the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any such
action.
4
<PAGE>
5. Covenants as to Preferred Stock.
--------------------------------
(a) The Corporation covenants and agrees that all shares of
Preferred Stock which may be issued upon the exercise of the rights represented
by this Warrant, and all shares of Common Stock which may be issued upon the
conversion of the Preferred Stock will, upon issuance, be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issuance thereof. The Corporation further covenants and agrees that the
Corporation will from time to time take all such action as may be requisite to
assure that the stated or par value per share of the Preferred Stock and the
Common Stock is at all times equal to or less than the then effective Warrant
Price per share of Preferred Stock issuable upon exercise of this Warrant. The
Corporation further covenants and agrees that the Corporation will at all times
have authorized and reserved, free from preemptive rights, a sufficient number
of (a) shares of its Preferred Stock to provide for the exercise of the rights
represented by this Warrant and (b) shares of Common Stock to provide for the
conversion of the Preferred Stock issuable upon exercise of this Warrant. The
Corporation further covenants and agrees that if any shares of capital stock to
be reserved for the purpose of the issuance of shares of Preferred Stock upon
the exercise of this Warrant require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon exercise, then the Corporation will in good
faith and expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If and so long as the Preferred Stock or Common
Stock issuable upon the exercise of the rights represented by this Warrant is
listed on any national securities exchange, the Corporation will, if permitted
by the rules of such exchange, list and keep listed on such exchange, upon
official notice of issuance, all shares of such capital stock.
(b) The Corporation further covenants and agrees that the holder
hereof will be entitled to the benefits of any adjustment prior to the exercise
hereof pursuant to any anti-dilution protection and any notice of adjustment of
the conversion price provided to the holders of Preferred Stock in accordance
with the Corporation's Certificate of Incorporation.
6. No Shareholder Rights.
---------------------
This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a shareholder of the Corporation.
7. Restrictions on Transfer.
------------------------
The holder of this Warrant acknowledges that neither this Warrant
nor the Warrant Shares have been registered under the Securities Act of 1933, as
amended (the "Securities Act") and the holder of this Warrant agrees that no
sale, transfer, assignment, hypothecation or other disposition of this Warrant
or the Warrant Shares shall be made in the absence of (a) current registration
statement under the Securities Act as to this Warrant or the Warrant Shares and
the registration or qualification of this Warrant or the Warrant Shares under
any applicable state securities laws is then in effect or (ii) an opinion of
counsel reasonably satisfactory to the Corporation to the effect that such
registration or qualification is not required.
5
<PAGE>
Each certificate or other instrument for Warrant Shares issued upon exercise of
this Warrant shall, if required under the Securities Act or the rules
promulgated thereunder, be imprinted with a legend substantially to the
foregoing effect.
8. Representations and Warranties.
------------------------------
(a) The Corporation hereby represents and warrants to AOL as of
the date hereof:
(i) The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of
(ii) Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.
(iii) On the date hereof, the authorized capital stock of
the Corporation consists of Sixty Two Million Five Hundred Twenty Nine
Thousand One Hundred Forty Six (62,529,146) shares, such shares being
divided into Forty One Million Six Hundred Thirty Three Thousand Seven
Hundred Eighty Six (41,633,786) shares of Common Stock, par value $0.005
per share, and Twenty Million Eight Hundred Ninety Five Thousand Three
Hundred Sixty (20,895,360) shares of Preferred Stock, par value $0.005 per
share, of which One Million Eight Hundred Sixty Six Thousand Six Hundred
Seventy Two (1,866,672) shares are denominated Series A Preferred Stock
("Series A Preferred"), Two Million Three Hundred Seventy-Four Thousand
(2,374,000) shares are denominated Series B Preferred Stock ("Series B
Preferred"), Eleven Million Four Hundred Seventy One Thousand Two Hundred
Seventy Six (11,471,276) shares are denominated Series C Preferred Stock
("Series C Preferred") and Five Million One Hundred Eighty Three Thousand
Four Hundred Twelve (5,183,412) shares are denominated Series D Preferred
Stock ("Series D Preferred"). On the date hereof, Three Million Eight
Hundred Seventy Three Thousand Two Hundred Forty One (3,873,241) shares of
Common Stock will be validly issued and outstanding, fully paid and
nonassessable and One Million Eight Hundred Sixty Six Thousand Six Hundred
Seventy Two (1,866,672) shares of Series A Preferred, Two Million Three
Hundred Seventy Four Thousand (2,374,000) shares of Series B Preferred and
Eleven Million Four Hundred Seventy One Thousand Two Hundred Seventy Six
(11,471,276) shares of Series C Preferred and [Five Million One Hundred
Eighty Three Thousand Four Hundred Twelve (5,183,412)] shares of Series D
Preferred will be validly issued and outstanding, fully paid and
nonassessable. The stockholders of record and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Company,
and the number of shares of Common stock and the number of such
subscriptions, warrants, options, convertible securities, and other such
rights held by each are as set forth on the attached Schedule I.
----------
(iv) All corporate action on the part of the Corporation,
its board of directors, officers, and stockholders necessary for the
authorization, execution and
6
<PAGE>
delivery of this Warrant and the performance of the Corporation of its
obligations hereunder has been taken. This Warrant has been duly
authorized, executed and delivered by the Corporation. This Warrant
represents the valid and legally binding obligation of the Corporation,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting creditors' rights generally.
(v) The Corporation is not in violation of its certificate of
incorporation or by-laws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
Contract to which the Corporation is a party. The execution, delivery and
performance by the Corporation of the Transaction Agreements, and the
consummation by the Corporation of the transactions contemplated thereby
will not (i) materially violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of
any court, administrative agency or other governmental body currently
applicable to the Corporation or any of the properties or assets of the
Corporation, (ii) materially conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute (with due notice
or lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under any material Contract or
(iii) violate the certificate of incorporation or the by-laws of the
Corporation.
(vi) The Warrant Shares, when issued, sold and delivered in
accordance with the terms of this Warrant, will be duly and validly issued,
fully paid and nonassessable, and will be free of any preemptive or similar
rights.
(b) AOL hereby represents and warrants to the Corporation as follows:
(i) AOL is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business as now conducted and
as proposed to be conducted.
(ii) All corporate action on the part of AOL, its board of
directors, officers, and stockholders necessary for the authorization,
execution and delivery of this Warrant and the performance of AOL of its
obligations hereunder has been taken. This Warrant has been duly
authorized, executed and delivered by AOL and represents the valid and
legally binding obligation of AOL, enforceable in accordance with its
terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
creditor's rights generally.
(iii) The Warrant and the Warrant Shares to be acquired on the
exercise thereof (collectively, the "Securities") will be acquired by AOL
for investment for its own account, not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof, and AOL has no
present intention of selling, granting any participation in, or otherwise
distributing the same. AOL does not have any contract,
7
<PAGE>
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to any third person with respect to any of the
Securities.
(iv) AOL is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated by the Securities and Exchange Commission,
as presently in effect.
9. Rights of the Holder.
--------------------
(a) Anything contained herein to the contrary notwithstanding, the
shares of Preferred Stock issuable upon exercise of this Warrant and the
Common Stock issuable upon conversion of such shares of Preferred Stock
shall be entitled to all rights and benefits accorded thereto in any
investor rights or shareholders or similar agreement between and/or among
the Corporation and the holders of the Preferred Stock, and the Corporation
shall take all actions and shall execute and deliver all documents
necessary or desirable, including any amendments to such agreement(s) to
make the holder a party thereto.
(b) Anything contained herein to the contrary notwithstanding, the
holder of this Warrant shall be entitled to the rights set forth on
Exhibit A hereto.
---------
10. Transfer of Warrant; Amendment.
------------------------------
Subject to the restriction set forth in Section 7, this Warrant and all
rights hereunder are transferable, in whole, or in part, at the agency or office
of the Corporation referred to in Section 2, by the holder hereof in person or
by duly authorized attorney, upon surrender of this Warrant properly endorsed;
provided, however, that prior to the IPO, transfers by any holder of this
- -------- -------
Warrant to a person or entity other than an affiliate of such holder shall
require the prior written consent of the Corporation. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed, in blank, shall be deemed negotiable, and, when so
endorsed the holder hereof may be treated by the Corporation and all other
persons dealing with this Warrant as the absolute owner hereof for any purposes
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Corporation, any notice to the
contrary notwithstanding; but until each transfer on such books, the Corporation
may treat the registered holder hereof as the owner hereof for all purposes.
11. Reorganizations, Etc. In case, at any time during the Exercise Period, of
--------------------
any capital reorganization, of any reclassification of the stock of the
Corporation (other than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of the Corporation with or into another corporation (other than a consolidation
or merger in which the Corporation is the continuing operation and which does
not result in any change in the Common Stock) or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation, this Warrant shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other
8
<PAGE>
securities or property of the Corporation or of the corporation resulting from
such consolidation or surviving such merger or to which such properties and
assets shall have been sold to which such holder would have been entitled if he
had held the Preferred Stock issuable upon the exercise of this Warrant or the
Common Stock issuable upon conversion of the Preferred Stock immediately prior
to such reorganization, reclassification, consolidation, merger or sale. In any
such reorganization or other action or transaction described above, appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Warrant Price and of the number of
shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof.
12. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
--------------------------------------------
stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
13. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
14. Notices. All notices, advices and communications to be given or otherwise
-------
made to any party to this Agreement shall be deemed to be sufficient if
contained in a written instrument delivered in person or by telecopier or duly
sent by first class registered or certified mail, return receipt requested,
postage prepaid, or by overnight courier, or by electronic mail, with a copy
thereof to be sent by mail (as aforesaid) within 24 hours of such electronic
mail, addressed to such party at the address set forth below or at such other
address as may hereafter be designated in writing by the addressee to the
addresser listing all parties:
(a) If to the Corporation, to:
DigitalWork.com, Inc.
230 West Monroe Street, Suite 1950
Chicago, Illinois 60606
Attention: Craig Terrill, President
Telecopier:
e-mail address:
and
(b) If to AOL as follows:
9
<PAGE>
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Telecopier: (703) 265-2208
e-mail address:
Or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such deliver, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (ii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted. As used in this Section 13, "business day" shall
mean any day other than a day on which banking institutions in the Commonwealth
of Virginia are legally closed for business.
15. Binding Effect on Successors; Survival. This Warrant shall be binding upon
--------------------------------------
any corporation succeeding the Corporation by merger, consolidation or
acquisition of all or substantially all of the Corporation's assets. All of the
obligations of the Corporation relating to the Preferred Stock issuable upon the
exercise of this Warrant or the Common Stock issuable upon conversion of the
Preferred Stock shall survive the exercise and termination of this Warrant. All
of the covenants and agreements of the Corporation shall inure to the benefit of
the successors and assigns of AOL.
16. Descriptive Headings and Governing Law. The description headings of the
--------------------------------------
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the Commonwealth of Virginia.
17. Fractional Shares. No fractional shares shall be issued upon exercise of
-----------------
this Warrant. The Corporation shall, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then Fair Market Value of one Warrant Share.
* * *
10
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Warrant and
Warrant Agreement to be executed by their duly authorized officers on the date
first above written.
DIGITALWORK.COM, INC.
By: /s/ John Banta
Name: John Banta
Title: Vice President
11
<PAGE>
Form of Subscription
[To be signed upon exercise of Warrant]
The undersigned, the holder of the Warrant, hereby irrevocably elects
to exercise the purchase rights represented by such Warrant for, and to purchase
thereunder, _________ shares of _________ of DigitalWork.com, Inc. and herewith
makes payment of $_________ therefor, and requests that the certificates for
such shares be issued in the name of and delivered to, ______________________,
whose address is _________________________.
Dated:_____________
_________________________________
(Signature)
_________________________________
(Address)
12
<PAGE>
Notice of Exchange
(To be executed by the Holder in
order to exchange the Warrant.)
The undersigned hereby irrevocably elects to exchange this Warrant
into __________ shares (the foregoing number constituting the number of Warrant
Shares to be issued pursuant to Section 3 of this Warrant) of ________ of
DigitalWork.com, Inc., minus any shares to be deducted from the foregoing number
in accordance with the terms of this Warrant, according to the conditions
thereof. The undersigned desires to consummate such exchange on
________________.
Dated:
_____________________________
Name of Holder:
By:__________________________
13
<PAGE>
Form of Assignment
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and
transfers unto the right represented by the Warrant to purchase _______ shares
of _________ of DigitalWork.com, Inc., to which the Warrant relates, and
appoints Attorney to transfer such right on the books of [ISSUER], with full
power of substitution in the premises.
Dated:_____________
____________________________
(Signature)
Signed in the presence of:
______________________________
14
<PAGE>
EXHIBIT A
---------
Reference is made to the Series D Convertible Preferred Stock Purchase
Agreement dated as of December 2, 1999 (the "Series D Purchase Agreement"),
DigitalWork.com, Inc. and the Purchasers (as defined therein). Capitalized
terms used in this Exhibit A and not defined herein shall have the respective
---------
meanings assigned to them in the Series D Purchase Agreement.
The Company hereby covenants and agrees to grant to AOL, and does
hereby grant to AOL on and as of the date hereof, the rights set forth in
Sections 6.01, 6.02 and 6.07 of the Series D Purchase Agreement as if AOL were a
Purchaser thereunder, and such sections of the Series D Purchase Agreement are
incorporated herein by reference; provided, that for purposes of calculating
--------
AOL's percentage of equity ownership of the Corporation in Section 6.02 of the
Series D Purchase Agreement, AOL shall be deemed to be a holder of the number of
shares of Series D Preferred and/or Common Stock for which this Warrant is
exercisable.
15
<PAGE>
EXHIBIT 10.7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
DIGITALWORK.COM, INC.
