<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2000
REGISTRATION STATEMENT NO. 333-30548
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
SCREAMING MEDIA.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7389 13-4042678
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
601 WEST 26TH STREET, 13TH FLOOR
NEW YORK, NEW YORK 10001
(212) 691-7900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEVIN C. CLARK
CHIEF EXECUTIVE OFFICER
601 WEST 26TH STREET, 13TH FLOOR
NEW YORK, NEW YORK 10001
(212) 691-7900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
DAVID J. GOLDSCHMIDT, ESQ. STEPHEN L. BURNS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP CRAVATH, SWAINE & MOORE
FOUR TIMES SQUARE 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10036-6522 NEW YORK, NEW YORK 10019-7475
(212) 735-3000 (212) 474-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, par value $0.01 (including the associated
Rights to purchase Series A Junior Participating preferred
stock)(3)................................................... $75,000,000 $19,800
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
(2) Previously paid.
(3) The Rights to purchase shares of our Series A Junior Participating Preferred
Stock initially are attached to and trade with the shares of our common
stock being registered hereby. Value attributed to such Rights, if any, is
reflected in the market price of our common stock.
------------------------
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 AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 27, 2000
[SCREAMING MEDIA LOGO]
5,000,000 Shares
SCREAMINGMEDIA
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $11.00 and $13.00 per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "SCRM."
The underwriters have an option to purchase a maximum of 750,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
4.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS SCREAMINGMEDIA
------------- ------------- --------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total........................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
THOMAS WEISEL PARTNERS LLC
The date of this prospectus is , 2000.
<PAGE> 3
[LEFT BLANK FOR INSIDE COVER]
<PAGE> 4
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 4
FORWARD-LOOKING STATEMENTS.......... 12
USE OF PROCEEDS..................... 12
DIVIDEND POLICY..................... 12
CAPITALIZATION...................... 13
DILUTION............................ 14
SELECTED FINANCIAL DATA............. 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 17
BUSINESS............................ 24
MANAGEMENT.......................... 34
RELATED PARTY TRANSACTIONS.......... 45
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PRINCIPAL STOCKHOLDERS.............. 46
DESCRIPTION OF CAPITAL STOCK........ 47
SHARES ELIGIBLE FOR FUTURE SALE..... 51
U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS.................. 53
UNDERWRITING........................ 56
NOTICE TO CANADIAN RESIDENTS........ 58
LEGAL MATTERS....................... 59
EXPERTS............................. 59
CHANGE IN ACCOUNTANTS............... 60
WHERE YOU CAN FIND MORE
INFORMATION....................... 60
INDEX TO FINANCIAL STATEMENTS....... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights the information contained elsewhere in this
prospectus. You should read the entire prospectus carefully.
SCREAMINGMEDIA
We have developed proprietary technologies for the aggregation and
distribution of digital content over the Internet. We aggregate content from a
wide range of content providers and then filter, deliver and efficiently
integrate this content into our customers' Web sites almost instantaneously. Our
technologies are compatible with existing and emerging Internet access
technologies, including wireless, and are designed to support a variety of
content formats, ranging from text to streaming video. We believe that
ScreamingMedia offers Web sites a cost-effective means to meet the growing need
for them to provide targeted, high-quality content to their users, which is
essential to building a loyal user base. We offer Web sites a single-source
solution for their timely and relevant content needs and offer content providers
a means of syndicating their content to third parties.
We have assembled a growing digital content network, which as of March 15,
2000 consisted of over 750 Web site customers and 201 content providers
supplying content from 496 publications. We added 133 of our current customers
in February 2000. We generate revenue principally from recurring monthly fees
under contracts that we enter into with customers, typically for an initial
period of one year. We also generate revenue from one-time set-up fees that we
charge new customers. In addition, we have a growing international presence,
with 61 of our customers and 38 of our content providers based outside of the
United States, primarily in Latin America, the United Kingdom and Canada.
We believe that high-quality content is vital to Web sites in order to
drive traffic, develop user loyalty and increase the length of time that users
spend on a site. Web sites have limited options to obtain timely and relevant
content. Traditionally, Web sites either had to produce their own content or
enter into multiple relationships with a variety of content providers. These
options can involve considerable expense, limit the range and quality of the
content available and create integration difficulties.
We offer Web sites the following key benefits:
- the ability to obtain highly-targeted, continuously updated content from
a wide range of sources;
- a cost-effective, single-source alternative to independently producing or
aggregating content;
- seamless integration of content into the look and feel of the Web site,
giving customers control over their users' online experience and
enhancing their brand identity; and
- a flexible and scalable service that meets the needs of a wide range of
customers and is easily adaptable to their changing needs.
Our objective is to establish our technology as the global standard for the
exchange of digital content and related services. To achieve this, we intend to:
- rapidly expand our digital content network;
- maintain and extend our product and technology leadership;
- establish ScreamingMedia as a leading brand;
- continue to pursue strategic relationships; and
- expand our international presence.
Our principal executive offices are located at 601 West 26th Street, 13th
Floor, New York, New York 10001, and our telephone number is (212) 691-7900. The
address of our Web site is www.screamingmedia.com. The information on our Web
site is not part of this prospectus.
Content Engine(R) is a registered service mark of ScreamingMedia.
ScreamingMedia(SM) and Digital Content Network(SM) are service marks of
ScreamingMedia. SiteWare(TM) is a trademark of ScreamingMedia. This prospectus
also contains trademarks of other companies.
1
<PAGE> 6
We have a history of operating losses and expect to incur losses for the
foreseeable future. As of December 31, 1999, we had an accumulated deficit of
$13.9 million. We incurred a net loss of $13.2 million for the year ended
December 31, 1999. We have a limited operating history on which to evaluate our
business and prospects. We began our current line of business at the end of 1997
and began focusing exclusively on this business in the latter part of 1998. We
also operate in a highly competitive market.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................... 5,000,000 shares
Common stock to be outstanding after this
offering......................................... 35,018,390 shares
Use of proceeds.................................... For general corporate purposes, including
increasing our sales and marketing activities,
expanding our international operations, product
development and working capital.
Nasdaq National Market Symbol...................... SCRM
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on our shares outstanding as of January 31, 2000. This information
excludes:
- 6,408,878 shares of common stock issuable on the exercise of stock
options outstanding as of January 31, 2000 issued under our 1999 stock
option plan at a weighted average exercise price of $1.35;
- 488,748 shares of common stock issuable on the exercise of warrants
outstanding as of January 31, 2000 at a weighted average exercise price
of $3.17; and
- 4,000,000 shares of common stock available for issuance under our 2000
equity incentive plan.
------------------------
Except as otherwise indicated, the information in this prospectus assumes
no exercise of the underwriters' overallotment option and gives effect to the
following:
- a 1.7-for-1 common stock split that will be effected before completion of
this offering; and
- the conversion on closing of this offering of all outstanding shares of
convertible preferred stock into 14,299,234 shares of common stock.
2
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................................ $ 525 $ 782 $ 574 $ 567 $ 2,985
Total operating expenses..................... 419 772 669 1,163 16,479
Operating income (loss)...................... 106 10 (95) (596) (13,494)
Net income (loss)............................ $ 106 $ 10 $ (95) $ (610) $(13,166)
====== ====== ====== ====== ========
Basic net income (loss) per share............ $ 0.06 $ 0.01 $(0.05) $(0.28) $ (0.85)
====== ====== ====== ====== ========
Weighted average number of shares of common
stock outstanding.......................... 1,870 1,870 1,998 2,181 15,496
====== ====== ====== ====== ========
Pro forma basic net loss per share........... $ (0.61)
========
Pro forma weighted average number of shares
of common stock outstanding................ 21,468
========
</TABLE>
Pro forma basic net loss per share has been calculated assuming the
conversion of all previously outstanding preferred stock into common stock, as
if the shares had converted immediately upon their issuance. See note 2 to the
financial statements for an explanation of the determination of the number of
shares used in computing basic net loss per share.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $22,122 $22,122 $77,022
Working capital.......................................... 21,930 21,930 76,830
Total assets............................................. 32,370 32,370 87,270
Capital lease obligations, less current portion.......... 647 647 647
Redeemable convertible preferred stock................... 27,434 -- --
Total stockholders' equity (deficiency).................. (549) 26,885 81,785
</TABLE>
The pro forma balance sheet data gives effect to the automatic conversion
of our outstanding redeemable convertible preferred stock and our convertible
preferred stock into 14,299,234 shares of common stock. The pro forma as
adjusted data gives effect to our receipt of the net proceeds from the sale of
5,000,000 shares of common stock offered by us at an assumed initial public
offering price of $12.00 and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
3
<PAGE> 8
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below before deciding to invest in
shares of our common stock. The trading price of our common stock could decline
due to any of these risks, in which case you could lose all or part of your
investment. In assessing these risks, you should also refer to the other
information in this prospectus, including our financial statements and the
related notes.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT WILL BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS.
It is difficult to value our business and evaluate our prospects because of
our limited operating history. We began our current line of business at the end
of 1997 and began focusing exclusively on this business in the latter part of
1998. Accordingly, we have limited financial and operating data that is relevant
to our current business. Our business model is unproven, which creates a risk
that our performance will not meet the expectations of investors and that the
value of our common stock will decline.
WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO INCUR
SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE.
We expect to incur operating losses and experience negative cash flow for
the foreseeable future. We have incurred significant losses since we began our
current line of business in 1997. As of December 31, 1999, we had an accumulated
deficit of $13.9 million. We incurred a net loss of $13.2 million for the year
ended December 31, 1999. We anticipate our losses will also increase
significantly from current levels as we incur additional costs and expenses
related to:
- sales and marketing activities;
- employing additional personnel;
- funding our international operations;
- software and product development;
- establishing strategic relationships; and
- increasing the number of content providers.
We cannot predict when we will operate profitably, if ever. Our ability to
achieve profitability will depend on our ability to generate and sustain
substantially higher net sales while maintaining reasonable expense levels. We
cannot be certain that if we were to achieve profitability, we would be able to
sustain or increase profitability.
OUR QUARTERLY FINANCIAL RESULTS MAY BE VOLATILE AND COULD CAUSE OUR STOCK PRICE
TO FLUCTUATE.
Our revenues and operating results may vary significantly from quarter to
quarter. Because of these fluctuations, our results in any quarter may not be
indicative of future performance and it may be difficult for investors to
properly evaluate our results. It is possible that in some future periods our
revenues or earnings may fall below the expectations of investors and result in
the market price of our common stock declining. The factors that may cause our
financial results to vary from quarter to quarter include:
- the demand for our services;
- the value, timing and renewal of contracts with customers and content
providers;
- the amount and timing of operating costs and capital expenditures; and
- the performance of our network and technology.
These factors, which are largely beyond our control, together with our
limited operating history and unproven business model, make it difficult to
forecast our future revenues or results of operations accurately. We also have
limited meaningful historical financial data upon which to base planned
operating expenses. A substantial portion of our operating expenses is related
to personnel costs, marketing programs and overhead, which cannot be adjusted
quickly. Our operating expense levels reflect, in part, our expectations of
future
4
<PAGE> 9
revenues. If actual revenues on a quarterly basis are below management's
expectations, or if our expenses precede increased revenues, both gross margins
and results of operations would be materially adversely affected.
LOSING MAJOR CONTENT PROVIDERS COULD MAKE OUR SERVICES LESS ATTRACTIVE TO
CUSTOMERS.
We do not generate original content and are therefore highly dependent upon
third-party content providers. As of March 15, 2000, two of our content
providers, Comtex and Newsletters.com, collectively provided 102, or 21%, of our
total publications. While no other content provider supplied more than 5% of our
publications as of that date, if we were to lose one of our major content
providers and were not able to obtain similar content from another source, our
services would be less attractive to customers. In addition, we cannot be
certain that we will be able to license content from our current or new
providers on favorable terms in the future, if at all. If we are unable to add
content providers to our network, we may not be able to attract new customers in
sufficient numbers to expand our business.
FAILURE TO EFFECTIVELY MANAGE OUR GROWTH AND EXPANSION COULD ADVERSELY AFFECT
OUR BUSINESS AND OPERATING RESULTS.
We have grown quickly in the last year and we anticipate continuing to
expand. Any failure to manage our growth effectively will result in our
operations being less than optimally efficient, which will adversely affect our
operating and financial results.
Our number of full-time employees increased from eight on December 31, 1998
to 141 on January 31, 2000. We expect to continue to add a significant number of
employees in the foreseeable future, although the exact figure will depend on a
number of factors including our domestic and international growth and our
ability to increase the productivity of our employees. This expected growth will
place strains on our resources, management and operating systems. To effectively
manage our growth, we must, among other things:
- accurately estimate the number of employees we will require and the areas
in which they will be required;
- upgrade and expand our office infrastructure so that it is appropriate
for our level of activity;
- manage expansion into additional geographic areas; and
- improve and refine our operating and financial systems.
We expect to devote considerable resources and management time to improving
our operating and financial systems to manage our growth.
OUR MANAGEMENT TEAM MAY NOT FUNCTION EFFECTIVELY AS A TEAM.
Our chief executive officer has only been employed by us since November
1999, our chief financial officer joined us in March 2000 and several of our
other senior managers, including our head of international operations and our
chief technology officer, joined us in the last six months. Therefore, there has
been little or no opportunity to evaluate the effectiveness of our senior
management team as a unit. The failure of our senior management to function
effectively as a team may have an adverse effect on our ability to maintain a
cohesive culture and compete effectively.
IF WE ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL PROFESSIONAL STAFF, OUR GROWTH
WILL BE LIMITED.
Our ability to grow, increase our market share and develop our products
depends in large part on our ability to hire, retain and manage highly skilled
employees, including technical, sales, marketing and business development
personnel. Companies in our industry and similar industries compete intensely to
hire and retain qualified personnel, and we cannot assure you that we will be
able to attract the employees we need, or that we will be able to retain the
services of those we have hired. We cannot assure you that we will be able to
prevent the unauthorized use or disclosure of our proprietary knowledge,
practices and procedures if our employees leave us.
5
<PAGE> 10
IF WE LOSE ANY OF OUR SENIOR MANAGERS OR OTHER KEY PERSONNEL, OUR BUSINESS MAY
BE OPERATED LESS EFFECTIVELY.
We depend on the continued services and performance of our senior
management and other key personnel including technical and sales personnel. If
we lose the services of our senior managers or any of our other executive
officers or key employees, we may not be able to operate our business as
effectively as we anticipate, and our operating results may suffer.
IF WE DO NOT CONTINUE TO DEVELOP OUR TECHNOLOGY, OUR SERVICES MAY QUICKLY BECOME
OBSOLETE.
The market for Internet products and services is characterized by rapidly
changing technology, evolving industry standards and customer demands and
frequent new product introductions and enhancements. To be successful, we will
have to continually improve the performance, features and reliability of our
products and services. We cannot assure you that our technological development
will advance at the pace necessary to sustain our growth. For example, we
believe that to compete effectively in the future, we will need to expand our
customized content product to include types of content, such as photo and video.
Additionally, new Internet or telecommunications technologies may require us to
alter our technology and products to avoid them becoming obsolete. Improving our
current products and developing and introducing new products will require
significant research and development.
OUR LIMITED EXPERIENCE SELLING AND MARKETING OUR SERVICES MAY IMPEDE EXPANSION
OF OUR BUSINESS.
We have had relatively little experience marketing our services and may not
be able to successfully implement our sales and marketing initiatives. Marketing
our services in order to expand our customer base is crucial to the success of
our business. On December 31, 1998, we had only three sales people. The majority
of our sales people were hired since the start of 1999. We may be unable to
hire, retain, integrate and motivate sales and marketing personnel. New sales
and marketing personnel may also require a substantial period of time to become
effective. Moreover, although our average sales cycle from the time a potential
customer is first contacted to the time a contract is signed currently ranges
from three to six weeks, there can be no assurance that we will not experience
longer sales cycles in the future. Such a lengthening in sales cycles could make
our operating results more unpredictable. Unsuccessful sales or marketing
efforts or a material lengthening of our sales cycle could have material adverse
effects on our revenues.
IF EQUIPMENT FAILURES INTERRUPT THE DISTRIBUTION OF CONTENT TO OUR CUSTOMERS, WE
MAY LOSE CUSTOMERS AND OUR REPUTATION MAY BE ADVERSELY AFFECTED.
Our services will only be attractive to current and prospective customers
if we are able to process and distribute content quickly and reliably. Any
failure of the computer equipment we use or the third-party telecommunications
networks on which we rely for distribution could interrupt or delay our service.
This could lead to customers cancelling contracts and could damage our
reputation, which could limit our ability to attract additional customers and
lead to a drop in the value of our common stock.