STOCK SUBSCRIPTION WARRANT
December 22, 1999
1. General.
-------
(a) THIS CERTIFIES that, for value received, Dell USA, L.P. ("Dell"),
or assigns, is entitled to subscribe for and purchase from DIGITALWORK.COM,
INC., a Delaware corporation (the "Corporation"), at any time or from time to
time during the period (the "Exercise Period") commencing with the date hereof
and ending on the second anniversary of the date hereof, on the terms and
subject to the provisions hereinafter set forth, up to 150,000 of shares
(subject to adjustment as provided herein) of fully paid and non-assessable
shares of Series D Preferred Stock, $0.005 par value, of the Corporation, at a
price per share (the "Warrant Price") of $8.36 or in the event the Preferred
Stock shall prior to exercise or exchange of this Warrant have been converted
into Common Stock, $0.005 par value (the "Common Stock") of the Corporation as a
result of an automatic conversion event (as defined in Article IV, Section 3.2
of the Amendment of the Amended and Restated Certificate of Incorporation of the
Corporation), that number of shares of Common Stock into which such number of
shares of Preferred Stock is converted ("Mandatory Conversion Event") at any
time or from time to time during the Exercise Period.
The shares of capital stock of the Corporation issuable upon exercise or
exchange of this Warrant are sometimes hereinafter referred to as the "Warrant
Shares," and, in connection therewith, all references herein to Warrant Shares
shall mean Preferred Stock until the occurrence of a Mandatory Conversion Event,
and upon and at all times after, the occurrence of a Mandatory Conversion Event,
shall mean Common Stock.
2. Exercise of Warrant.
-------------------
The rights represented by this Warrant may be exercised by the holder
hereof in whole or in part, at any time or from time to time during the Exercise
Period, by the surrender of
<PAGE>
this Warrant (properly endorsed) at the office of the Corporation at 230 West
Monroe Street, Suite 1950, Chicago, Illinois 60606, or at such other agency or
office of the Corporation in the United States of America as it may designate by
notice in writing to the holder hereof at the address of such holder appearing
on the books of the Corporation, and by payment (either in cash, by check, by
cancellation of indebtedness and/or in shares of capital stock of the
Corporation valued at Fair Market Value (as hereinafter defined) on the date of
such exercise) to the Corporation of the Warrant Price for each Warrant Share
being purchased. In the event of the exercise of the rights represented by this
Warrant, a certificate or certificates for the Warrant Shares so purchased,
registered in the name of the holder, and if this Warrant shall not have been
exercised for all of the Warrant Shares, a new Warrant, registered in the name
of the holder hereof, of like tenor to this Warrant, shall be delivered to the
holder hereof within a reasonable time, not exceeding ten days, after the rights
represented by this Warrant shall have been so exercised. The person in whose
name any certificate for Warrant Shares is issued upon exercise of this Warrant
shall for all purposes be deemed to have become the holder of record of such
shares on the date on which the Warrant was surrendered and payment of the
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Corporation are closed,
such person shall be deemed to have become the holder of such shares at the
close of business on the next succeeding date on which the stock transfer books
are open.
3. Exchange of Warrant.
-------------------
(a) In addition to, and independent of, the rights of the holder of
this Warrant set forth in Section 2 hereof, the holder hereof may at any time or
from time to time elect to receive, without the payment by the holder of any
additional consideration, that number of Warrant Shares determined as
hereinafter provided in this Section 3 by the surrender of this Warrant or any
portion hereof to the Corporation, accompanied by an executed Notice of Exchange
in substantially the form thereof attached hereto (the "Net Issue Election").
Thereupon, the Corporation shall issue to the holder hereof such number of fully
paid and nonassessable Warrant Shares as is computed using the following
formula:
X = Y (A-B)
-------
A
where X = the number of Warrant Shares to be issued to the holder pursuant to
this Section 3.
Y = the number of Warrant Shares covered by this Warrant in respect of
which the Net Issue Election is made pursuant to this Section 3.
A = the Fair Market Value (as hereinafter defined) of one Warrant Share
determined at the time the Net Issue Election is made pursuant to
this Section 3 (the "Determination Date").
B = the Warrant Price in effect under this Warrant at the time the Net
Issue Election is made pursuant to this Section 3.
2
<PAGE>
For purposes of the above calculation, "Fair Market Value" of one Warrant Share
as of the Determination Date shall mean:
(i) if as a result of a Mandatory Conversion Event the Warrant
Shares mean Common Stock as set forth in Section 1, then (A) if the Common Stock
of the Corporation is not then traded on a national securities exchange, the
average of the closing prices quoted on the National Association of Securities
Dealers, Inc. Automated Quotation National Market System, if applicable, or the
average of the last bid and asked prices of the Common Stock quoted in the over-
the-counter-market or (B) if the Common Stock is then traded on a national
securities exchange, the average of the high and low prices of the Common Stock
listed on the principal national securities exchange on which the Common Stock
is so traded, in each case for the twenty (20) trading days immediately
preceding the Determination Date;
(ii) in the event of a Warrant Exchange in connection with a
Corporate Transaction, the value per share of Common Stock received or
receivable by each holder thereof (assuming, in the case of a sale of assets,
the Corporation is liquidated immediately following such sale and the
consideration paid to the Corporation is immediately distributed to its
stockholders); and
(iii) in all other circumstances, the fair market value per share
of Common Stock as determined by (i) the Corporation's Board of Directors in
good faith after taking into consideration all factors it deems appropriate,
including, without limitation, recent sale and offer prices of the capital stock
of the Corporation in private transactions negotiated at arm's length, or (ii) a
nationally recognized independent investment banking firm jointly selected by
the Corporation and the holder of this Warrant or, if such selection cannot be
made within five business days after delivery of the Notice of Exchange referred
to above, by a nationally recognized independent investment banking firm
selected by the American Arbitration Association then obtaining, at the sole
discretion of AOL.
The closing of any Warrant Exchange shall take place at the offices of the
Corporation on the date specified in the Notice of Exchange (the "Exchange
Date"), which shall be not less than five and not more than 30 days after the
delivery of such Notice. At such closing, the Corporation shall issue and
deliver to the holder or its designee a certificate or certificates for the
Warrant Shares to be issued upon such Warrant Exchange, registered in the name
of the holder or such designee, and if such Warrant Exchange shall not have been
for all Warrant Shares, a new Warrant, registered in the name of the holder, of
like tenor to this Warrant for the number of shares still subject to this
Warrant following such Warrant Exchange.
4. Adjustment of Warrant Price.
---------------------------
(a) The Warrant Price and number of Warrant Shares shall be subject
to adjustment from time to time as follows:
(i) If, at any time during the Exercise Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common
3
<PAGE>
Stock or by a subdivision or split-up of shares of Common Stock, then, following
the record date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or split-up, the Warrant Price shall
be appropriately decreased and the number of shares of Preferred Stock issuable
upon the exercise of this Warrant or the Common Stock issuable upon conversion
of the Preferred Stock shall be appropriately increased, in each case in
proportion to such increase in outstanding shares.
(ii) If, at any time during the Exercise Period, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Warrant Price shall be appropriately increased and the number
of shares of Preferred Stock issuable upon the exercise of this Warrant or the
Common Stock issuable upon conversion of the Preferred Stock shall be
appropriately decreased, in each case, in proportion to such decrease in
outstanding shares.
(iii) All calculations under this Section 4 shall be made to the
nearest one tenth (1/10) of a cent or to the nearest one tenth (1/10) of a
share, as the case may be.
(b) Whenever the Warrant Price shall be adjusted as provided in this
Section 4 the Corporation shall forthwith file, at the office of the Corporation
or any transfer agent designated by the Corporation for the Common Stock, a
statement, signed by its chief financial officer, showing in detail the facts
requiring such adjustment and the adjusted Warrant Price. The Corporation shall
also cause a copy of such statement to be sent by first-class certified mail,
return receipt requested, postage prepaid, to each holder of a Warrant at his or
its address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions set forth immediately below.
(c) In the event the Corporation shall propose to take any action of
the types described in Section 4(a)(i) or (ii) or Section 11, the Corporation
shall give notice to each holder of a Warrant in the manner set forth herein,
which notice shall specify the record date, if any, with respect to any such
action and the date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Warrant Price then in effect and the number,
kind or class of shares or other securities or property which shall be delivered
or purchasable upon the occurrence of such action or deliverable upon exercise
of this Warrant. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 20 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 30
days prior to the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any such
action.
4
<PAGE>
5. Covenants as to Preferred Stock.
--------------------------------
(a) The Corporation covenants and agrees that all shares of
Preferred Stock which may be issued upon the exercise of the rights represented
by this Warrant, and all shares of Common Stock which may be issued upon the
conversion of the Preferred Stock will, upon issuance, be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issuance thereof. The Corporation further covenants and agrees that the
Corporation will from time to time take all such action as may be requisite to
assure that the stated or par value per share of the Preferred Stock and the
Common Stock is at all times equal to or less than the then effective Warrant
Price per share of Preferred Stock issuable upon exercise of this Warrant. The
Corporation further covenants and agrees that the Corporation will at all times
have authorized and reserved, free from preemptive rights, a sufficient number
of (a) shares of its Preferred Stock to provide for the exercise of the rights
represented by this Warrant and (b) shares of Common Stock to provide for the
conversion of the Preferred Stock issuable upon exercise of this Warrant. The
Corporation further covenants and agrees that if any shares of capital stock to
be reserved for the purpose of the issuance of shares of Preferred Stock upon
the exercise of this Warrant require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon exercise, then the Corporation will in good
faith and expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If and so long as the Preferred Stock or Common
Stock issuable upon the exercise of the rights represented by this Warrant is
listed on any national securities exchange, the Corporation will, if permitted
by the rules of such exchange, list and keep listed on such exchange, upon
official notice of issuance, all shares of such capital stock.
(b) The Corporation further covenants and agrees that the holder
hereof will be entitled to the benefits of any adjustment prior to the exercise
hereof pursuant to any anti-dilution protection and any notice of adjustment of
the conversion price provided to the holders of Preferred Stock in accordance
with the Corporation's Certificate of Incorporation.
6. No Shareholder Rights.
---------------------
This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a shareholder of the Corporation.
7. Restrictions on Transfer.
------------------------
The holder of this Warrant acknowledges that neither this Warrant
nor the Warrant Shares have been registered under the Securities Act of 1933, as
amended (the "Securities Act") and the holder of this Warrant agrees that no
sale, transfer, assignment, hypothecation or other disposition of this Warrant
or the Warrant Shares shall be made in the absence of (a) current registration
statement under the Securities Act as to this Warrant or the Warrant Shares and
the registration or qualification of this Warrant or the Warrant Shares under
any applicable state securities laws is then in effect or (ii) an opinion of
counsel reasonably satisfactory to the Corporation to the effect that such
registration or qualification is not required.
5
<PAGE>
Each certificate or other instrument for Warrant Shares issued upon exercise of
this Warrant shall, if required under the Securities Act or the rules
promulgated thereunder, be imprinted with a legend substantially to the
foregoing effect.
6
<PAGE>
8. Rights of the Holder.
--------------------
(a) Anything contained herein to the contrary notwithstanding, the
shares of Preferred Stock issuable upon exercise of this Warrant and the
Common Stock issuable upon conversion of such shares of Preferred Stock
shall be entitled to all rights and benefits accorded thereto in any
investor rights or shareholders or similar agreement between and/or among
the Corporation and the holders of the Preferred Stock, and the Corporation
shall take all actions and shall execute and deliver all documents
necessary or desirable, including any amendments to such agreement(s) to
make the holder a party thereto.
(b) Anything contained herein to the contrary notwithstanding, the
holder of this Warrant shall be entitled to the rights set forth on
Exhibit A hereto.
---------
9. Transfer of Warrant; Amendment.
------------------------------
Subject to the restriction set forth in Section 7, this Warrant and all
rights hereunder are transferable, in whole, or in part, at the agency or office
of the Corporation referred to in Section 2, by the holder hereof in person or
by duly authorized attorney, upon surrender of this Warrant properly endorsed;
provided, however, that prior to the IPO, transfers by any holder of this
- -------- -------
Warrant to a person or entity other than an affiliate of such holder shall
require the prior written consent of the Corporation. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed, in blank, shall be deemed negotiable, and, when so
endorsed the holder hereof may be treated by the Corporation and all other
persons dealing with this Warrant as the absolute owner hereof for any purposes
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Corporation, any notice to the
contrary notwithstanding; but until each transfer on such books, the Corporation
may treat the registered holder hereof as the owner hereof for all purposes.
10. Reorganizations, Etc. In case, at any time during the Exercise Period, of
--------------------
any capital reorganization, of any reclassification of the stock of the
Corporation (other than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of the Corporation with or into another corporation (other than a consolidation
or merger in which the Corporation is the continuing operation and which does
not result in any change in the Common Stock) or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation, this Warrant shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other
7
<PAGE>
securities or property of the Corporation or of the corporation resulting from
such consolidation or surviving such merger or to which such properties and
assets shall have been sold to which such holder would have been entitled if he
had held the Preferred Stock issuable upon the exercise of this Warrant or the
Common Stock issuable upon conversion of the Preferred Stock immediately prior
to such reorganization, reclassification, consolidation, merger or sale. In any
such reorganization or other action or transaction described above, appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Warrant Price and of the number of
shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof.
11. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
--------------------------------------------
stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
12. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. Notices. All notices, advices and communications to be given or otherwise
-------
made to any party to this Agreement shall be deemed to be sufficient if
contained in a written instrument delivered in person or by telecopier or duly
sent by first class registered or certified mail, return receipt requested,
postage prepaid, or by overnight courier, or by electronic mail, with a copy
thereof to be sent by mail (as aforesaid) within 24 hours of such electronic
mail, addressed to such party at the address set forth below or at such other
address as may hereafter be designated in writing by the addressee to the
addresser listing all parties:
(a) If to the Corporation, to:
DigitalWork.com, Inc.