Substantially all of our own computer and communications hardware is
located in our headquarters and on the premises of our server hosting provider,
GlobalCenter, located in New York City. We also depend on the Internet to
distribute our content. All of these systems are vulnerable to damage or
interruption from fire, flood, power loss, earthquake, malicious damage,
including hacking and computer viruses, telecommunications failure and similar
events.
WE MAY BE UNABLE TO EXPAND OUR COMPUTER SYSTEMS QUICKLY ENOUGH TO SUPPORT DEMAND
FOR OUR SERVICES.
Our future success will depend in part on our ability to expand our
computer systems rapidly in order to accommodate significant increases in
content processing volume. We may be unable to expand the capacity of our
existing systems or develop new systems to enable us to process a larger amount
of content, or to provide our services to a larger number of customers. If we
are unable to expand our systems, we may suffer service interruptions that could
make our services less attractive to customers.
Most of our software systems are internally developed, and we rely on our
employees and third-party contractors to develop and maintain these systems. If
any of our software developers or these contractors
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<PAGE> 11
become unavailable to us, we may experience difficulty in improving and
maintaining our systems. Although we are continually enhancing and expanding our
network infrastructure, we have experienced periodic systems interruptions,
which we believe may continue to occur. Failure to maintain high-capacity data
transmission would adversely affect our reputation and business.
WE FACE INTENSE COMPETITION THAT COULD IMPAIR OUR ABILITY TO GROW AND ACHIEVE
PROFITABILITY.
We face significant competition in the market for digital content. We may
experience greater competition in the future as we address a wider range of
market segments, additional entrants join the market and existing competitors
offer new or upgraded products. Barriers to new entrants are relatively low. If
we fail to compete successfully, we could lose market share, or be forced to
lower our prices or spend more on marketing, which would reduce our margins.
We compete with companies that are focused on aggregating third-party
content and distributing it to online customers. We also compete with
traditional wire services that have adapted their own content for use by Web
sites. We also compete with a wide range of providers of different types of
content that can be used on Web sites, such as directories, maps, photographs,
stock tickers and video clips.
Some of our competitors offer products with different pricing models,
delivery systems and types of content, and these differences could prove
attractive to potential customers. In the future, these competitors or others
might offer products with the features we currently provide, or other features
desired by potential customers.
Many of our current and potential competitors have longer operating
histories, larger customer or user bases, and significantly greater financial,
marketing and other resources than we do. These competitors can devote
substantially more resources than we can to business development and may adopt
aggressive pricing policies. In addition, larger, well-established and
well-financed entities may acquire, invest in or form joint ventures with our
competitors as the use of the Internet and other online services increases.
Increased competition from these or other competitors could adversely affect our
business.
WE MAY BE LIABLE IF THE CONTENT WE HAVE DISTRIBUTED IS UNLAWFUL OR CAUSES
INJURY.
The publication or dissemination of content that we have distributed may
give rise to liability for defamation, negligence, breach of copyright, patent,
trade secret or trademark infringement or other claims or charges based on the
nature of the content. As a distributor of this content, we may be directly or
indirectly liable to claims or charges of this nature.
In addition, we could be exposed to liability arising from the activities
of our customers or their users with respect to the unauthorized duplication of,
or insertion of inappropriate material into, the content we supply. Although we
carry general liability insurance, our insurance may not cover claims of these
types or may be inadequate to indemnify us for all liability that may be imposed
on us.
IF WE DISTRIBUTE CONTENT TO UNAUTHORIZED RECIPIENTS, WE MAY FACE LIABILITY.
Our proprietary software technologies enable us to deliver content we
receive from participating content providers only to customers who have been
authorized to access that content. We might inadvertently distribute content to
a customer who is not authorized to receive it, which could subject us to a
claim for damages from the information provider or harm our reputation in the
marketplace.
IF WE ARE UNABLE TO MAINTAIN OUR REPUTATION AND EXPAND OUR NAME RECOGNITION, WE
MAY HAVE DIFFICULTY ATTRACTING NEW BUSINESS AND RETAINING CURRENT CUSTOMERS AND
EMPLOYEES, AND OUR BUSINESS MAY SUFFER.
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and retaining customers and employees.
We also believe that the importance of reputation and name recognition is
increasing and will continue to increase due to the growing number of providers
of Internet services. If our reputation is damaged or if potential customers are
not familiar with us or the services we provide, we may be unable to attract
new, or retain existing, customers and employees. Promotion and enhancement of
our name will depend largely on our success in continuing to provide effective
services. If
7
<PAGE> 12
customers do not perceive our services to be effective or of high quality, our
brand name and reputation will suffer.
WE MIGHT NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.
We regard our trademarks, service marks, copyrights, trade secrets and
similar intellectual property as critical to our success. The unauthorized
reproduction or other misappropriation of our trademarks or other intellectual
property could diminish the value of our proprietary rights or reputation. If
this were to occur, our business could be materially and adversely affected.
We rely upon a combination of trademark and copyright law, patent law,
trade secret protection and confidentiality and license agreements with our
employees, customers and others to protect our proprietary rights. We have
received and have filed a number of trademarks and service marks, and have filed
several patent applications with the United States Patent and Trademark Office.
However, registrations and patents may only be granted in selected cases, and
there can be no assurance that we will be able to secure these or additional
registrations or patents. Furthermore, policing and enforcement against the
unauthorized use of our intellectual property rights could entail significant
expenses and could prove difficult or impossible.
THIRD PARTIES MAY CLAIM THAT WE HAVE BREACHED THEIR INTELLECTUAL PROPERTY
RIGHTS.
Third parties may bring claims of copyright or trademark infringement,
patent violation or misappropriation of creative ideas or formats against us
with respect to content that we distribute or our technology or marketing
techniques and terminology. These claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management attention,
require us to enter into costly royalty or licensing arrangements or limit our
ability to distribute content or prevent us from utilizing important
technologies, ideas or formats.
WE COULD FACE ADDITIONAL RISKS AND CHALLENGES AS WE EXPAND INTERNATIONALLY AND
MAY FACE UNEXPECTED COSTS IN DEVELOPING INTERNATIONAL REVENUES.
We have recently begun to invest financial and managerial resources to
expand our operations in international markets. We recently opened an office in
London and will be opening an office in Miami in mid-2000 to service the Latin
American market. If our revenues from international operations, and particularly
from our operations in the United Kingdom and Latin America, do not exceed the
expense of establishing and maintaining these operations, our business,
financial condition and operating results will suffer. We have only limited
experience in international operations, and we may not be able to capitalize on
our investment in these markets.
POTENTIAL ACQUISITIONS AND STRATEGIC INVESTMENTS MAY RESULT IN INCREASED
EXPENSES, DIFFICULTIES IN INTEGRATING TARGET COMPANIES AND DIVERSION OF
MANAGEMENT'S ATTENTION.
Although we are not currently in discussions with any party, we anticipate
undertaking one or more acquisitions or strategic investments in the near future
to expand our range of technology and products and to gain access to new
markets. Growth through acquisitions entails many risks, including the
following:
- our management's attention may be diverted during the acquisition and
integration process;
- we may face costs, delays and difficulties of integrating the acquired
company's operations, technologies and personnel into our existing
operations, organization and culture;
- the adverse impact on earnings of amortizing the acquired company's
intangible assets may be significant, particularly in light of the high
valuations of many Internet and other information technology services
companies;
- we may issue new equity securities to pay for acquisitions, which would
dilute the holdings of existing stockholders;
- the timing of the acquisition or our failure to meet operating
expectations for acquired businesses may impact adversely on our
financial condition; and
8
<PAGE> 13
- we may be adversely affected by expenses of any undisclosed or potential
legal liabilities of the acquired company, including intellectual
property, employment and warranty and product liability-related problems.
If realized, any of these risks could have a material adverse effect on our
business, financial condition and operating results.
RISKS OF DOING BUSINESS OVER THE INTERNET
IF THE INTERNET DOES NOT CONTINUE TO GROW AS A MEDIUM FOR COMMERCE, WE WILL NOT
SUCCEED.
Because most of our present and anticipated customers are operators of
commercial Web sites, demand for our services will depend in large part on
continued growth in use of the Internet. There are critical issues concerning
the commercial use of the Internet that remain unresolved. If the Internet
develops more slowly than we expect as a commercial or business medium, demand
for our services will be lower than we expect.
LEGAL UNCERTAINTIES AND GOVERNMENT REGULATION OF THE INTERNET COULD INHIBIT
GROWTH OF THE INTERNET AND E-COMMERCE.
Many legal questions relating to the Internet remain unclear and these
areas of uncertainty may be resolved in ways that damage our business. It may
take years to determine whether and how existing laws governing matters such as
intellectual property, privacy, libel and taxation apply to the Internet. In
addition, new laws and regulations that apply directly to Internet
communications, commerce and advertising are becoming more prevalent. For
example, the U.S. Congress has recently passed Internet-related legislation
concerning copyrights, taxation, and the online privacy of children. As the use
of the Internet and the prevalence of e-commerce grow, there may be calls for
further regulation, such as more stringent consumer protection laws. Finally,
our distribution arrangements and customer contracts could subject us to the
laws of foreign jurisdictions in unpredictable ways.
These possibilities could affect us adversely in a number of ways. New
regulation could make the Internet less attractive to users, resulting in slower
growth in its use and acceptance than we expect. Complying with new regulations
could result in additional cost to us, which could reduce our margins, or it
could leave us at risk of potentially costly legal action. We may be affected
indirectly by legislation that fundamentally alters the practicality or
cost-effectiveness of utilizing the Internet, including the cost of transmitting
over various forms of network architecture, such as telephone networks or cable
systems, or the imposition of various forms of taxation on Internet-related
activities. Regulators continue to evaluate the best telecommunications policy
regarding the transmission of Internet traffic.
RISKS RELATING TO THIS OFFERING
YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION IN THE BOOK VALUE PER
SHARE.
The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of our outstanding common
stock will be immediately after this offering. Net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares outstanding. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $9.67 in the net
tangible book value per share of common stock from the price you pay for our
common stock in this offering, based on an assumed initial public offering price
of $12.00 per share.
VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT STOCKHOLDERS.
The initial public offering price of our common stock will be determined by
negotiations between representatives of the underwriters and us and may not be
representative of the trading price of our common stock after this offering,
which is likely to fluctuate considerably. The stock market in general, and in
particular the market for Internet-related stocks, has experienced extreme price
fluctuations during the last twelve months. At times, Internet-related stocks
have traded at prices and multiples that are substantially above the historical
levels of the stock market in general. Since estimates of the value of
Internet-related companies have little historical basis and often vary widely,
fluctuations in our stock price may not be correlated in a predictable way to
our performance or operating results. Our stock price may also fluctuate as
9
<PAGE> 14
a result of factors that are beyond our control or unrelated to our operating
results. We expect our stock price to fluctuate as a result of factors such as:
- variations in our actual or anticipated quarterly operating results or
those of our competitors;
- announcements by us or our competitors of technological innovations;
- introduction of new products or services by us or our competitors;
- conditions or trends in the Internet industry;
- changes in the market valuations of other Internet companies;
- announcements by us or our competitors of significant acquisitions; and
- our entry into strategic partnerships or joint ventures.
THE NET PROCEEDS FROM THIS OFFERING MAY BE ALLOCATED IN WAYS WITH WHICH YOU MAY
NOT AGREE.
Our business plan is subject to change based upon changing conditions and
opportunities and our management has significant flexibility in applying the net
proceeds we receive from this offering. Because the net proceeds are not
required to be allocated to any specific investment or transaction, you cannot
determine at this time the value or propriety of our application of the proceeds
and you and other stockholders may not agree with our decisions. See "Use of
Proceeds" for a more detailed description of how management intends to apply the
proceeds of this offering.
AN AGGREGATE OF APPROXIMATELY 30 MILLION SHARES WILL BECOME ELIGIBLE FOR RESALE
IN THE PUBLIC MARKET 180 DAYS AFTER THIS OFFERING, AND FUTURE SALES OF THIS
STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that these sales could occur,
could adversely affect the market price of our common stock and could materially
impair our future ability to raise capital through offerings of our common
stock. An aggregate of 35,018,390 shares of common stock will be outstanding
after this offering. Of these, the 5,000,000 shares offered by this prospectus
will be freely tradable without restriction or further registration.
In connection with this offering, we and our officers, directors and all of
our existing stockholders and warrant holders, who together hold 30,018,390
shares, have agreed not to sell or transfer any shares of our common stock for
180 days after completion of this offering without the underwriters' consent.
While the underwriters may release these shares from the restrictions at any
time, this will be done, if at all, only on a case-by-case basis. The
underwriters do not currently have any intention of consenting to a waiver of
these restrictions. We cannot predict what effect, if any, market sales of
shares held by any stockholder or the availability of these shares for future
sale will have on the market price of our common stock. See "Shares Eligible for
Future Sale" for a more detailed description of the restrictions on selling
shares of our common stock after this offering.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future.
WE WILL CONTINUE TO BE EFFECTIVELY CONTROLLED BY OUR EXECUTIVE OFFICERS AND
DIRECTORS AFTER THIS OFFERING, AND THE INTERESTS OF THESE STOCKHOLDERS COULD
CONFLICT WITH YOUR INTERESTS.
Immediately upon completion of this offering, our executive officers and
directors, in the aggregate, will beneficially own approximately 41.8% of our
outstanding common stock on a fully-diluted basis. As a result, these
stockholders, if acting together, would be able to exert considerable influence
on any matters requiring approval by our stockholders, including the election of
directors, amendments to our charter and by-laws and the approval of mergers or
other business combination transactions. The ownership position of these
stockholders could delay, deter or prevent a change in control of ScreamingMedia
and could adversely affect the price that investors might be willing to pay in
the future for shares of our common stock.
10
<PAGE> 15
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, WHICH COULD
DEPRESS OUR STOCK PRICE.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could have the effect of delaying, deferring, or
preventing a change in control of ScreamingMedia that stockholders may consider
favorable or beneficial. These provisions could discourage proxy contests and
make it more difficult for you and other stockholders to elect directors and
take other corporate actions. These provisions could also limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions include:
- a staggered board of directors, so that it would take three successive
annual meetings to replace all directors;
- prohibition of stockholder action by written consent; and
- advance notice requirements for the submission by stockholders of
nominations for election to the board of directors and for proposing
matters that can be acted upon by stockholders at a meeting.
In addition, we have entered into a stockholder rights agreement that makes it
more difficult for a third party to acquire us without the support of our board
of directors and principal stockholders.
11
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among
other things:
<TABLE>
<S> <C>
- development of services;
- expansion strategy;
- use of proceeds;
- projected capital expenditures;
- liquidity;
- development and expansion of marketing
relationships;
- market acceptance of Internet
commerce; and
- technological advancement and ability
to develop "brand" awareness.
</TABLE>
These statements may be found in the sections of this prospectus entitled
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and in this prospectus generally. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including all the risks discussed in "Risk Factors"
and elsewhere in this prospectus.
We urge you to consider that statements which use the terms "believe," "do
not believe," "expect," "plan," "intend," "estimate," "anticipate" and similar
expressions are intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions and are subject to risks and uncertainties.
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares
of common stock in this offering of $54.9 million, assuming an initial public
offering price of $12.00 per share, the mid-point of the filing range, and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. If the underwriters exercise their over-allotment option in
full, we estimate that our net proceeds will be $63.2 million. The principal
purposes of this offering are to obtain additional capital, to create a public
market for our common stock and to facilitate future access to public equity
markets.
We expect to use approximately $30 million of the net proceeds of this
offering on sales and marketing activities. We also intend to use the offering
proceeds for expanding our international operations, product development and
general corporate purposes, including working capital.
The amounts that we actually spend on these activities will depend on
several factors, including our available cash, the success of our marketing and
promotional activities and the availability of new business opportunities. In
addition, we may use a portion of the net proceeds to fund acquisitions.
However, we currently have no commitments and are not involved in any
negotiations with respect to any particular transaction. Pending application of
the proceeds as described above, we intend to invest the net proceeds in
investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently anticipate that we will retain any future earnings for the development
and operation of our business. Accordingly, we do not anticipate declaring or
paying any cash dividends in the foreseeable future.