230 West Monroe Street, Suite 1950
Chicago, Illinois 60606
Attention: Craig Terrill, President
Telecopier:
e-mail address:
and
(b) If to Dell as follows:
8
<PAGE>
Paul Legris
Dell Ventures
c/o Dell Computer Corporation
Mail Stop 8066
One Dell Way
Round Rock, Texas 78682
With a copy to:
Thomas A. Welch, Jr.
Vice President and Deputy General Counsel
Legal Department
Dell Computer Corporation
Mail Stop 8033
One Dell Way
Round Rock, Texas 78682
Or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such deliver, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (ii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted. As used in this Section 13, "business day" shall
mean any day other than a day on which banking institutions in the Commonwealth
of Virginia are legally closed for business.
14. Binding Effect on Successors; Survival. This Warrant shall be binding upon
--------------------------------------
any corporation succeeding the Corporation by merger, consolidation or
acquisition of all or substantially all of the Corporation's assets. All of the
obligations of the Corporation relating to the Preferred Stock issuable upon the
exercise of this Warrant or the Common Stock issuable upon conversion of the
Preferred Stock shall survive the exercise and termination of this Warrant. All
of the covenants and agreements of the Corporation shall inure to the benefit of
the successors and assigns of AOL.
15. Descriptive Headings and Governing Law. The description headings of the
--------------------------------------
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the Commonwealth of Virginia.
16. Fractional Shares. No fractional shares shall be issued upon exercise of
-----------------
this Warrant. The Corporation shall, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then Fair Market Value of one Warrant Share.
* * *
9
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Warrant and
Warrant Agreement to be executed by their duly authorized officers on the date
first above written.
DIGITALWORK.COM, INC.
By: /s/ David P. Aniol
Name: D.P. Aniol
Title: CFO
10
<PAGE>
Form of Subscription
[To be signed upon exercise of Warrant]
The undersigned, the holder of the Warrant, hereby irrevocably elects
to exercise the purchase rights represented by such Warrant for, and to purchase
thereunder, _________ shares of _________ of DigitalWork.com, Inc. and herewith
makes payment of $_________ therefor, and requests that the certificates for
such shares be issued in the name of and delivered to, ______________________,
whose address is _________________________.
Dated:_____________
_________________________________
(Signature)
_________________________________
(Address)
11
<PAGE>
Notice of Exchange
(To be executed by the Holder in
order to exchange the Warrant.)
The undersigned hereby irrevocably elects to exchange this Warrant
into __________ shares (the foregoing number constituting the number of Warrant
Shares to be issued pursuant to Section 3 of this Warrant) of ________ of
DigitalWork.com, Inc., minus any shares to be deducted from the foregoing number
in accordance with the terms of this Warrant, according to the conditions
thereof. The undersigned desires to consummate such exchange on
________________.
Dated:
_____________________________
Name of Holder:
By:__________________________
12
<PAGE>
Form of Assignment
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and
transfers unto the right represented by the Warrant to purchase _______ shares
of _________ of DigitalWork.com, Inc., to which the Warrant relates, and
appoints Attorney to transfer such right on the books of [ISSUER], with full
power of substitution in the premises.
Dated:_____________
____________________________
(Signature)
Signed in the presence of:
______________________________
13
<PAGE>
EXHIBIT 10.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH
RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. PA-2 Number of Shares 31,000
DIGITALWORK, INC.
Void after April __, 2009
1. Issuance. This Warrant is issued to Edward C. Coppola (the "Investor")
--------
by DigitalWork, Inc., a Delaware corporation (hereinafter with its successors
called the "Company").
2. Exercise of Warrant to Purchase Common Stock. Subject to the terms and
--------------------------------------------
conditions hereinafter set forth, the registered holder of this Warrant (the
"Holder"), commencing on the date hereof, is entitled upon surrender of this
Warrant with the subscription form annexed hereto duly executed, at the office
of the Company, 1701 Golf Road, Tower Three, Suite 802, Rolling Meadows, IL
60008, or such other office as the Company shall notify the Holder of in
writing, to purchase from the Company at a price per share (the "Purchase
Price") of $______________ , Thirty-One Thousand (31,000) fully paid and
nonassessable shares of Common Stock, $0.005 par value, of the Company. Until
such time as this Warrant is exercised in full or expires, the Number of
Warrants, Purchase Price and the Common Stock issuable upon exercise of this
------
Warrant are subject to adjustment as hereinafter provided.
3. Payment of Purchase Price. The Purchase Price may be paid (i) in cash
-------------------------
or by check, (ii) by the surrender by the Holder to the Company of any
promissory notes or other obligations issued by the Company, with all such notes
and obligations so surrendered being credited against the Purchase Price in an
amount equal to the principal amount thereof plus accrued interest to the date
of surrender, (iii) through delivery by the Holder to the Company of other
securities issued by the Company, with such securities being credited against
the Purchase Price in an amount equal to the fair market value thereof, as
determined in good faith by the Board of Directors of the Company (the "Board"),
or (iv) by any combination of the foregoing. The Board shall promptly respond in
writing to an inquiry by the Holder as to the fair market value of any
securities the Holder may wish to deliver to the Company pursuant to clause
(iii) above.
4. Net Issue Election. The Holder may elect to receive, without the
------------------
payment by the Holder of any additional consideration, shares equal to the value
of this Warrant or any portion hereof by the surrender of this Warrant or such
portion to the Company, with the net issue election
1
<PAGE>
notice annexed hereto duly executed, at the office of the Company. Thereupon,
the Company shall issue to the Holder such number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where
X = the number of shares to be issued to the Holder pursuant to this
Section 4.
Y = the number of shares covered by this Warrant in respect of which
the net issue election is made pursuant to this Section 4.
A = the fair market value of one share of Common Stock, as determined
in good faith by the Board, as at the time the net issue election is
made pursuant to this Section 4.
B = the Purchase Price in effect under this Warrant at the time the
net issue election is made pursuant to this Section 4.
The Board shall promptly respond in writing to an inquiry by the Holder as to
the fair market value of one share of Common Stock.
5. Partial Exercise. This Warrant may be exercised in part, and the
----------------
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which this
Warrant shall not have been exercised.
6. Issuance Date. The person or persons in whose name or names any
-------------
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
7. Expiration Date; Automatic Exercise. This Warrant shall expire at the
-----------------------------------
close of business on April __, 2009, and shall be void thereafter.
Notwithstanding the foregoing, this Warrant shall automatically be deemed to be
exercised in full pursuant to the provisions of Section 4 hereof, without any
further action on behalf of the Holder, immediately prior to the time this
Warrant would otherwise expire pursuant to the preceding sentence.
8. Reserved Shares; Valid Issuance. The Company covenants that it will at
-------------------------------
all times from and after the date hereof reserve and keep available such number
of its authorized shares of Common Stock, $0.005 par value (the "Common Stock"),
free from all preemptive or similar rights therein, as will be sufficient to
permit, respectively, the exercise of this Warrant in full. The Company further
covenants that such shares as may be issued pursuant to such exercise and
2
<PAGE>
conversion will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
9. Stock Dividends. If after the date hereof (the "Original Issue Date"),
---------------
the Company shall subdivide the Common Stock, by split-up or otherwise, or
combine the Common Stock, or issue additional shares of Common Stock in payment
of a stock dividend on the Common Stock, the number of shares issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination, and the Purchase Price shall forthwith be proportionately
decreased in the case of a subdivision or stock dividend, or proportionately
increased in the case of a combination.
10. Mergers and Reclassifications. If after the Original Issue Date there
-----------------------------
shall be any reclassification, capital reorganization or change of the Common
Stock (other than as a result of a subdivision, combination or stock dividend
provided for in Section 9 hereof), or any consolidation of the Company with, or
merger of the Company into, another corporation or other business organization
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
outstanding Common Stock), or any sale or conveyance to another corporation or
other business organization of all or substantially all of the assets of the
Company, then, as a condition of such reclassification, reorganization, change,
consolidation, merger, sale or conveyance, lawful provisions shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall thereafter have the
right to purchase, at a total price not to exceed that payable upon the exercise
of this Warrant in full, the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, reorganization,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased by the Holder immediately
prior to such reclassification, reorganization, change, consolidation, merger,
sale or conveyance and in any such case appropriate provisions shall be made
with respect to the rights and interest of the Holder to the end that the
provisions hereof (including without limitation, provisions for the adjustment
of the Purchase Price and the number of shares issuable hereunder) shall
thereafter be applicable in relation to any shares of stock or other securities
and property thereafter deliverable upon exercise hereof.
11. Fractional Shares. In no event shall any fractional share of Common
-----------------
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this Section 11,
be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next higher number of full shares of Common Stock, issuing a
full share with respect to such fractional share.
12. Certificate of Adjustment. Whenever the Purchase Price is adjusted,
-------------------------
as hereinprovided, the Company shall promptly deliver to the Holder a
certificate of a firm of independent public accountants setting forth the
Purchase Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
13. Notices of Record Date, Etc. In the event of:
---------------------------
3
<PAGE>
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company, or
sale or conveyance of all or substantially all of its assets, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company, then and in each such event the Company will mail or cause to
be mailed to the Holder a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(ii) the date on which any such reclassification, reorganization, consolidation,
merger, sale or conveyance, dissolution, liquidation or winding-up is to take
place, and the time, if any is to be fixed, as of which the holders of record in
respect of such event are to be determined. Such notice shall be mailed at least
20 days prior to the date specified in such notice on which any such action is
to be taken.
14. Amendment. The terms of this Warrant may be amended, modified or
---------
waived only with the written consent of the Company and the holders of Warrants
representing at least two-thirds of the number of shares of Common Stock then
issuable upon the exercise of the Warrants. No such amendment, modification or
waiver shall be effective as to this Warrant unless the terms of such amendment,
modification or waiver shall apply with the same force and effect to all of the
other Warrants then outstanding.
15. Warrant Register: Transfers, Etc,
---------------------------------
A. The Company will maintain a register containing the names and
addresses of the registered holders of the Warrants. The Holder may change its
address as shown on the warrant register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or delivered
to the Holder at its address as shown on the warrant register.
B. Subject to compliance with applicable federal and state
securities laws, this Warrant may be transferred by the Holder with respect to
any or all of the shares purchasable hereunder. Upon surrender of this Warrant
to the Company, together with the assignment hereof properly endorsed, for
transfer of this Warrant as an entirety by the Holder, the Company shall issue a
new warrant of the same denomination to the assignee. Upon surrender of this
Warrant to the Company, together with the assignment hereof properly endorsed,
by the Holder for transfer with respect to a portion of the shares of Common
Stock purchasable hereunder, the Company shall issue a new warrant to the
assignee, in such denomination as shall be requested by the Holder hereof, and
shall issue to such Holder a new warrant covering the number of shares in
respect of which this Warrant shall not have been transferred.
4
<PAGE>
C. In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company,
provided, however, that so long as Investor is the registered holder of this
Warrant, no indemnity shall be required other than its written agreement to
indemnify the Company against any loss arising from the issuance of such new
warrant.
16. No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation, as amended, or through any reclassification, capital
reorganization, consolidation, merger, sale or conveyance of assets,
dissolution, liquidation, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder.
17. Governing Law. The provisions and terms of this Warrant shall be
-------------
governed by and construed in accordance with the internal laws of the State of
Illinois.
18. Successors and Assigns. This Warrant shall be binding upon the
----------------------
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
19. Business Days. If the last or appointed day for the taking of any
-------------
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in the state of Illinois, then such action
may be taken or right may be exercised on the next succeeding day which is not a
Saturday or Sunday or such a legal holiday.
[Signatures on Following Page]
5
<PAGE>
Dated: April ____, 1999 DIGITALWORK, INC.
(Corporate Seal)
By: _______________________________
Attest: _________________________ Title: ____________________________
6
<PAGE>
SUBSCRIPTION
To: _____________________ Date: ___________________
The undersigned hereby subscribes for ____________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:
___________________________________
Signature
___________________________________
Name for Registration
___________________________________
Mailing Address
7
<PAGE>
Net Issue Election Notice
To: ________________________ Date: ________________________
The undersigned hereby elects under Section 4 to surrender the right to
purchase shares of Common Stock pursuant to this Warrant. 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.
___________________________________
Signature
___________________________________
Name for Registration
___________________________________
Mailing Address
8
<PAGE>
Assignment
For value received ________________________ hereby sells, assigns and
transfers unto
____________________________________________________________________________
____________________________________________________________________________
(Please print or typewrite name and address of Assignee)
the within Warrant, and does hereby irrevocably constitute and appoint
___________________ its attorney to transfer the within Warrant on the books of
the within named Company with full power of substitution on the premises.
Dated:________________________
In the Presence of.
____________________________________ ___________________________________
(Signature)
___________________________________
(Print Name)
9
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of March 15, 2000,
by and between DigitalWork.com, Inc., a Delaware corporation (the "Company"),
and Robert A. Schultz (the "Executive"). The "Effective Date" of this Agreement
shall be the date the Securities and Exchange Commission (the "Commission")
declares effective the Registration Statement on Form S-1 (File No. 95895)
originally filed by the Company with the Commission on February 1, 2000.
RECITALS:
A. The Company desires to obtain the benefit of the Executive's
knowledge, skills and experience and assure itself of the ongoing right to
Executive's services subject to the terms and conditions set forth in this
Agreement beginning on the Effective Date; and
B. Executive is willing and able to render services to the Company,
beginning on the Effective Date, on the terms and conditions set forth in this
Agreement.