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<PAGE> 17
CAPITALIZATION
The following table shows our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the conversion of all of our
outstanding preferred stock into a total of 14,299,234 shares of common
stock upon the completion of this offering; and
- on a pro forma as adjusted basis to reflect the issue and sale of
5,000,000 shares of common stock by us in this offering at an assumed
initial public offering price of $12.00 per share less estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 22,122 $ 22,122 $77,022
======== ======== =======
Capital lease obligations, less current portion........... $ 647 $ 647 $ 647
-------- -------- -------
Redeemable convertible preferred stock:
Series B, $0.01 par value; 2,678,572 shares authorized,
issued and outstanding actual; no shares authorized,
issued and outstanding pro forma and pro forma as
adjusted............................................. 27,434 -- --
-------- -------- -------
Stockholders' equity (deficiency):
Series A Convertible Preferred Stock, $0.01 par value;
1,527,085 shares authorized, issued and outstanding
actual; no shares authorized, issued and outstanding
pro forma and pro forma as adjusted.................. 15 -- --
Common Stock, $0.01 par value; 100,000,000 shares
authorized, 17,691,156 shares issued and 15,719,156
shares outstanding actual; 100,000,000 shares
authorized, 31,990,390 shares issued and 30,018,390
shares outstanding pro forma; 100,000,000 shares
authorized, 36,990,390 shares issued and 35,018,390
shares outstanding pro forma as adjusted............. 177 320 370
Additional paid-in capital.............................. 22,784 50,090 104,940
Warrants................................................ 787 787 787
Deferred compensation................................... (10,379) (10,379) (10,379)
Treasury stock.......................................... (19) (19) (19)
Accumulated deficit..................................... (13,914) (13,914) (13,914)
-------- -------- -------
Total stockholders' equity (deficiency)............ (549) 26,885 81,785
-------- -------- -------
Total capitalization............................ $ 27,532 $ 27,532 $82,432
======== ======== =======
</TABLE>
The outstanding share information is based on our shares outstanding as of
December 31, 1999. This information excludes:
- 6,183,968 shares of common stock issuable on the exercise of stock
options outstanding as of December 31, 1999 issued under our 1999 stock
option plan at a weighted average exercise price of $1.33; and
- 488,748 shares of common stock issuable on the exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $3.17.
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<PAGE> 18
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of our common
stock after this offering. Our pro forma net tangible book value as of December
31, 1999 was $26.5 million, or $0.88 per share. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding after
giving pro forma effect to the conversion upon completion of this offering of
all of our outstanding preferred stock into a total of 14,299,234 shares of
common stock. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by new investors purchasing
shares in this offering and the pro forma net tangible book value per share
immediately after this offering. After giving effect to the sale by us of
5,000,000 shares of common stock in this offering at an assumed initial public
offering price of $12.00 per share, less estimated underwriting discounts and
commissions and offering expenses payable by us, our pro forma net tangible book
value as of December 31, 1999 would have been $81.4 million, or $2.33 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.45 per share to our existing stockholders and an immediate dilution in pro
forma net tangible book value of $9.67 per share to new investors purchasing
shares in this offering. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $0.88
Increase in the pro forma net tangible book value per
share attributable to this offering.................... 1.45
-----
Pro forma as adjusted net tangible book value per share
after this offering....................................... 2.33
------
Dilution per share to new investors......................... $ 9.67
======
</TABLE>
The following table illustrates this dilution on a per share basis assuming
the underwriters exercise their overallotment option in full:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $0.88
Increase in the pro forma net tangible book value per
share attributable to this offering.................... 1.65
-----
Pro forma as adjusted net tangible book value per share
after this offering....................................... 2.53
------
Dilution per share to new investors......................... $ 9.47
======
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1999, the number of shares of stock purchased from us, the total consideration
paid to us and the average price per share paid by existing stockholders and by
new investors purchasing shares in this offering. The calculation below is based
upon an assumed initial public offering price of $12.00 per share, before
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
AMOUNT PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 30,018,390 85.7% $36,645,186 37.9% $ 1.22
New investors..................... 5,000,000 14.3 60,000,000 62.1 12.00
----------- ----- ----------- ------
Total........................... 35,018,390 100.0% $96,645,186 100.0%
=========== ===== =========== ======
</TABLE>
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<PAGE> 19
The following table summarizes the same information as of December 31,
1999, assuming the underwriters exercise their overallotment option in full:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
AMOUNT PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 30,018,390 83.9% $ 36,645,186 34.7% $ 1.22
New investors...................... 5,750,000 16.1 69,000,000 65.3 12.00
---------- ----- ------------ -----
Total............................ 35,768,390 100.0% $105,645,186 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and table assume no exercise of any outstanding
stock options or warrants to purchase common stock as of December 31, 1999. As
of December 31, 1999, there were:
- 6,183,968 shares of common stock issuable upon the exercise of stock
options outstanding at a weighted average exercise price of $1.33 per
share; and
- 488,748 shares of common stock issuable upon the exercise of warrants
outstanding at a weighted average exercise price of $3.17 per share.
To the extent these options or warrants are exercised, there will be further
dilution to the new investors.
15
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data should be read in connection 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 statements of operations
data for the years ended December 31, 1998 and 1999, and the balance sheet data
at December 31, 1998 and 1999 are derived from our financial statements, which
have been audited by Deloitte & Touche LLP, independent auditors. The statement
of operations data for the year ended December 31, 1997, and the balance sheet
data as of December 31, 1997 are derived from our financial statements, which
have been audited by David Tarlow & Co., P.C., independent auditors. The
financial statements for each of the two years in the period ended December 31,
1996 have been derived from our unaudited financial statements. These unaudited
financial statements have been prepared on substantially the same bases as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary of a fair presentation
of the financial position and results of operations for these periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Network services.......................................... $ -- $ -- $ 246 $ 309 $ 2,480
Set-up fee................................................ -- -- 41 68 492
Other..................................................... 525 782 287 190 13
------ ------ ------ ------ --------
Total revenue........................................... 525 782 574 567 2,985
------ ------ ------ ------ --------
Operating expenses:
Cost of services (excluding depreciation of $0, $0, $0,
$0, and $119 in 1995, 1996, 1997, 1998 and 1999,
respectively, as shown below)........................... 115 242 70 130 974
Research and development (excluding stock-based
compensation of $64 in 1999 shown below)................ -- 3 107 97 894
Sales and marketing (excluding stock-based compensation of
$1,821 in 1999 shown below)............................. 35 129 87 105 3,768
General and administrative (excluding stock-based
compensation of $25, $350 and $4,177 in 1997, 1998 and
1999, respectively, shown below)........................ 235 360 347 455 4,330
Depreciation and amortization............................. 34 38 33 26 451
Stock-based compensation.................................. -- -- 25 350 6,062
------ ------ ------ ------ --------
Total operating expenses................................ 419 772 669 1,163 16,479
------ ------ ------ ------ --------
Operating income (loss)..................................... 106 10 (95) (596) (13,494)
------ ------ ------ ------ --------
Other income (expense), net................................. -- -- -- (14) 328
------ ------ ------ ------ --------
Net income (loss)........................................... $ 106 $ 10 $ (95) $ (610) $(13,166)
====== ====== ====== ====== ========
Basic net income (loss) per share attributable to common
stockholders.............................................. $ 0.06 $ 0.01 $(0.05) $(0.28) $ (0.85)
====== ====== ====== ====== ========
Weighted average number of shares of common stock
outstanding............................................... 1,870 1,870 1,998 2,181 15,496
====== ====== ====== ====== ========
Pro forma basic net loss per share.......................... $ (0.61)
========
Pro forma weighted average number of shares of common stock
outstanding............................................... 21,468
========
</TABLE>
Pro forma basic net loss per share has been calculated assuming the
conversion of all previously outstanding preferred stock into common stock, as
if the shares had converted immediately upon their issuance. See note 2 to the
financial statements for an explanation of the determination of the number of
shares used in computing basic net loss per share.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 30 $ 13 $ -- $ 120 $22,122
Working capital............................................. 122 102 41 24 21,930
Total assets................................................ 220 240 166 274 32,370
Capital lease obligations, less current portion............. -- -- -- -- 647
Redeemable convertible preferred stock...................... -- -- -- -- 27,434
Total stockholders' equity (deficiency)..................... 54 143 64 (190) (549)
</TABLE>
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our financial statements and the related notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of a variety of factors as discussed in "Risk Factors."
OVERVIEW
ScreamingMedia is a leading aggregator and distributor of custom-filtered
digital content over the Internet. We aggregate digital content from a wide
range of content providers and filter, deliver and efficiently integrate this
content into our customers' Web sites almost instantaneously.
We were incorporated in August 1993 as The Interactive Connection, Inc.
Until 1997, our primary business focus was Web site design, development and
consulting. By the end of 1997 we had designed, developed and tested our
proprietary software. In late 1998 we shifted our business focus entirely to the
business of aggregating and distributing digital content over the Internet.
Revenue
Our revenue is composed of network services revenue, set-up fees and other
revenue. We derive our network services revenue primarily from distributing
content directly to our customers' Web sites. Our contracts typically have an
initial term of one year. We charge our customers a minimum monthly fee based on
a contractually specified volume of content. We charge our customers additional
monthly fees for content delivered in excess of the contracted volume of
content. We recognize revenue for the contracted minimum monthly fee in equal
amounts each month over the life of the contract. We recognize revenue from
content used in excess of the contracted volume as the services are delivered.
We report our revenue net of allowances and rebates.
We generally charge our customers a one time set-up fee. Set-up fees are
charged for building custom filters and enabling the customer to receive
customized content. The amount of the set-up fee varies according to the number
of custom filters created and other factors. We recognize set-up fee revenue in
equal amounts over the initial term of the contract, commencing with the service
start date specified in the contract.
In 1999, our other revenue consisted of an immaterial amount of revenue
from server hosting and maintenance. Prior to 1999, our other revenue also
included revenue from Web hosting and Web design and consulting. We do not
expect to actively pursue these lines of business in the future.
Cost of Services
Cost of services consists of the content royalty fees we pay to content
providers for the usage of their content by our customers and the server hosting
and connectivity costs associated with the aggregation and distribution of that
content. Monthly royalty fees are calculated based on the volume of a provider's
content used by our customers. Under our existing contracts with content
providers, we only pay royalties on content that is used by our customers.
Research and Development Expenses
Our research and development expenses consist primarily of personnel costs
and outside consulting services for research, design and development of the
internal use software applications supporting our digital content network.
Research and development costs are expensed as incurred.
Sales and Marketing Expenses
Our sales and marketing expenses consist mainly of advertising costs,
personnel costs and sales commissions, as well as related trade show,
promotional and public relations expenses. Our success in
17
<PAGE> 22
increasing revenues depends on our ability to increase our customer base as well
as our range of content providers. Accordingly, we intend to pursue sales and
marketing campaigns aggressively after this offering.
General and Administrative Expenses
General and administrative expenses consist primarily of management and
administrative personnel costs, fees for professional services and facilities
costs.
Stock-Based Compensation
We recorded a charge for the amortization of deferred stock-based
compensation of approximately $6.1 million in 1999. Stock-based compensation is
a result of the issuance of stock options to employees, directors and affiliated
parties with exercise prices per share subsequently determined for financial
reporting purposes to be below the fair market value per share of our common
stock at the date of the applicable grant. This difference is recorded as a
reduction of stockholders' equity and amortized as non-cash compensation expense
on an accelerated basis over the vesting period of the related options. In
connection with the grant of stock options to employees during 1999, we recorded
deferred stock compensation of $16.4 million. Deferred stock-based compensation
that will be subsequently amortized as expense for each of the next four fiscal
years, including options granted through December 31, 1999, is estimated to be
as follows:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------ --------------
(IN THOUSANDS)
<S> <C>
Year ending December 31, 2000............................... $ 7,283
Year ending December 31, 2001............................... 2,530
Year ending December 31, 2002............................... 564
Year ending December 31, 2003............................... 2
-------
Total....................................................... $10,379
=======
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
revenue for the years ended December 31, 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1997 1998 1999
---- ----- -----
<S> <C> <C> <C>
Revenue:
Network services.......................................... 43% 54% 83%
Set-up fee................................................ 7 12 17
Other..................................................... 50 34 --
---- ----- -----
Total revenue.......................................... 100% 100% 100%
==== ===== =====
Operating expenses:
Cost of services.......................................... 12% 23% 33%
Research and development.................................. 19 17 30
Sales and marketing....................................... 15 18 126
General and administrative................................ 60 80 145
Depreciation and amortization............................. 6 5 15
Stock-based compensation.................................. 4 62 203
---- ----- -----
Total operating expenses............................... 116 205 552
---- ----- -----
Operating income (loss)..................................... (16) (105) (452)
Other income (expense), net................................. -- (2) 11
Net income (loss)...................................... (16)% (107)% (441)%
==== ===== =====
</TABLE>
18
<PAGE> 23
YEARS ENDED DECEMBER 31, 1998 AND 1999
Revenue. Total revenue increased to $3.0 million for the year ended
December 31, 1999, from $567,000 in the previous year. This increase was mostly
due to an increase in our customers to 453 at December 31, 1999 from 30 at
December 31, 1998. Also contributing to this increase was a 28% increase in the
average monthly network services revenue per customer as a result of higher
average usage of content. In 1999, About.com accounted for approximately 12% of
revenue. We do not anticipate that any one customer will account for more than
10% of revenue in the year ending December 31, 2000.
Cost of Services. Cost of services increased to $974,000 for the year
ended December 31, 1999, from $130,000 in the year ended December 31, 1998. As a
percentage of revenue, cost of services increased to approximately 33% for the
year ended December 31, 1999 from approximately 23% for the year ended December
31, 1998. The dollar increase was primarily due to increases in network services
revenue resulting in greater content royalty fees paid to content providers. The
percentage increase was primarily a function of higher royalty fee arrangements
with some of our content providers. We anticipate that the cost of services will
continue to grow in absolute dollars as we expand our digital content network.
Research and Development. Research and development expenses increased to
$894,000 for the year ended December 31, 1999, from $97,000 for the year ended
December 31, 1998. As a percentage of revenue, research and development expenses
increased to approximately 30% for the year ended December 31, 1999 from
approximately 17% for the year ended December 31, 1998. This increase was due to
direct personnel and consulting costs incurred in further development of our
content filtering, aggregation and distribution software and the development of
new products. During this period, we increased the number of our research and
development staff to 13 from two. We believe that significant investments in
research and development expenses will be required to enhance and expand our
products and services. Accordingly, we expect that our research and development
expenses will continue to increase in absolute dollars for the forseeable
future.
Sales and Marketing. Sales and marketing expenses increased to $3.8
million for the year ended December 31, 1999, from $105,000 for the year ended
December 31, 1998. As a percentage of revenue, sales and marketing expenses
increased to approximately 126% for the year ended December 31, 1999 from
approximately 18% for the year ended December 31, 1998. The increase in sales
and marketing expense was due to a $2.5 million increase in compensation expense
associated with the growth of our sales, content acquisition, customer support
and marketing departments. The remainder of the increase was attributable to the
launch of a marketing campaign in the third quarter of 1999 that totaled
approximately $1.0 million. We intend to expand our sales and marketing
activities and staff substantially, both domestically and internationally, in
order to increase market awareness and to promote and sell our services.
Accordingly, we expect our sales and marketing expenses to continue to increase
in absolute dollars.
General and Administrative. General and administrative expenses increased
to $4.3 million for the year ended December 31, 1999, from $455,000 for the year
ended December 31, 1998. As a percentage of revenue, general and administrative
expenses increased to approximately 145% for the year ended December 31, 1999
from approximately 80% for the year ended December 31, 1998. This increase
resulted from an increase in personnel costs of approximately $1.3 million
associated with a significant increase in the number of administrative
personnel, as well as increased facilities expenses and accounting, legal and
consulting fees which in aggregate totaled approximately $1.5 million. The
remainder of the increase was mostly attributable to employee and office related
costs of approximately $700,000.
Stock-Based Compensation. In connection with the grant of stock options to
employees during 1999, we recorded deferred stock compensation of $16.4 million.
We amortized $6.1 million of this deferred stock compensation in 1999. In 1998,
we incurred a charge of $350,000 for stock-based compensation.
YEARS ENDED DECEMBER 31, 1997 AND 1998
Revenue. Total revenue decreased to $567,000 for the year ended December
31, 1998, from $574,000 for the year ended December 31, 1997. In 1998, we
completed our transition from a Web design, hosting and consulting enterprise to
our present content delivery business. As a result, we did not actively seek to
renew Web design, hosting and consulting agreements when they expired.
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<PAGE> 24
Cost of Services. Cost of services increased to $130,000 for the year
ended December 31, 1998, from $70,000 for the year ended December 31, 1997. As a
percentage of revenue, cost of services increased to approximately 23% for the
year ended December 31, 1998 from approximately 12% for the year ended December
31, 1997. The increase was due to royalty fees that we began paying to content
providers as our content aggregation and distribution business became
operational and to the content delivery costs associated with this business.
Research and Development. Research and development expenses decreased to
$97,000 for the year ended December 31, 1998, from $107,000 for the year ended
December 31, 1997. Our research and development expenses remained essentially
flat as we redirected our internal resources from the business of Web site
design and development to the development of our digital content network.