AGREEMENTS:
In consideration of the mutual agreements, provisions and covenants
contained in this Agreement, the Company and Executive hereby agree as follows:
1. Employment. Subject to all of the terms and conditions provided in
this Agreement, the Company hereby agrees to employ Executive and Executive
hereby accepts employment with the Company. Executive's title shall be Chairman
of the Board and Chief Executive Officer of the Company and he shall possess
such powers and perform such duties as are normally incident to such office, as
provided in the By-Laws of the Company and in accordance with the applicable
corporate laws governing the Company. Executive shall perform such duties as may
be identified from time to time by the Board of Directors of the Company (the
"Board"). Executive will perform the duties of his employment hereunder
diligently and faithfully and in conformity with the directions of the Board,
and shall at all times be subject to and shall observe and carry out such
reasonable rules, regulations, policies, directions and restrictions as may be
established from time to time by the Company.
2. Term of Employment. Unless terminated as provided in Section 6 hereof,
the term of this Agreement shall be for a period of one year (the "Employment
Period"), commencing on the Effective Date and continuing through and including
the day immediately preceding the second anniversary of the Effective Date (the
"Expiration Date"). Before the Expiration Date, the Company and Executive shall
negotiate, in good faith, an extension, modification or amendment of this
Agreement, or a new employment agreement, which would govern the employment of
Executive by the Company after the Expiration Date; provided, however, that
neither party shall be bound by the non-surviving terms of any employment
agreement governing the employment of Executive after the Expiration Date unless
such parties shall have entered into a binding, written agreement governing such
employment.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As compensation for the services to be rendered by
-----------
Executive hereunder, the Company shall pay to Executive a base salary of
$200,000 per year (as increased from time to time, the "Base Salary"), subject
to increase in January of each year during the term of this Agreement as
determined by the Compensation Committee of the Board. The Base Salary shall be
payable in periodic installments (but in no event less frequently than semi-
monthly) in accordance with the standard payroll practices of the Company in
effect from time to time, less income tax withholdings and other required
employee deductions.
(b) Business Expenses. In accordance with the Company's policies
-----------------
established from time to time, the Company will pay or reimburse Executive for
all reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentation by
Executive of appropriate receipts and vouchers.
(c) Bonus. For each fiscal year during the Employment Period, the Company
-----
will set a bonus for Executive upon the achievement of the objectives defined by
the Board or the Compensation Committee up to 40% of Executive's then Base
Salary. The amount of the bonus actually paid, if any, will be determined by the
Compensation Committee of the Board based upon Executive's performance and the
achievement of the Company's financial objectives. The annual bonus (in its
entirety) for each year will be paid in the first month of each year.
(d) Fringe Benefits. The Company shall make available to Executive,
---------------
throughout the Employment Period, such benefits and perquisites as are generally
provided by the Company to its executive employees. Without limiting the
foregoing, Executive shall be eligible to participate in the group life, health
or accident insurance, or other such plan or policy which may presently be in
effect or which may hereafter be adopted by the Company for the benefit of its
executive Executives generally, in each case subject to the terms and conditions
of any such plan or policy.
(e) Severance Pay/Change of Control. In the event Executive's employment
-------------------------------
with the Company is terminated by the Company (i) without Cause, (ii) without
Cause following a Change of Control or (iii) as a result of Executive's Death or
Disability (a "Severance Event"), in consideration of the Executive's covenants
set forth in Section 7 hereof, and in consideration of his employment, the
Company shall
(A) pay Executive severance pay in an aggregate amount equal to 50%
of Executive's Base Salary (the "Severance Amount"), less income tax
withholdings and other required employee deductions, payable in semi-
monthly installments over a period of three months, subject to the terms of
Section 3(a);
(B) pay Executive a lump sum on the date of termination equal to the
pro rata portion of the maximum annual bonus earned as of the date of
severance; and
2
<PAGE>
(C) accelerate the vesting of 50% of (i) the options the Company has
to repurchase restricted stock from Executive pursuant to restricted stock
agreements and (ii) unvested options to purchase the Common Stock of the
Company granted to Executive under the 1998 Stock Plan, as may be amended
or restated from time to time, or any other stock option plan that the
Company may implement from time to time.
For purposes of this Agreement, "terminated" shall include the reduction
of Executive's responsibilities and duties to the Company, or, except with
respect to a Change of Control of the Company, the reduction of Executive's
title. For purposes of this Agreement, a Change in Control shall mean any of the
following events:
(A) the acquisition by new stockholders (being any entity, person or
group of persons) acting in concert, of a beneficial ownership interest in
the Company, resulting in the total beneficial interest of such entity,
person or group of persons equaling or exceeding 50% of the total
outstanding common stock and warrants of the Company. The change in control
shall occur on the date the beneficial ownership of the acquiring entity,
person or group of persons equals or exceeds 50% of the outstanding common
stock and warrants of the Company; or
(B) a merger, consolidation, or reorganization having substantially
the same effect; or the sale of all or substantially all the consolidated
assets of the Company, in each case, with respect to the entity, person or
group of persons who were the respective. beneficial owners of the
outstanding common stock immediately prior to such event do not, following
such event, beneficially own, directly or indirectly, more than 50%
respectively, of the then outstanding voting stock of the corporation
resulting from such event or the corporation purchasing or receiving assets
pursuant to such event.
4. Vacation. Throughout the Employment Period, Executive shall be
entitled to take, from time to time, on an annual basis, four weeks of vacation
with pay, at such times as shall be mutually convenient to Executive and the
Company. Executive shall also be entitled to take, from time to time, five
personal days and three sick days.
5. Termination.
(a) For Cause. At any time during the term of this Agreement, the Company
---------
may terminate Executive's employment under this Agreement for Cause, without any
further liability hereunder. As used in this Agreement, "Cause" shall mean
termination by action of the Board because of any one or more of the following:
(i) the Executive's conviction of, or plea of nolo contendere to, a felony; (ii)
the Executive's breach of any legal duty of loyalty to the Company,
misappropriation of the Company's funds, or dishonest, fraudulent, illegal or
unethical business conduct; (iii) the failure of Executive to perform the duties
provided in Section 1, which failure to so perform shall continue after notice
from the Company; (iv) the Executive's breach of the obligations provided in
Sections 6 and 7 of this Agreement as provided therein; or (v) the Executive's
illegal use of controlled substances. Termination for
3
<PAGE>
Cause shall be effective immediately for those events described in subparagraphs
(i), (ii), (iv), and (v). Termination for Cause shall be effective for the
events in subparagraph (iii) 30 days after notice to Executive from the Company
of the occurrence of such event and Executive shall have failed to cure such
event within such 30-day period.
(b) Death of Executive. This Agreement shall terminate automatically upon
-------------------
the death of Executive.
(c) Disability. This Agreement shall terminate upon a determination by
----------
the Board based upon a written medical opinion that the Executive is unable to
perform the essential functions of his employment position, due to a disability
of Executive that cannot be reasonably accommodated by the Company.
6. Confidential Information.
(a) Confidential Information Defined. "Confidential Information" means
--------------------------------
any trade secret (as defined in 765 ILSC (S)1065/2(d)) of the Company that
contains, reflects or embodies the Company's business plans or the Company's
strategic, financial, technical, joint venture, or investor information.
(b) Disclosure and Use. Executive shall not disclose or use at any time,
------------------
either during or after Executive's employment with the Company or any other
direct or indirect subsidiary of the Company (collectively referred to in this
paragraph as the "Company"), any Confidential Information, except that Executive
may disclose, subject to Section 7, Confidential Information solely to the
extent: (1) required for Executive to perform his employment duties with the
Company; (2) it has been disclosed to Executive by a third party who is not
subject to restriction on the disclosure of such information; (3) it has or
becomes generally available to the public other than as a result of a disclosure
by a party who is not subject to nondisclosure obligations with respect thereto;
(4) it must be disclosed as a result of a subpoena or other legal process, after
the Company has had the opportunity to request a suitable protective order for
such information; or (5) the Company has given Executive prior written
authorization to do so. Executive's obligations under this paragraph shall
survive the termination of this Agreement and Executive's employment with the
Company, and shall remain in effect and be enforceable against Executive for so
long as any Confidential Information retains economic value, whether actual or
potential, because it is not generally known to other persons who can obtain
economic value from its disclosure or use. Executive shall execute such
reasonable further agreements evidencing Executive's obligations to the Company
concerning nondisclosure of Confidential Information as the Company may require
from time to time.
(c) Return of Materials. Upon termination of his employment with the
-------------------
Company, Executive shall promptly deliver to the Company all customer lists,
specifications, drawings, computer programs, listings, documentation, manuals,
letters, notes, note books, reports, and all other embodiments of Confidential
Information (together with copies thereof) in the possession or under the
control of Executive.
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<PAGE>
7. Restrictive Covenant.
(a) Restricted Activities. As conditions of his employment and in
---------------------
consideration of his employment, Executive covenants and agrees as follows:
(i) subject to Section 7(c) below, beginning on the Effective Date
and continuing for 12 months after the termination of Executive's
employment with the Company (the "Restricted Period"), he will not, without
the prior written consent of the Board, directly or indirectly, as a
stockholder (except as a stockholder owning beneficially or of record less
than 5% of the outstanding shares of any class of publicly traded stock of
any issuer), or as an officer, director, employee, partner, joint venturer,
proprietor or otherwise, engage in, become interested in, consult with,
lend to or borrow from, advise or negotiate for or on behalf of, a
"Restricted Business."
(ii) during the Restricted Period, he will not solicit (or employ or
cause to be employed other than by the Company) other employees of the
Company or any affiliate or subsidiary of the Company, directly or
indirectly, for the purpose of enticing them to leave their employment with
the Company or any affiliate or subsidiary of the Company;
(iii) during the Restricted Period, he will not attempt in any manner
to solicit any Restricted Business from any individual or entity who or
which is a client of the Company at any time within six months before the
date that Executive's employment by the Company terminates or to persuade
any such client to cease doing business with the Company or to reduce the
amount of business which such client has customarily done or contemplates
doing with the Company, whether or not the relationship between the Company
and such client was originally established in whole or in part through his
efforts;
(iv) during the Restricted Period, he will make full and complete
disclosure of the existence of this Agreement and the content of this
Section 7 to all prospective employers with whom he may discuss possible
employment;
(v) he will refrain from any disparagement, direct or indirect,
through innuendo or otherwise, of the Company or any of its employees,
agents, officers, directors, shareholders or affiliates;
(vi) subject to Section 7(c) below, during his employment with
the Company, he will not, without the prior written consent in each case of
the Board, participate actively in any other business interests or
investments which would conflict with his responsibilities under this
Agreement;
(vii) during his employment with the Company, he will not, without the
prior written consent in each case of the Board: (a) exchange goods,
products or services of the Company in return for goods, products or
services of any individual or firm or (b) accept gifts or favors from any
outside organization or agency which, individually or
5
<PAGE>
collectively, may cause undue influence in his selection of goods, products
or services for the Company; and
(viii) after the termination of his employment with the Company, he
will not secure, or attempt to secure, from any employee or former employee
of the Company or any affiliate or subsidiary of the Company, any
information relating to the Company or any affiliate or subsidiary of the
Company or its operations.
(b) Restricted Business Defined. For the purposes of this Agreement,
"Restricted Business" means any company that would be considered a competitive
threat to the Company's market position if they hired away the Company's key
employees that had a working knowledge of the Company's key strategies.
(c) Representation and Warranty. Executive represents and warrants to the
Company that, notwithstanding the operation of the covenants contained in this
Section 7, upon the termination of his employment hereunder, Executive will be
able to obtain employment for the purpose of earning a livelihood.
8. Inventions.
(a) Inventions Retained and Licensed. Executive has attached hereto, as
--------------------------------
Exhibit A, a list describing all inventions, original works of authorship,
- ---------
developments, improvements, and trade secrets which were made by Executive prior
to Executive's employment with the Company (collectively referred to as "Prior
Inventions"), which belong to Executive, 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, Executive represents
that there are no such Prior Inventions. If in the course of Executive's
employment with the Company, Executive incorporates into a Company product,
process or machine a Prior Invention owned by Executive or in which Executive
has 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. Executive agrees that Executive 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 Executive's 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 Executive 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
Executive is in the employ of the Company (collectively referred to as
"Inventions"), except as provided in Section 8(f) below. Executive further
acknowledges that all original works of authorship which are made by Executive
(solely or jointly with others) within the scope of and during the period of
Executive's employment with the Company and which are protectible by copyright
are "works made for hire," as that term is defined in the United States
6
<PAGE>
Copyright Act. Executive understands and agrees that the decision whether or
not to commercialize or market any invention developed by Executive 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 Executive as a result
of the Company's efforts to commercialize or market any such invention.
(c) Inventions Assigned to the United States. Executive agrees to assign
----------------------------------------
to the United States government all Executive's 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. Executive agrees to keep and maintain
----------------------
adequate and current written records of all Inventions made by Executive (solely
or jointly with others) during the term of Executive's 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.
(e) Patent and Copyright Registrations. Executive agrees 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. Executive further agrees that Executive's obligation to
execute or cause to be executed, when it is in Executive's power to do so, any
such instrument or papers shall continue after the termination of this
Agreement. If the Company is unable because of Executive's mental or physical
incapacity or for any other reason to secure Executive's 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 Executive hereby irrevocably designates
and appoints the Company and its duly authorized officers and agents as
Executive's agent and attorney in fact, to act for and in Executive's 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 Executive.
(f) Exception to Assignments. Executive understands 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
7
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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; and
(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.
Executive will advise the Company promptly in writing of any inventions
that Executive believes meet the above criteria and are not otherwise disclosed
on Exhibit A.