Sales and Marketing. Sales and marketing expenses increased to $105,000
for the year ended December 31, 1998, from $87,000 for the year ended December
31, 1997. Sales and marketing costs remained relatively flat as a percentage of
revenue.
General and Administrative. General and administrative expenses increased
to $455,000 for the year ended December 31, 1998, from $347,000 for the year
ended December 31, 1997. As a percentage of revenue, general and administrative
expenses increased to approximately 80% for the year ended December 31, 1998
from approximately 60% for the year ended December 31, 1997. This increase was
due to increases in overhead costs associated with legal and accounting
services, additional facilities expenses and general office expenses.
QUARTERLY OPERATING RESULTS
The following table sets forth our unaudited quarterly operating results
for the fiscal year ended December 31, 1999. This information has been derived
from our unaudited interim financial statements. In our opinion, this unaudited
information has been prepared on a basis consistent with our audited financial
statements contained elsewhere in this prospectus and includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the quarters presented. Historical results
for any quarter are not necessarily indicative of the results to be expected for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Network services............................... $ 234 $ 324 $ 681 $ 1,241
Set-up fee..................................... 25 69 135 263
Other.......................................... 8 -- 2 3
----- ------- ------- -------
Total revenue.......................... 267 393 818 1,507
Operating expenses:
Cost of services............................... 60 96 283 535
Research and development....................... 137 182 196 379
Sales and marketing............................ 75 445 1,389 1,859
General and administrative..................... 270 549 1,036 2,475
Depreciation and amortization.................. 12 35 125 279
Stock-based compensation....................... -- 134 1,687 4,241
----- ------- ------- -------
Total operating expenses............... 554 1,441 4,716 9,768
----- ------- ------- -------
Operating loss................................... (287) (1,048) (3,898) (8,261)
----- ------- ------- -------
Other income (expenses), net..................... -- 31 24 273
----- ------- ------- -------
Net loss............................... $(287) $(1,017) $(3,874) $(7,988)
===== ======= ======= =======
</TABLE>
20
<PAGE> 25
ANALYSIS OF 1999 QUARTERLY RESULTS
Revenue from network services and setup fees increased from $259,000 in the
first quarter to $1.5 million in the fourth quarter due to an increase in our
customer base from 61 to 453. Cost of services increased from $60,000 in the
first quarter to $535,000 in the fourth quarter as we increased the number of
customers receiving content. Research and development expenses increased from
$196,000 in the third quarter to $379,000 in the fourth quarter. This increase
was primarily due to the planning and preliminary development of our back office
systems and the refinement of our core products. Sales and marketing expenses
increased from $75,000 in the first quarter to $1.9 million in the fourth
quarter. The increase was a result of the rapid increase in our direct sales
force, the establishment of our customer service department, the formation of
our global content acquisition group and a marketing campaign in the third
quarter to build our brand name. General and administrative expenses increased
from $270,000 in the first quarter to $2.5 million in the fourth quarter. This
was a result of adding personnel to manage the growth process and infrastructure
to support the growth. Stock-based compensation expense increased due to
issuances of stock options to attract and retain senior management and outside
directors and advisors and to allow equity participation to all employees. The
increase in other income was attributable to overnight investment of excess cash
in low-risk, high-liquidity securities.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of equity and debt securities, which totaled approximately $34.2 million
in aggregate net proceeds through December 31, 1999. As of December 31, 1999, we
had cash and cash equivalents of $22.1 million.
As of December 31, 1999, our principal commitments consisted of obligations
outstanding under a series of capital leases of computer and networking
equipment and our facilities leases. During 1999, we entered into capital lease
arrangements for computer, network and telephony equipment with Data General,
computer equipment with Dell Financial Services and network equipment with
Avnet. In aggregate, the gross asset value of this equipment is approximately
$1.5 million. At the end of each lease term, we have the option to purchase the
equipment, typically at the lesser of fair market value or 10% of gross asset
value. We presently intend to exercise the purchase option for the majority of
the leases. Subsequent to December 31, 1999, we entered into two further leasing
arrangements, one for approximately $46,000 for additional network equipment and
the other for approximately $3.0 million for the hardware, software and
professional services to design and implement our back office infrastructure.
The latter lease is secured by a standby letter of credit with a financial
institution.
We operate from leased premises in New York, San Francisco and London. Our
current aggregate annual rental obligations under these leases are approximately
$1.1 million for each of 2000 and 2001. We anticipate that our actual rental
obligations for those years will be higher as a result of our entering into
leasehold arrangements for additional office space. During 1999, our capital
expenditures were $3.4 million, consisting principally of computers, networking
equipment and the build-out of our headquarters.
For the years ended December 31, 1999 and 1998, net cash used in operating
activities was $7.8 million and $110,000, respectively. The net cash used in
operating activities in 1999 resulted primarily from net losses of $13.2
million, an increase in prepaid advertising of $2.9 million and an increase in
trade accounts receivable of $1.3 million, offset by a $6.1 million non-cash
charge for stock-based compensation and a $3.1 million increase in accounts
payable and accrued expenses.
For the years ended December 31, 1999 and 1998, net cash used in investing
activities was $3.8 million and $7,000, respectively. The net cash used in
investing activities in 1999 was principally for the purchase of equipment and
leasehold improvements.
For the years ended December 31, 1999 and 1998, net cash provided by
financing activities amounted to $33.5 million and $237,000, respectively. Net
cash provided by financing activities in 1999 was provided substantially by net
proceeds generated from our offerings of capital stock, which together totaled
$33.5 million. On March 30, 1999 and on April 7 and 9, 1999, we received a total
of $5.5 million in gross
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<PAGE> 26
proceeds from the sale of our Series A preferred stock in a private offering
under Regulation D to accredited investors. On October 6, 1999, we received
approximately $28.0 million in net proceeds from the sale of our Series B
preferred stock in a private offering to a group of institutional accredited
investors and a limited number of individual investors.
We believe that our current cash and cash equivalents will be sufficient to
meet our operating expenses for at least the next twelve months. However, if we
undertake significant acquisitions or make large strategic investments, we may
need to raise additional funds within that time. We may also need to raise
additional funds if competitive pressures force us to make unforseen
expenditures, such as to acquire or develop new technology. If we need to raise
additional funds, we will likely do so through the issuance and sale of equity
securities. If this were to occur, the percentage ownership of our stockholders
could be reduced, our stockholders may experience additional dilution and these
securities may have rights, preferences or privileges senior to those of our
stockholders. We cannot assure you that additional financing will be available
on terms favorable to us, or at all. If adequate funds are not available or are
not available on acceptable terms, our ability to fund our expansion, take
advantage of unanticipated opportunities, develop or enhance services or
products or otherwise respond to competitive pressures would be significantly
limited. Our business, results of operations and financial condition could be
materially adversely affected by these limitations.
MARKET RISK
In 1999, all of our revenues and expenses were denominated in U.S. dollars.
We anticipate that in the future the proportion of operating expenses paid in
foreign currencies will increase and that the number of foreign currencies in
which our revenue is denominated will also increase. Accordingly, we may be
subject to exposure from adverse movements in foreign currency exchange rates in
relation to these revenues and expenses. We do not currently use derivative
financial instruments.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer systems and programs using
two digits rather than four to identify a given year. As a result, computer
systems or programs that are not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which could result in a variety of
failures and other errors. Our business is dependent on the Year 2000 compliance
of our own computer systems and software including the software that we supply
to our customers, as well as that of third parties, such as major content
providers, and the infrastructure that supports the Internet.
In preparation for the Year 2000, we tested our software and hardware and
performed minor remedial work on our software to ensure Year 2000 compliance.
Because we are a relatively new business, the majority of our own hardware and
software has been acquired or developed within the last two years, during which
time there was a high awareness of Year 2000 issues.
To date, we have not experienced any material difficulties associated with
the Year 2000. To our knowledge, no third party upon which we depend has
experienced a material Year 2000 problem. However, it is still possible that
errors or defects may remain undetected, or that dates other than January 1,
2000 may trigger Year 2000 problems. If this occurs with respect to our software
or computer systems, or those of third parties on which we rely, our reputation,
business, operating results and financial condition could suffer.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 131, Disclosure about Segments of an Enterprise and Related
Information. SFAS No. 131 establishes standards for the way business enterprises
report information about operating segments, as well as enterprise-wide
disclosures about products and services, geographic areas and major customers.