---------
9. Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render the same valid, or not applicable to the given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be. Should this Agreement, or any one or more of its
provisions hereof, be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, the Agreement or any such
provision or provisions shall not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
10. Legal Remedies. Executive hereby acknowledges that the Company would
suffer irreparable injury if the provisions of Sections 6, 7 and 8 above, which
shall survive the termination of the Agreement, were breached and that the
Company's remedies at law would be inadequate in the event of such breach.
Accordingly, Executive hereby agrees that any such breach or threatened breach
may, in addition to any and all other available remedies, be preliminarily
enjoined by the Company. In the event of litigation under this Agreement, each
of the Company and Executive shall pay its own attorneys' fees and expenses,
except that if Executive is enjoined either preliminarily or permanently, after
an evidentiary hearing, then Executive shall pay the attorneys' fees and
expenses of the Company in connection with that evidentiary hearing and,
similarly, if such evidentiary hearing results in a court refusing a permanent
injunction, then the Company shall pay Executive's attorneys' fees and expenses
in connection with such hearing.
11. Non-Assignability. In light of the unique personal services to be
performed by Executive hereunder, it is acknowledged and agreed that any
purported or attempted assignment or transfer by Executive of this Agreement or
any of Executive's duties, responsibilities or obligations hereunder shall be
void. This Agreement shall not be assigned by the Company without the prior
written consent of Executive.
8
<PAGE>
12. Notices. Any notice, request, demand or other communication required
or permitted under this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or when mailed by certified mail,
return receipt requested addressed as follows: I
If to the Company:
DigitalWork.com, Inc.
230 West Monroe Street, Suite 1950
Chicago, Illinois 60610
Attn: Chief Executive Officer
If to Executive, to the address listed on the signature page hereto.
or to such other address or addresses as may be specified from time to time by
notice; provided, however, that any notice of change of address shall not be
effective until its receipt by the party to be charged therewith.
13. General.
(a) Amendments. Neither this Agreement nor any of the terms or conditions
----------
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the parties hereto.
(b) Captions and Headings. The captions and paragraph headings used in
---------------------
this Agreement are for convenience of reference only, and shall not affect the
construction or interpretation of this Agreement or any of the provisions hereof
(c) Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and permitted
assigns.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
(e) Entire Agreement. Except as otherwise set forth or referred to in
----------------
this Agreement, this Agreement constitutes the sole and entire agreement and
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them as to such subject matter.
(f) Reliance by Third Parties. This Agreement is intended for the sole
-------------------------
and exclusive benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and permitted
assigns, and no other person or entity shall have any
9
<PAGE>
right to rely on this Agreement or to claim or derive any benefit therefrom
absent the express written consent of the party to be charged with such reliance
or benefit.
(g) Governing Law, Jurisdiction. This Agreement shall be construed in
---------------------------
accordance with and governed in all respects by the laws of the State of
Illinois (without giving effect to the conflicts of laws provisions thereof).
Subject to Section 14 below, the parties hereto agree that all claims, disputes,
or controversies between them arising out of, connected with, related to, or
incidental to the relationship established between them in connection with this
Agreement, whether arising at law or equity in contract, tort, equity, or
otherwise, if pursued in court shall be resolved only by state or federal courts
located in Cook County, Illinois, but each party hereto acknowledges that any
appeals from those courts may have to be heard by a court located outside of
Cook County, Illinois. Each party hereto waives in all disputes any objection
that it may have to personal jurisdiction or the venue of the court considering
the dispute.
14. Arbitration and Equitable Relief.
--------------------------------
(a) Arbitration. EXCEPT AS PROVIDED IN SECTION 14(b) BELOW,
-----------
EXECUTIVE AGREES 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 EXECUTIVE SHALL EACH PAY ONE-HALF OF THE COSTS AND EXPENSES OF SUCH
ARBITRATION, AND EACH SHALL SEPARATELY PAY THE RESPECTIVE COUNSEL FEES AND
EXPENSES.
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'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 14(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;
10
<PAGE>
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. EXECUTIVE AGREES 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 6, 7 AND 8 HEREIN. ACCORDINGLY, EXECUTIVE
AGREES THAT IF EXECUTIVE BREACHES 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. EXECUTIVE FURTHER AGREES THAT NO BOND OR OTHER SECURITY SHALL
BE REQUIRED IN OBTAINING SUCH EQUITABLE RELIEF AND EXECUTIVE HEREBY CONSENT TO
THE ISSUANCE OF SUCH INJUNCTION AND TO THE ORDERING OF SPECIFIC PERFORMANCE.
(c) Consideration. EXECUTIVE UNDERSTANDS 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. EXECUTIVE FURTHER UNDERSTANDS THAT EXECUTIVE IS OFFERED EMPLOYMENT
IN CONSIDERATION OF MY PROMISE TO ARBITRATE CLAIMS.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on and as of the date first set forth above.
The Company:
DigitalWork.com, Inc.,
a Delaware corporation
By: /s/ David P. Aniol
Title: Chief Financial Officer
Executive:
Robert A. Schultz
/s/ Robert A. Schultz
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<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of March 15, 2000,
by and between DigitalWork.com, Inc., a Delaware corporation (the "Company"),
and Craig A. Terrill (the "Executive"). The "Effective Date" of this Agreement
shall be the date the Securities and Exchange Commission (the "Commission")
declares effective the Registration Statement on Form S-1 (File No. 95895)
originally filed by the Company with the Commission on February 1, 2000.
RECITALS:
A. The Company desires to obtain the benefit of the Executive's
knowledge, skills and experience and assure itself of the ongoing right to
Executive's services subject to the terms and conditions set forth in this
Agreement beginning on the Effective Date; and
B. Executive is willing and able to render services to the Company,
beginning on the Effective Date, on the terms and conditions set forth in this
Agreement.
AGREEMENTS:
In consideration of the mutual agreements, provisions and covenants
contained in this Agreement, the Company and Executive hereby agree as follows:
1. Employment. Subject to all of the terms and conditions provided in
this Agreement, the Company hereby agrees to employ Executive and Executive
hereby accepts employment with the Company. Executive's title shall be President
and Chief Operating Officer of the Company and he shall possess such powers and
perform such duties as are normally incident to such office, as provided in the
By-Laws of the Company and in accordance with the applicable corporate laws
governing the Company. Executive shall perform such duties as may be identified
from time to time by the Board of Directors of the Company (the "Board").
Executive will perform the duties of his employment hereunder diligently and
faithfully and in conformity with the directions of the Board, and shall at all
times be subject to and shall observe and carry out such reasonable rules,
regulations, policies, directions and restrictions as may be established from
time to time by the Company.
2. Term of Employment. Unless terminated as provided in Section 6 hereof,
the term of this Agreement shall be for a period of one year (the "Employment
Period"), commencing on the Effective Date and continuing through and including
the day immediately preceding the second anniversary of the Effective Date (the
"Expiration Date"). Before the Expiration Date, the Company and Executive shall
negotiate, in good faith, an extension, modification or amendment of this
Agreement, or a new employment agreement, which would govern the employment of
Executive by the Company after the Expiration Date; provided, however, that
neither party shall be bound by the non-surviving terms of any employment
agreement governing the employment of Executive after the Expiration Date unless
such parties shall have entered into a binding, written agreement governing such
employment.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As compensation for the services to be rendered by
-----------
Executive hereunder, the Company shall pay to Executive a base salary of
$200,000 per year (as increased from time to time, the "Base Salary"), subject
to increase in January of each year during the term of this Agreement as
determined by the Compensation Committee of the Board. The Base Salary shall be
payable in periodic installments (but in no event less frequently than semi-
monthly) in accordance with the standard payroll practices of the Company in
effect from time to time, less income tax withholdings and other required
employee deductions.
(b) Business Expenses. In accordance with the Company's policies
-----------------
established from time to time, the Company will pay or reimburse Executive for
all reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentation by
Executive of appropriate receipts and vouchers.
(c) Bonus. For each fiscal year during the Employment Period, the Company
-----
will set a bonus for Executive upon the achievement of the objectives defined by
the Board or the Compensation Committee up to 40% of Executive's then Base
Salary. The amount of the bonus actually paid, if any, will be determined by the
Compensation Committee of the Board based upon Executive's performance and the
achievement of the Company's financial objectives. The annual bonus (in its
entirety) for each year will be paid in the first month of each year.
(d) Fringe Benefits. The Company shall make available to Executive,
---------------
throughout the Employment Period, such benefits and perquisites as are generally
provided by the Company to its executive employees. Without limiting the
foregoing, Executive shall be eligible to participate in the group life, health
or accident insurance, or other such plan or policy which may presently be in
effect or which may hereafter be adopted by the Company for the benefit of its
executive Executives generally, in each case subject to the terms and conditions
of any such plan or policy.
(e) Severance Pay/Change of Control. In the event Executive's employment
-------------------------------
with the Company is terminated by the Company (i) without Cause, (ii) without
Cause following a Change of Control or (iii) as a result of Executive's Death or
Disability (a "Severance Event"), in consideration of the Executive's covenants
set forth in Section 7 hereof, and in consideration of his employment, the
Company shall
(A) pay Executive severance pay in an aggregate amount equal to 50%
of Executive's Base Salary (the "Severance Amount"), less income tax
withholdings and other required employee deductions, payable in semi-
monthly installments over a period of three months, subject to the terms of
Section 3(a);
(B) pay Executive a lump sum on the date of termination equal to the
pro rata portion of the maximum annual bonus earned as of the date of
severance; and
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<PAGE>
(C) accelerate the vesting of 50% of (i) the options the Company has
to repurchase restricted stock from Executive pursuant to restricted stock
agreements and (ii) unvested options to purchase the Common Stock of the
Company granted to Executive under the 1998 Stock Plan, as may be amended
or restated from time to time, or any other stock option plan that the
Company may implement from time to time.
For purposes of this Agreement, "terminated" shall include the reduction
of Executive's responsibilities and duties to the Company, or, except with
respect to a Change of Control of the Company, the reduction of Executive's
title. For purposes of this Agreement, a Change in Control shall mean any of the
following events:
(A) the acquisition by new stockholders (being any entity, person or
group of persons) acting in concert, of a beneficial ownership interest in
the Company, resulting in the total beneficial interest of such entity,
person or group of persons equaling or exceeding 50% of the total
outstanding common stock and warrants of the Company. The change in control
shall occur on the date the beneficial ownership of the acquiring entity,
person or group of persons equals or exceeds 50% of the outstanding common
stock and warrants of the Company; or
(B) a merger, consolidation, or reorganization having substantially
the same effect; or the sale of all or substantially all the consolidated
assets of the Company, in each case, with respect to the entity, person or
group of persons who were the respective, beneficial owners of the
outstanding common stock immediately prior to such event do not, following
such event, beneficially own, directly or indirectly, more than 50%
respectively, of the then outstanding voting stock of the corporation
resulting from such event or the corporation purchasing or receiving assets
pursuant to such event.
4. Vacation. Throughout the Employment Period, Executive shall be
entitled to take, from time to time, on an annual basis, four weeks of vacation
with pay, at such times as shall be mutually convenient to Executive and the
Company. Executive shall also be entitled to take, from time to time, five
personal days and three sick days.
5. Termination.
(a) For Cause. At any time during the term of this Agreement, the Company
---------
may terminate Executive's employment under this Agreement for Cause, without any
further liability hereunder. As used in this Agreement, "Cause" shall mean
termination by action of the Board because of any one or more of the following:
(i) the Executive's conviction of, or plea of nolo contendere to, a felony; (ii)
the Executive's breach of any legal duty of loyalty to the Company,
misappropriation of the Company's funds, or dishonest, fraudulent, illegal or
unethical business conduct; (iii) the failure of Executive to perform the duties
provided in Section 1, which failure to so perform shall continue after notice
from the Company; (iv) the Executive's breach of the obligations provided in
Sections 6 and 7 of this Agreement as provided therein; or (v) the Executive's
illegal use of controlled substances. Termination for Cause shall be effective
immediately for those events described in subparagraphs (i), (ii), (iv), and
(v). Termination for
3
<PAGE>
Cause shall be effective for the events in subparagraph (iii) 30 days after
notice to Executive from the Company of the occurrence of such event and
Executive shall have failed to cure such event within such 30-day period.
(b) Death of Executive. This Agreement shall terminate automatically upon
-------------------
the death of Executive.
(c) Disability. This Agreement shall terminate upon a determination by
----------
the Board based upon a written medical opinion that the Executive is unable to
perform the essential functions of his employment position, due to a disability
of Executive that cannot be reasonably accommodated by the Company.
6. Confidential Information.
(a) Confidential Information Defined. "Confidential Information" means
--------------------------------
any trade secret (as defined in 765 ILSC (S)1065/2(d)) of the Company that
contains, reflects or embodies the Company's business plans or the Company's
strategic, financial, technical, joint venture, or investor information.
(b) Disclosure and Use. Executive shall not disclose or use at any time,
------------------
either during or after Executive's employment with the Company or any other
direct or indirect subsidiary of the Company (collectively referred to in this
paragraph as the "Company"), any Confidential Information, except that Executive
may disclose, subject to Section 7, Confidential Information solely to the
extent: (1) required for Executive to perform his employment duties with the
Company; (2) it has been disclosed to Executive by a third party who is not
subject to restriction on the disclosure of such information; (3) it has or
becomes generally available to the public other than as a result of a disclosure
by a party who is not subject to nondisclosure obligations with respect thereto;
(4) it must be disclosed as a result of a subpoena or other legal process, after
the Company has had the opportunity to request a suitable protective order for
such information; or (5) the Company has given Executive prior written
authorization to do so. Executive's obligations under this paragraph shall
survive the termination of this Agreement and Executive's employment with the
Company, and shall remain in effect and be enforceable against Executive for so
long as any Confidential Information retains economic value, whether actual or
potential, because it is not generally known to other persons who can obtain
economic value from its disclosure or use. Executive shall execute such
reasonable further agreements evidencing Executive's obligations to the Company
concerning nondisclosure of Confidential Information as the Company may require
from time to time.
(c) Return of Materials. Upon termination of his employment with the
-------------------
Company, Executive shall promptly deliver to the Company all customer lists,
specifications, drawings, computer programs, listings, documentation, manuals,
letters, notes, note books, reports, and all other embodiments of Confidential
Information (together with copies thereof) in the possession or under the
control of Executive.
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<PAGE>
7. Restrictive Covenant.
(a) Restricted Activities. As conditions of his employment and in
---------------------
consideration of his employment, Executive covenants and agrees as follows:
(i) subject to Section 7(c) below, beginning on the Effective Date
and continuing for 12 months after the termination of Executive's
employment with the Company (the "Restricted Period"), he will not, without
the prior written consent of the Board, directly or indirectly, as a
stockholder (except as a stockholder owning beneficially or of record less
than 5% of the outstanding shares of any class of publicly traded stock of
any issuer), or as an officer, director, employee, partner, joint venturer,
proprietor or otherwise, engage in, become interested in, consult with,
lend to or borrow from, advise or negotiate for or on behalf of, a
"Restricted Business."
(ii) during the Restricted Period, he will not solicit (or employ or
cause to be employed other than by the Company) other employees of the
Company or any affiliate or subsidiary of the Company, directly or
indirectly, for the purpose of enticing them to leave their employment with
the Company or any affiliate or subsidiary of the Company;
(iii) during the Restricted Period, he will not attempt in any manner
to solicit any Restricted Business from any individual or entity who or
which is a client of the Company at any time within six months before the
date that Executive's employment by the Company terminates or to persuade
any such client to cease doing business with the Company or to reduce the
amount of business which such client has customarily done or contemplates
doing with the Company, whether or not the relationship between the Company
and such client was originally established in whole or in part through his
efforts;
(iv) during the Restricted Period, he will make full and complete
disclosure of the existence of this Agreement and the content of this
Section 7 to all prospective employers with whom he may discuss possible
employment;
(v) he will refrain from any disparagement, direct or indirect,
through innuendo or otherwise, of the Company or any of its employees,
agents, officers, directors, shareholders or affiliates;
(vi) subject to Section 7(c) below, during his employment with
the Company, he will not, without the prior written consent in each case of
the Board, participate actively in any other business interests or
investments which would conflict with his responsibilities under this
Agreement;
(vii) during his employment with the Company, he will not, without
the prior written consent in each case of the Board: (a) exchange goods,
products or services of the Company in return for goods, products or
services of any individual or firm or (b) accept gifts or favors from any
outside organization or agency which, individually or
5
<PAGE>
collectively, may cause undue influence in his selection of goods, products
or services for the Company; and
(viii) after the termination of his employment with the Company, he
will not secure, or attempt to secure, from any employee or former employee
of the Company or any affiliate or subsidiary of the Company, any
information relating to the Company or any affiliate or subsidiary of the
Company or its operations.
(b) Restricted Business Defined. For the purposes of this Agreement,
"Restricted Business" means any company that would be considered a competitive
threat to the Company's market position if they hired away the Company's key
employees that had a working knowledge of the Company's key strategies.
(c) Representation and Warranty. Executive represents and warrants to the
Company that, notwithstanding the operation of the covenants contained in this
Section 7, upon the termination of his employment hereunder, Executive will be
able to obtain employment for the purpose of earning a livelihood.
8. Inventions.
(a) Inventions Retained and Licensed. Executive has attached hereto, as
--------------------------------
Exhibit A, a list describing all inventions, original works of authorship,
- ---------
developments, improvements, and trade secrets which were made by Executive prior
to Executive's employment with the Company (collectively referred to as "Prior
Inventions"), which belong to Executive, 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, Executive represents
that there are no such Prior Inventions. If in the course of Executive's
employment with the Company, Executive incorporates into a Company product,
process or machine a Prior Invention owned by Executive or in which Executive
has 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. Executive agrees that Executive 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 Executive's 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 Executive 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
Executive is in the employ of the Company (collectively referred to as
"Inventions"), except as provided in Section 8(f) below. Executive further
acknowledges that all original works of authorship which are made by Executive
(solely or jointly with others) within the scope of and during the period of
Executive's employment with the Company and which are protectible by copyright
are "works made for hire," as that term is defined in the United States
6
<PAGE>
Copyright Act. Executive understands and agrees that the decision whether or
not to commercialize or market any invention developed by Executive 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 Executive as a result
of the Company's efforts to commercialize or market any such invention.
(c) Inventions Assigned to the United States. Executive agrees to assign
----------------------------------------
to the United States government all Executive's 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. Executive agrees to keep and maintain
----------------------
adequate and current written records of all Inventions made by Executive (solely
or jointly with others) during the term of Executive's 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.
(e) Patent and Copyright Registrations. Executive agrees 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. Executive further agrees that Executive's obligation to
execute or cause to be executed, when it is in Executive's power to do so, any
such instrument or papers shall continue after the termination of this
Agreement. If the Company is unable because of Executive's mental or physical
incapacity or for any other reason to secure Executive's 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 Executive hereby irrevocably designates
and appoints the Company and its duly authorized officers and agents as
Executive's agent and attorney in fact, to act for and in Executive's 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 Executive.
(f) Exception to Assignments. Executive understands 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
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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; and
(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.
Executive will advise the Company promptly in writing of any inventions
that Executive believes meet the above criteria and are not otherwise disclosed
on Exhibit A.
---------
9. Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render the same valid, or not applicable to the given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be. Should this Agreement, or any one or more of its
provisions hereof, be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, the Agreement or any such
provision or provisions shall not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
10. Legal Remedies. Executive hereby acknowledges that the Company would
suffer irreparable injury if the provisions of Sections 6, 7 and 8 above, which
shall survive the termination of the Agreement, were breached and that the
Company's remedies at law would be inadequate in the event of such breach.
Accordingly, Executive hereby agrees that any such breach or threatened breach
may, in addition to any and all other available remedies, be preliminarily
enjoined by the Company. In the event of litigation under this Agreement, each
of the Company and Executive shall pay its own attorneys' fees and expenses,
except that if Executive is enjoined either preliminarily or permanently, after
an evidentiary hearing, then Executive shall pay the attorneys' fees and
expenses of the Company in connection with that evidentiary hearing and,
similarly, if such evidentiary hearing results in a court refusing a permanent
injunction, then the Company shall pay Executive's attorneys' fees and expenses
in connection with such hearing.
11. Non-Assignability. In light of the unique personal services to be
performed by Executive hereunder, it is acknowledged and agreed that any
purported or attempted assignment or transfer by Executive of this Agreement or
any of Executive's duties, responsibilities or obligations hereunder shall be
void. This Agreement shall not be assigned by the Company without the prior
written consent of Executive.
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12. Notices. Any notice, request, demand or other communication required
or permitted under this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or when mailed by certified mail,
return receipt requested addressed as follows: I
If to the Company:
DigitalWork.com, Inc.
230 West Monroe Street, Suite 1950
Chicago, Illinois 60610
Attn: Chief Executive Officer
If to Executive, to the address listed on the signature page hereto.
or to such other address or addresses as may be specified from time to time by
notice; provided, however, that any notice of change of address shall not be
effective until its receipt by the party to be charged therewith.
13. General.
(a) Amendments. Neither this Agreement nor any of the terms or conditions
----------
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the parties hereto.
(b) Captions and Headings. The captions and paragraph headings used in
---------------------
this Agreement are for convenience of reference only, and shall not affect the
construction or interpretation of this Agreement or any of the provisions hereof
(c) Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and permitted
assigns.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
(e) Entire Agreement. Except as otherwise set forth or referred to in
----------------
this Agreement, this Agreement constitutes the sole and entire agreement and
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them as to such subject matter.
(f) Reliance by Third Parties. This Agreement is intended for the sole and
-------------------------
exclusive benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns, and
no other person or entity shall have any
9
<PAGE>
right to rely on this Agreement or to claim or derive any benefit therefrom
absent the express written consent of the party to be charged with such reliance
or benefit.
(g) Governing Law, Jurisdiction. This Agreement shall be construed in
---------------------------
accordance with and governed in all respects by the laws of the State of
Illinois (without giving effect to the conflicts of laws provisions thereof).
Subject to Section 14 below, the parties hereto agree that all claims, disputes,
or controversies between them arising out of, connected with, related to, or
incidental to the relationship established between them in connection with this
Agreement, whether arising at law or equity in contract, tort, equity, or
otherwise, if pursued in court shall be resolved only by state or federal courts
located in Cook County, Illinois, but each party hereto acknowledges that any
appeals from those courts may have to be heard by a court located outside of
Cook County, Illinois. Each party hereto waives in all disputes any objection
that it may have to personal jurisdiction or the venue of the court considering
the dispute.
14. Arbitration and Equitable Relief.
--------------------------------
(a) Arbitration. EXCEPT AS PROVIDED IN SECTION 14(b) BELOW,
-----------
EXECUTIVE AGREES 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 EXECUTIVE SHALL EACH PAY ONE-HALF OF THE COSTS AND EXPENSES OF SUCH
ARBITRATION, AND EACH SHALL SEPARATELY PAY THE RESPECTIVE COUNSEL FEES AND
EXPENSES.
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'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 14(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;
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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. EXECUTIVE AGREES 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 6, 7 AND 8 HEREIN. ACCORDINGLY, EXECUTIVE
AGREES THAT IF EXECUTIVE BREACHES 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. EXECUTIVE FURTHER AGREES THAT NO BOND OR OTHER SECURITY SHALL
BE REQUIRED IN OBTAINING SUCH EQUITABLE RELIEF AND EXECUTIVE HEREBY CONSENT TO
THE ISSUANCE OF SUCH INJUNCTION AND TO THE ORDERING OF SPECIFIC PERFORMANCE.
(c) Consideration. EXECUTIVE UNDERSTANDS 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. EXECUTIVE FURTHER UNDERSTANDS THAT EXECUTIVE IS OFFERED EMPLOYMENT
IN CONSIDERATION OF MY PROMISE TO ARBITRATE CLAIMS.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on and as of the date first set forth above.
The Company:
DigitalWork.com, Inc.,
a Delaware corporation
By: /s/ Robert A. Schultz
Title: Chief Executive Officer
Executive:
Craig A. Terrill
/s/ Craig A. Terrill
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<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of March 15, 2000,
by and between DigitalWork.com, Inc., a Delaware corporation (the "Company"),
and David P. Aniol (the "Executive"). The "Effective Date" of this Agreement
shall be the date the Securities and Exchange Commission (the "Commission")
declares effective the Registration Statement on Form S-1 (File No. 95895)
originally filed by the Company with the Commission on February 1, 2000.
RECITALS:
A. The Company desires to obtain the benefit of the Executive's
knowledge, skills and experience and assure itself of the ongoing right to
Executive's services subject to the terms and conditions set forth in this
Agreement beginning on the Effective Date; and
B. Executive is willing and able to render services to the Company,
beginning on the Effective Date, on the terms and conditions set forth in this
Agreement.
AGREEMENTS:
In consideration of the mutual agreements, provisions and covenants
contained in this Agreement, the Company and Executive hereby agree as follows:
1. Employment. Subject to all of the terms and conditions provided in
this Agreement, the Company hereby agrees to employ Executive and Executive
hereby accepts employment with the Company. Executive's title shall be Chief
Financial Officer of the Company and he shall possess such powers and perform
such duties as are normally incident to such office, as provided in the By-Laws
of the Company and in accordance with the applicable corporate laws governing
the Company. Executive shall perform such duties as may be identified from time
to time by the Chief Executive Officer of the Company or the Board of Directors
of the Company (the "Board"). Executive will perform the duties of his
employment hereunder diligently and faithfully and in conformity with the
directions of the Board, and shall at all times be subject to and shall observe
and carry out such reasonable rules, regulations, policies, directions and
restrictions as may be established from time to time by the Company.
2. Term of Employment. Unless terminated as provided in Section 6 hereof,
the term of this Agreement shall be for a period of one year (the "Employment
Period"), commencing on the Effective Date and continuing through and including
the day immediately preceding the second anniversary of the Effective Date (the
"Expiration Date"). Before the Expiration Date, the Company and Executive shall
negotiate, in good faith, an extension, modification or amendment of this
Agreement, or a new employment agreement, which would govern the employment of
Executive by the Company after the Expiration Date; provided, however, that
neither party shall be bound by the non-surviving terms of any employment
agreement governing the employment of Executive after the Expiration Date unless
such parties shall have entered into a binding, written agreement governing such
employment.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As compensation for the services to be rendered by
------------
Executive hereunder, the Company shall pay to Executive a base salary of
$149,000 per year (as increased from time to time, the "Base Salary"), subject
to increase in January of each year during the term of this Agreement as
determined by the Compensation Committee of the Board. The Base Salary shall be
payable in periodic installments (but in no event less frequently than semi-
monthly) in accordance with the standard payroll practices of the Company in
effect from time to time, less income tax withholdings and other required
employee deductions.
(b) Business Expenses. In accordance with the Company's policies
------------------
established from time to time, the Company will pay or reimburse Executive for
all reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentation by
Executive of appropriate receipts and vouchers.
(c) Bonus. For each fiscal year during the Employment Period, the Company
------
will set a bonus for Executive upon the achievement of the objectives defined by
the Board or the Compensation Committee up to 40% of Executive's then Base
Salary. The amount of the bonus actually paid, if any, will be determined by the
Compensation Committee of the Board based upon Executive's performance and the
achievement of the Company's financial objectives. The annual bonus (in its
entirety) for each year will be paid in the first month of each year.
(d) Fringe Benefits. The Company shall make available to Executive,
----------------
throughout the Employment Period, such benefits and perquisites as are generally
provided by the Company to its executive employees. Without limiting the
foregoing, Executive shall be eligible to participate in the group life, health
or accident insurance, or other such plan or policy which may presently be in
effect or which may hereafter be adopted by the Company for the benefit of its
executive Executives generally, in each case subject to the terms and conditions
of any such plan or policy.
(e) Severance Pay/Change of Control. In the event Executive's employment
--------------------------------
with the Company is terminated by the Company (i) without Cause, (ii) without
Cause following a Change of Control or (iii) as a result of Executive's Death or
Disability (a "Severance Event"), in consideration of the Executive's covenants
set forth in Section 7 hereof, and in consideration of his employment, the
Company shall
(A) pay Executive severance pay in an aggregate amount equal to 50%
of Executive's Base Salary (the "Severance Amount"), less income tax
withholdings and other required employee deductions, payable in semi-
monthly installments over a period of three months, subject to the terms of
Section 3(a);
(B) pay Executive a lump sum on the date of termination equal to the
pro rata portion of the maximum annual bonus earned as of the date of
severance; and
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<PAGE>
(C) accelerate the vesting of 50% of (i) the options the Company has
to repurchase restricted stock from Executive pursuant to restricted stock
agreements and (ii) unvested options to purchase the Common Stock of the
Company granted to Executive under the 1998 Stock Plan, as may be amended
or restated from time to time, or any other stock option plan that the
Company may implement from time to time.
For purposes of this Agreement, "terminated" shall include the reduction
of Executive's responsibilities and duties to the Company, or, except with
respect to a Change of Control of the Company, the reduction of Executive's
title. For purposes of this Agreement, a Change in Control shall mean any of the
following events:
(A) the acquisition by new stockholders (being any entity, person or
group of persons) acting in concert, of a beneficial ownership interest in
the Company, resulting in the total beneficial interest of such entity,
person or group of persons equaling or exceeding 50% of the total
outstanding common stock and warrants of the Company. The change in control
shall occur on the date the beneficial ownership of the acquiring entity,
person or group of persons equals or exceeds 50% of the outstanding common
stock and warrants of the Company; or
(B) a merger, consolidation, or reorganization having substantially
the same effect; or the sale of all or substantially all the consolidated
assets of the Company, in each case, with respect to the entity, person or
group of persons who were the respective. beneficial owners of the
outstanding common stock immediately prior to such event do not, following
such event, beneficially own, directly or indirectly, more than 50%
respectively, of the then outstanding voting stock of the corporation
resulting from such event or the corporation purchasing or receiving assets
pursuant to such event.
4. Vacation. Throughout the Employment Period, Executive shall be
entitled to take, from time to time, on an annual basis, four weeks of vacation
with pay, at such times as shall be mutually convenient to Executive and the
Company. Executive shall also be entitled to take, from time to time, five
personal days and three sick days.
5. Termination.
(a) For Cause. At any time during the term of this Agreement, the Company
---------
may terminate Executive's employment under this Agreement for Cause, without any
further liability hereunder. As used in this Agreement, "Cause" shall mean
termination by action of the Board because of any one or more of the following:
(i) the Executive's conviction of, or plea of nolo contendere to, a felony; (ii)
the Executive's breach of any legal duty of loyalty to the Company,
misappropriation of the Company's funds, or dishonest, fraudulent, illegal or
unethical business conduct; (iii) the failure of Executive to perform the duties
provided in Section 1, which failure to so perform shall continue after notice
from the Company; (iv) the Executive's breach of the obligations provided in
Sections 6 and 7 of this Agreement as provided therein; or (v) the Executive's
illegal use of controlled substances. Termination for Cause shall be effective
immediately for those events described in subparagraphs (i), (ii), (iv), and
(v). Termination for
3
<PAGE>
Cause shall be effective for the events in subparagraph (iii) 30 days after
notice to Executive from the Company of the occurrence of such event and
Executive shall have failed to cure such event within such 30-day period.
(b) Death of Executive. This Agreement shall terminate automatically upon
-------------------
the death of Executive.
(c) Disability. This Agreement shall terminate upon a determination by the
-----------
Board based upon a written medical opinion that the Executive is unable to
perform the essential functions of his employment position, due to a disability
of Executive that cannot be reasonably accommodated by the Company.
6. Confidential Information.
(a) Confidential Information Defined. "Confidential Information" means any
---------------------------------
trade secret (as defined in 765 ILSC (S)1065/2(d)) of the Company that contains,
reflects or embodies the Company's business plans or the Company's strategic,
financial, technical, joint venture, or investor information.
(b) Disclosure and Use. Executive shall not disclose or use at any time,
-------------------
either during or after Executive's employment with the Company or any other
direct or indirect subsidiary of the Company (collectively referred to in this
paragraph as the "Company"), any Confidential Information, except that Executive
may disclose, subject to Section 7, Confidential Information solely to the
extent: (1) required for Executive to perform his employment duties with the
Company; (2) it has been disclosed to Executive by a third party who is not
subject to restriction on the disclosure of such information; (3) it has or
becomes generally available to the public other than as a result of a disclosure
by a party who is not subject to nondisclosure obligations with respect thereto;
(4) it must be disclosed as a result of a subpoena or other legal process, after
the Company has had the opportunity to request a suitable protective order for
such information; or (5) the Company has given Executive prior written
authorization to do so. Executive's obligations under this paragraph shall
survive the termination of this Agreement and Executive's employment with the
Company, and shall remain in effect and be enforceable against Executive for so
long as any Confidential Information retains economic value, whether actual or
potential, because it is not generally known to other persons who can obtain
economic value from its disclosure or use. Executive shall execute such
reasonable further agreements evidencing Executive's obligations to the Company
concerning nondisclosure of Confidential Information as the Company may require
from time to time.
(c) Return of Materials. Upon termination of his employment with the
--------------------
Company, Executive shall promptly deliver to the Company all customer lists,
specifications, drawings, computer programs, listings, documentation, manuals,
letters, notes, note books, reports, and all other embodiments of Confidential
Information (together with copies thereof) in the possession or under the
control of Executive.
4
<PAGE>
7. Restrictive Covenant.
(a) Restricted Activities. As conditions of his employment and in
----------------------
consideration of his employment, Executive covenants and agrees as follows:
(i) subject to Section 7(c) below, beginning on the Effective Date
and continuing for 12 months after the termination of Executive's
employment with the Company (the "Restricted Period"), he will not, without
the prior written consent of the Board, directly or indirectly, as a
stockholder (except as a stockholder owning beneficially or of record less
than 5% of the outstanding shares of any class of publicly traded stock of
any issuer), or as an officer, director, employee, partner, joint venturer,
proprietor or otherwise, engage in, become interested in, consult with,
lend to or borrow from, advise or negotiate for or on behalf of, a
"Restricted Business."
(ii) during the Restricted Period, he will not solicit (or employ or
cause to be employed other than by the Company) other employees of the
Company or any affiliate or subsidiary of the Company, directly or
indirectly, for the purpose of enticing them to leave their employment with
the Company or any affiliate or subsidiary of the Company;
(iii) during the Restricted Period, he will not attempt in any manner
to solicit any Restricted Business from any individual or entity who or
which is a client of the Company at any time within six months before the
date that Executive's employment by the Company terminates or to persuade
any such client to cease doing business with the Company or to reduce the
amount of business which such client has customarily done or contemplates
doing with the Company, whether or not the relationship between the Company
and such client was originally established in whole or in part through his
efforts;
(iv) during the Restricted Period, he will make full and complete
disclosure of the existence of this Agreement and the content of this
Section 7 to all prospective employers with whom he may discuss possible
employment;
(v) he will refrain from any disparagement, direct or indirect,
through innuendo or otherwise, of the Company or any of its employees,
agents, officers, directors, shareholders or affiliates;
(vi) subject to Section 7(c) below, during his employment with the
Company, he will not, without the prior written consent in each case of the
Board, participate actively in any other business interests or investments
which would conflict with his responsibilities under this Agreement;
(vii) during his employment with the Company, he will not, without
the prior written consent in each case of the Board: (a) exchange goods,
products or services of the Company in return for goods, products or
services of any individual or firm or (b) accept gifts or favors from any
outside organization or agency which, individually or
5
<PAGE>
collectively, may cause undue influence in his selection of goods, products
or services for the Company; and
(viii) after the termination of his employment with the Company, he
will not secure, or attempt to secure, from any employee or former employee
of the Company or any affiliate or subsidiary of the Company, any
information relating to the Company or any affiliate or subsidiary of the
Company or its operations.
(b) Restricted Business Defined. For the purposes of this Agreement,
"Restricted Business" means any company that would be considered a competitive
threat to the Company's market position if they hired away the Company's key
employees that had a working knowledge of the Company's key strategies.
(c) Representation and Warranty. Executive represents and warrants to the
Company that, notwithstanding the operation of the covenants contained in this
Section 7, upon the termination of his employment hereunder, Executive will be
able to obtain employment for the purpose of earning a livelihood.
8. Inventions.
(a) Inventions Retained and Licensed. Executive has attached hereto, as
--------------------------------
Exhibit A, a list describing all inventions, original works of authorship,
- ---------
developments, improvements, and trade secrets which were made by Executive prior
to Executive's employment with the Company (collectively referred to as "Prior
Inventions"), which belong to Executive, 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, Executive represents
that there are no such Prior Inventions. If in the course of Executive's
employment with the Company, Executive incorporates into a Company product,
process or machine a Prior Invention owned by Executive or in which Executive
has 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. Executive agrees that Executive 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 Executive's 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 Executive 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
Executive is in the employ of the Company (collectively referred to as
"Inventions"), except as provided in Section 8(f) below. Executive further
acknowledges that all original works of authorship which are made by Executive
(solely or jointly with others) within the scope of and during the period of
Executive's employment with the Company and which are protectible by copyright
are "works made for hire," as that term is defined in the United States
6
<PAGE>
Copyright Act. Executive understands and agrees that the decision whether or
not to commercialize or market any invention developed by Executive 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 Executive as a result
of the Company's efforts to commercialize or market any such invention.
(c) Inventions Assigned to the United States. Executive agrees to assign
----------------------------------------
to the United States government all Executive's 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. Executive agrees to keep and maintain adequate
----------------------
and current written records of all Inventions made by Executive (solely or
jointly with others) during the term of Executive's 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.
(e) Patent and Copyright Registrations. Executive agrees 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. Executive further agrees that Executive's obligation to
execute or cause to be executed, when it is in Executive's power to do so, any
such instrument or papers shall continue after the termination of this
Agreement. If the Company is unable because of Executive's mental or physical
incapacity or for any other reason to secure Executive's 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 Executive hereby irrevocably designates
and appoints the Company and its duly authorized officers and agents as
Executive's agent and attorney in fact, to act for and in Executive's 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 Executive.
(f) Exception to Assignments. Executive understands 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
7
<PAGE>
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; and
(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.
Executive will advise the Company promptly in writing of any inventions
that Executive believes meet the above criteria and are not otherwise disclosed
on Exhibit A.
---------
9. Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render the same valid, or not applicable to the given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be. Should this Agreement, or any one or more of its
provisions hereof, be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, the Agreement or any such
provision or provisions shall not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
10. Legal Remedies. Executive hereby acknowledges that the Company would
suffer irreparable injury if the provisions of Sections 6, 7 and 8 above, which
shall survive the termination of the Agreement, were breached and that the
Company's remedies at law would be inadequate in the event of such breach.
Accordingly, Executive hereby agrees that any such breach or threatened breach
may, in addition to any and all other available remedies, be preliminarily
enjoined by the Company. In the event of litigation under this Agreement, each
of the Company and Executive shall pay its own attorneys' fees and expenses,
except that if Executive is enjoined either preliminarily or permanently, after
an evidentiary hearing, then Executive shall pay the attorneys' fees and
expenses of the Company in connection with that evidentiary hearing and,
similarly, if such evidentiary hearing results in a court refusing a permanent
injunction, then the Company shall pay Executive's attorneys' fees and expenses
in connection with such hearing.
11. Non-Assignability. In light of the unique personal services to be
performed by Executive hereunder, it is acknowledged and agreed that any
purported or attempted assignment or transfer by Executive of this Agreement or
any of Executive's duties, responsibilities or obligations hereunder shall be
void. This Agreement shall not be assigned by the Company without the prior
written consent of Executive.
8
<PAGE>
12. Notices. Any notice, request, demand or other communication required
or permitted under this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or when mailed by certified mail,
return receipt requested addressed as follows: I
If to the Company:
DigitalWork.com, Inc.
230 West Monroe Street, Suite 1950
Chicago, Illinois 60610
Attn: Chief Executive Officer
If to Executive, to the address listed on the signature page hereto.
or to such other address or addresses as may be specified from time to time by
notice; provided, however, that any notice of change of address shall not be
effective until its receipt by the party to be charged therewith.
13. General.
(a) Amendments. Neither this Agreement nor any of the terms or conditions
-----------
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the parties hereto.
(b) Captions and Headings. The captions and paragraph headings used in
----------------------
this Agreement are for convenience of reference only, and shall not affect the
construction or interpretation of this Agreement or any of the provisions hereof
(c) Successors and Assigns. This Agreement shall be binding upon and shall
-----------------------
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and permitted
assigns.
(d) Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
(e) Entire Agreement. Except as otherwise set forth or referred to in this
-----------------
Agreement, this Agreement constitutes the sole and entire agreement and
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them as to such subject matter.
(f) Reliance by Third Parties. This Agreement is intended for the sole and
--------------------------
exclusive benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns, and
no other person or entity shall have any
9
<PAGE>
right to rely on this Agreement or to claim or derive any benefit therefrom
absent the express written consent of the party to be charged with such reliance
or benefit.
(g) Governing Law, Jurisdiction. This Agreement shall be construed in
----------------------------
accordance with and governed in all respects by the laws of the State of
Illinois (without giving effect to the conflicts of laws provisions thereof).
Subject to Section 14 below, the parties hereto agree that all claims, disputes,
or controversies between them arising out of, connected with, related to, or
incidental to the relationship established between them in connection with this
Agreement, whether arising at law or equity in contract, tort, equity, or
otherwise, if pursued in court shall be resolved only by state or federal courts
located in Cook County, Illinois, but each party hereto acknowledges that any
appeals from those courts may have to be heard by a court located outside of
Cook County, Illinois. Each party hereto waives in all disputes any objection
that it may have to personal jurisdiction or the venue of the court considering
the dispute.
14. Arbitration and Equitable Relief.
--------------------------------
(a) Arbitration. EXCEPT AS PROVIDED IN SECTION 14(b) BELOW, EXECUTIVE
-----------
AGREES 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 EXECUTIVE SHALL EACH PAY ONE-HALF OF THE COSTS AND EXPENSES OF SUCH
ARBITRATION, AND EACH SHALL SEPARATELY PAY THE RESPECTIVE COUNSEL FEES AND
EXPENSES.
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'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 14(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;
10
<PAGE>
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. EXECUTIVE AGREES 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 6, 7 AND 8 HEREIN. ACCORDINGLY, EXECUTIVE
AGREES THAT IF EXECUTIVE BREACHES 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. EXECUTIVE FURTHER AGREES THAT NO BOND OR OTHER SECURITY SHALL
BE REQUIRED IN OBTAINING SUCH EQUITABLE RELIEF AND EXECUTIVE HEREBY CONSENT TO
THE ISSUANCE OF SUCH INJUNCTION AND TO THE ORDERING OF SPECIFIC PERFORMANCE.
(c) Consideration. EXECUTIVE UNDERSTANDS 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. EXECUTIVE FURTHER UNDERSTANDS THAT EXECUTIVE IS OFFERED
EMPLOYMENT IN CONSIDERATION OF MY PROMISE TO ARBITRATE CLAIMS.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on and as of the date first set forth above.
The Company:
DigitalWork.com, Inc.,
a Delaware corporation
By: /s/ Robert A. Schultz
Title: Chief Executive Officer
Executive:
David P. Aniol
/s/ David P. Aniol
12
<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 commercially reasonable efforts
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 best efforts to so integrate AOL's Shopping Cart if
and to the extent consistent with the DigitalWork's standard policy
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 use best efforts consistent with
DigitalWork's standard policies to 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 reasonable efforts 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 Six Million Dollars (US$6,000,000), payable as
follows: (a) One Million Dollars (US $1,000,000) upon execution
hereof, and (b) Five Million Dollars (US % 5,000,000) within thirty
(30) 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 quarterly basis within thirty days
following the end of the quarter in 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 such time. 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 20 business days 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 (5%) 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 (30) days 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 quarterly report (and will use commercially
reasonable efforts to provide monthly 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 quarterly basis within 30 days
following the end of the quarter 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 (15%) (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 use good faith efforts 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
Netscape "Members only" reduced price and/or enhanced value 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 may be structured by AOL to be provided by Netscape or
by a third party, and that, if provided by a third party, AOL shall
not be required to force such third party to accept the terms of this
Section 6.1, and DigitalWork may not be able to so participate;
provided that AOL shall use commercially reasonable efforts to request
of such third party to consent to working with DigitalWork. AOL may
consider in good faith the possibility of using DigitalWork as such
third party. 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 use good faith efforts 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 quarterly basis within (30) days following the end of the quarter in
which such amounts were generated. DigitalWork understands and agrees
that the Netscape Business Card product may be structured by AOL
to be provided by Netscape or by a third party, and that, if provided
by a third party, AOL shall not be required to force such a third
party to accept the terms of this Section 6.7, and DigitalWork may not
be able to so participate; provided that AOL shall use commercially
reasonably efforts to request of such third part to consent to working
with DigitalWork AOL may consider the possibility of using DigitalWork
as such third party. Notwithstanding the forgoing, if requested by AOL
and/or such third party DigitalWork shall participate.
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 3 days of any such request from Netscape,
DigitalWork will use good faith efforts to evaluate specific Netscape
content, programming and links that DigitalWork may integrate into its
generally available web site (e.g., targeted at business users). The
parties will mutually agree upon (a) the nature of Netscape content
and programming, if any, to be integrated on the DigitalWork web site,
(b) the terms of any such agreement, and (c) the carriage/integration
plan for such content and programming. DigitalWork will integrate such
Netscape content and programming, if any, throughout the DigitalWork
web based application, and will provide navigational links throughout
the DigitalWork web based applications to the co-branded areas
containing the Netscape programming.
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 (30)
days of full execution hereof.
9. MISCELLANEOUS. DigitalWork will provide AOL with a meaningful opportunity to
discuss in good faith the possibility (subject to mutual agreement on terms)
for AOL to provide future small business, SOHO, vertical trading community
activities provided by DigitalWork, including, without limitation, access,
vertical trading community platforms, and trading systems. This right does
not obligate DigitalWork to purchase any such products or services from AOL.
DigitalWork will provide AOL with a meaningful opportunity to discuss in
good faith the possibility (subject to mutual agreement on terms) for
DigitalWork to incorporate any AOL Component Product on the Standard Site.
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
- -------------------------------------------------------------------------------
Product Integration Level A
- -------------------------------------------------------------------------------
Product Integration Level B
- -------------------------------------------------------------------------------
Product Integration Level C
- -------------------------------------------------------------------------------
Homepage Integration
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Level 2 Promotions *** Impressions
- -------------------------------------------------------------------------------
Netcenter
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Business: Rotational Banners
Toolkit Articles, Her Business
- -------------------------------------------------------------------------------
Small Business: Rotational Banners
Main, departments
- -------------------------------------------------------------------------------
Small Business - Research Button Rotational Button
Sponsorship
- -------------------------------------------------------------------------------
Business: Rotational Text Links
Daily News, Toolkit Articles
- -------------------------------------------------------------------------------
Her Business Rotational Text Links
- -------------------------------------------------------------------------------
Small Business - Departments Rotational Text Links
- -------------------------------------------------------------------------------
Run of Netscape Channel Rotational Banners & Text Links
- -------------------------------------------------------------------------------
Computing - Smart Update Rotational Banner
- -------------------------------------------------------------------------------
Run of Computing & Internet Rotational Banners & Text Links
- -------------------------------------------------------------------------------
Computing & Internet: Rotational Banners
Tech Resources, Software Review,
Support Books,
- -------------------------------------------------------------------------------
Run of Personal Finance Rotational Banners & Text Links
- -------------------------------------------------------------------------------
Run of Site Central - Business Rotational Banners
- -------------------------------------------------------------------------------
AOL Service
- -------------------------------------------------------------------------------
Business News: Rotational Banners
Wire Press Release, Newsfeeds,
Miscellaneous Articles, Feature Articles,
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Confidential Treatment Requested
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Business Week: Rotational Banners
Daily Briefing, Miscellaneous, Cover Story
- --------------------------------------------------------------------------------
Market Day - Mid Day report Rotational Banners
- --------------------------------------------------------------------------------
BKH - Advertising, Sales & Marketing Rotational Banners
- --------------------------------------------------------------------------------
BKH - Women-Owned Business Rotational Banners
- --------------------------------------------------------------------------------
Industry - Sales & Marketing Rotational Banners
- --------------------------------------------------------------------------------
Professional Forums Rotational Banners
- --------------------------------------------------------------------------------
Run of Workplace Rotational Banners
- --------------------------------------------------------------------------------
Market Player Sponsorship Sponsorship Button
(exact dates to be determined)
- --------------------------------------------------------------------------------
Market Player Sponsorship - Market Player One 2 Month Sponsorship Throughout
Badge the Year
- --------------------------------------------------------------------------------
Personal Finance Stock Quotes Rotational Banners
- --------------------------------------------------------------------------------
Run of Personal Finance Rotational Banners
- --------------------------------------------------------------------------------
AOL.com
- --------------------------------------------------------------------------------
Computing channel: Multimedia Screen Rotational Great Deals Text Links
- --------------------------------------------------------------------------------
Business & Careers Main Screen Rotational Great Deals Text Links
- --------------------------------------------------------------------------------
Web Center - Run of Personal Finance Rotational Banners
- --------------------------------------------------------------------------------
My AOL.com Run of Business News Rotational Banners
- --------------------------------------------------------------------------------
Yellow Pages - Business Services Rotational Banners
- --------------------------------------------------------------------------------
Hometown: Rotational Banners
Run of Home Based Businesses Member
Pages, Run of Home Based
Businesses, Run of Hometown Business
- --------------------------------------------------------------------------------
CompuServe
- --------------------------------------------------------------------------------
Business: Rotational Banners
Main, Careers, Other
Soho
- --------------------------------------------------------------------------------
Forum: Rotational Banners
Business, Computing Support, Personal
Finance
- --------------------------------------------------------------------------------
Run of Computing Channel Rotational Banners
- --------------------------------------------------------------------------------
Run of Personal Finance Channel Rotational Banners
- --------------------------------------------------------------------------------
Cross Brand
- --------------------------------------------------------------------------------
Classified Plus: Rotational Banners
Business Services, Business Category Main
- --------------------------------------------------------------------------------
Search 2000 Sponsorship (AOL, AOLC, Rotational Sponsorship Button
NSCP):
Business Main, Business Advertising,
Business Marketing
- --------------------------------------------------------------------------------
Rotational Banners
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
<TABLE>
- --------------------------------------------------------------------------------
Level 3 Promotions Impressions
- --------------------------------------------------------------------------------
<S> <C>
Netcenter
- --------------------------------------------------------------------------------
Netscape Homepage Rotational Banners
- --------------------------------------------------------------------------------
Netscape Download Rotational Banners
- --------------------------------------------------------------------------------
Run of Site Central Rotational Banners and Text Links
- --------------------------------------------------------------------------------
Netscape Run of Service Rotational Banners and Text Links
- --------------------------------------------------------------------------------
AOL Service
- --------------------------------------------------------------------------------
AOL Service Email Inbox Rotational Banners
- --------------------------------------------------------------------------------
AOL Run of Service Rotational Banners
- --------------------------------------------------------------------------------
AOL.com
- --------------------------------------------------------------------------------
AOL.com Run of Yellow Pages Rotational Banners
- --------------------------------------------------------------------------------
CompuServe
- --------------------------------------------------------------------------------
CompuServe and Compuserve.com Run of Rotational Banners
Service
- --------------------------------------------------------------------------------
Cross Brands
- --------------------------------------------------------------------------------
Run of Calendar Rotational Banners
- --------------------------------------------------------------------------------
Run of Classifieds Rotational Banners
- --------------------------------------------------------------------------------
Run of Search 2000 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, handling, shipping service charges, and excluding, in each case,
(a) amounts collected for Sales or use taxes or duties and (b) credits or
chargebacks for returned or cancelled goods or services, but not excluding cost
of goods sold or any similar costs.
<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 reasonably competitive overall in the business-to-
business industry, with respect to material quality averages or standards in
such industry. In addition, the Co-Branded Site will, with respect each measure
listed above, be competitive in all respects with that which is offered by
DigitalWork competitors.
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 commercially reasonable efforts
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 commercially reasonable
efforts 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 commercially reasonable efforts 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 commercially reasonably effects 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 commercially
reasonable efforts, 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 use all reasonable efforts 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 use best efforts 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 3 years 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 two
year 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 another Interactive Service. 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 as desired by
partner; (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 two (2) 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.
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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
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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
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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.
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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
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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
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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.
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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
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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
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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.
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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.
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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
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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
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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.
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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
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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
--------------------------------------------------------
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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>
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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
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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 99.9% 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 99.8% 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 20% 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 99.7% 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 99.7% 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 99.7% 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 99.5% of the time, with a
maximum (5) 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).
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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,
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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 2 hours Email within 1 hour Email within 1 hour
9:00am - 5:00pm CST 7:00am - 7:00pm CST M-F 24X7 7 days a week
M-F
- -------------------------------------------------------------------------------------------------------------------
Online Product Support Email within one business day Email within the same day Email within 4 hours
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 24 hours Same Same
- -------------------------------------------------------------------------------------------------------------------
Live person chat Start within 15 minutes of Start within 5 minutes Start within 1 minute
request 9 - 5 M-F 7am - 7pm M-F 7am - 7pm M-F
- -------------------------------------------------------------------------------------------------------------------
Outbound product support Customer specified time Customer specified time Same
within 4 hour window within 2 hour window
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
15 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
30 seconds thereafter. This standard shall be achieved for 95% 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 15 seconds 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 30
seconds thereafter. This standard shall be achieved for 95% 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:
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(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 (30) minutes of receipt of an
inquiry from Dell to Company's designated point of contact, and (1) hour 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:
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<TABLE>
<CAPTION>
Priority Initial Update Update Interval Response Time
(minutes) (minutes) Objective
(minutes)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Critical/1/ 30 30 30
- --------------------------------------------------------------------------------
Major/2/ 60 status change 60
- --------------------------------------------------------------------------------
Important/3/ 60 status change 240
- --------------------------------------------------------------------------------
</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.
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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
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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.
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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 $2,000,000. The amount of
the fee will be determined as follows: (40,000 minus number of DigitalWork.com
E-Commerce customers during first year) 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 $2,000,000. 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 $2,000,000 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 30 days 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
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<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>
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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.
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<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 Amendment No. 4 to the
Registration Statement (Form S-1 No. 333-95895) and related Prospectus of
DigitalWork.com, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Chicago, Illinois
April 12, 2000