We operate in one segment. Our customers are located in eight countries around
the world with the majority being in the United States. All of our transactions
have been conducted in United States dollars. As of January 31, 2000, we did not
have any material revenues or assets outside the United States.
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<PAGE> 27
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments and hedging
activities. Generally, it requires that an entity recognizes all derivatives as
either an asset or liability and measures those instruments at fair value, as
well as identifies the conditions for which a derivative may be specifically
designated as a hedge. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000. We do not currently engage in or plan to engage in any
derivative or hedging activities.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, or SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This statement
requires companies to capitalize qualifying computer software costs which are
incurred during the application development stage and amortize them over the
software's estimated useful life. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. We adopted requirements of SOP 98-1 as of
January 1, 1999.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. Staff
Accounting Bulletin No. 101 summarizes certain areas of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We believe that our current revenue recognition principles
comply with Staff Accounting Bulletin No. 101.
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<PAGE> 28
BUSINESS
OVERVIEW
We have developed proprietary technologies that enable Web sites to
cost-effectively meet the growing need to provide targeted, high-quality content
to their users. We aggregate digital content from a wide range of content
providers and filter, deliver and efficiently integrate this content into our
customers' Web sites almost instantaneously. Our technologies are compatible
with existing and emerging Internet access technologies, including wireless, and
are designed to support a variety of content formats, ranging from text to
streaming video. Our rapidly growing digital content network offers Web sites
access to timely and relevant content and offers our content providers an
efficient means of syndicating their content to third parties.
Our digital content network is composed of Web site customers and content
providers. As of March 15, 2000, we had over 750 customers and obtained content
from 496 publications, supplied by 201 content providers. We added 133 of our
current customers in February 2000. We have a growing international presence,
with 61 of our customers and 38 of our content providers based outside the
United States, primarily in Latin America, the United Kingdom and Canada.
Our technology consists of two principal elements of software, the Content
Engine(R) and Siteware(TM). Content from a range of sources is delivered in a
variety of formats to our servers where the Content Engine(R) processes and
filters it, then sends to our customers any items that match their requirements.
Siteware(TM), which resides on our customers' servers, receives the content over
the Internet and integrates it seamlessly into the customer's Web site.
We enter into contracts with our customers, typically for an initial period
of one year, that provide for a recurring monthly network services fee for the
delivery of content. Our customers are predominantly operators of vertical Web
sites, spanning a broad range of Internet categories, with representative
customers including AltaVista Shopping.com, The Black World Today, CareerBuzz,
Commerce One, drkoop.com, Entertaindom.com, InteliHealth, MSN MoneyCentral,
OmniSky, Sun Microsystems, Inc. and Yupi Internet. Our content providers range
from traditional news services to new media sources and include Astrology.com,
AP Online, Deutsche Presse-Agentur, EFE, Knight-Ridder Tribune, Knoxville
New-Sentinel, The New York Times Syndicate, Red Herring.com and ThirdAge.com.
INDUSTRY BACKGROUND
Rapid Growth of the Internet
The Internet has emerged as a global medium for communications and
commerce. International Data Corporation, or IDC, estimates that the number of
Web users worldwide will increase from approximately 196 million in 1999 to
approximately 502 million by the end of 2003. IDC also estimates that the number
of Web users in the United States alone will increase from approximately 81
million in 1999 to approximately 177 million by the end of 2003.
Proliferation of Vertical Web Sites
As the number of Web sites has grown, another trend that has emerged is the
proliferation of vertical Web sites, or Web sites targeted to specific interest
groups. Vertical sites represent one of the fastest-growing segments of the
Internet and are projected to attract a greater portion of advertising dollars
than portal sites. According to Forrester Research, the share of Internet
advertising revenue generated by vertical and niche Web sites will grow from 35%
in 1999 to 57% in 2004.
Growing Importance of High-Quality Content
The ability of Web sites to attract users is based in large part on their
ability to provide users with value-added content. We believe that high-quality
content is the primary reason users return to their favorite Web sites. In order
to drive traffic to their sites and maximize stickiness, or the amount of time a
user spends
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<PAGE> 29
on a Web site, Web sites need to obtain high-quality content to differentiate
themselves and to attract the attention of loyal users on the increasingly
crowded Internet.
Web Sites Face Challenges Obtaining and Managing High-Quality Content
Web sites have traditionally faced two costly and time consuming
alternatives in attempting to obtain and integrate compelling content -- either
to produce the content themselves or to outsource content from multiple
third-party sources. Web sites that choose to create their own content face the
high cost of maintaining an editorial staff as well as limitations on the volume
and breadth of the content they can produce. Web sites that choose to aggregate
third party content themselves must spend the time and effort to establish
relationships with multiple content providers, often at a high cost, in order to
obtain a sufficient array of content. They must then sift through a large volume
of incoming content, in multiple formats, in order to find relevant content for
their site.
THE SCREAMINGMEDIA SOLUTION
We provide Web sites with a single source for high-quality, targeted
content. Our technologies allow our customers to obtain custom-filtered digital
content that is delivered in real time and fully integrated into the look and
feel of their Web sites. Our rapidly growing digital content network provides
the following benefits to both our customers and our content providers.
BENEFITS TO OUR CUSTOMERS
Custom-Filtered, Real-Time Content. We offer Web sites continuously
updated customized content drawn from our broad selection of content providers.
We create one or more custom filters for our Web site customers, producing a
highly targeted content service. Our technologies enable us to process and
deliver relevant content to customers' Web sites within seconds of our receiving
the material from our content providers.
Compelling Cost Proposition. We provide our Web site customers with a
single-source solution for their content needs. Our services are both easy to
implement -- our software is compatible with the software that is used to
support most Web sites -- and easy to use, with very little ongoing effort
required. Customers can opt to maintain full editorial control in selecting the
content they receive from us or they can opt to operate "hands-free," with
content integrated directly into their Web site without any further editorial
effort. By using ScreamingMedia, our customers can avoid the time and expense
associated with maintaining an editorial staff or dealing with multiple content
providers, enabling them to focus their resources on other critical aspects of
their business.
Seamless Integration into a Customer's Web Site. Our services deliver and
integrate content directly into our customers' Web sites in a manner consistent
with the look and feel of the site, enabling our customers to maintain and
enhance their brand identity. The content we supply is fully integrated so that
users remain on our customers' sites, which is an advantage over other services
that require users to transfer to the content provider's site. This enhances
user loyalty, allows Web sites to control the user's online experience and
expands our customers' revenue opportunities.
Flexible Solutions for a Broad Range of Customers. Our services are
scalable and adaptable to meet customers' changing needs. Our services are
equally suitable for customers requiring a high volume of content across many
categories and those requiring a narrow stream of highly targeted content.
Additionally, our services may be used to supplement a Web site's original
content. We can supply local, national and international content in different
languages from a broad range of sources to Web sites worldwide. In addition,
with our new packaged news product, News!Stand, we offer customers a lower-cost,
pre-edited news service. We can deliver content in any commonly used format,
including current standard Internet formats such as the format known as HTML and
evolving standards such as the format known as XML. We can also format content
for insertion into a customer's database. Our software is compatible with all
major Web site operating systems.
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<PAGE> 30
Enhanced Stickiness and Value. By providing our customers with
continuously updated, targeted and relevant content, we believe that we help
them differentiate their Web sites, build a loyal user base and increase the
time each user spends on the site, as well as the frequency of user visits. This
enhanced traffic and stickiness increases revenue opportunities for our
customers.
BENEFITS TO OUR CONTENT PROVIDERS
We offer our content providers the opportunity to expand the distribution
of their content and extend their reach at little or no cost. Our digital
content network also allows content providers to increase their brand exposure
while generating additional revenue opportunities. For content providers that
already syndicate their content, the benefit lies in accessing additional
distribution outlets without having to negotiate specific arrangements, which
translates into increased distribution and revenue potential at little or no
incremental cost. For other publishers, particularly small or niche content
providers, we offer an attractive opportunity to syndicate their material and
reach audiences that they could not otherwise access.
STRATEGY
Our objective is to establish our technology as the global standard for the
exchange of digital content and related services. The key elements of our
strategy are as follows:
Rapidly Expand Our Digital Content Network. We plan to aggressively expand
the number of customers and content providers that make up our digital content
network. The growth of our digital content network benefits both customers and
content providers. As more Web sites use our services, this helps attract
content providers by offering greater exposure and the opportunity to earn more
revenue. Similarly, as more content providers join the network, the more
valuable our services become to our customers as they gain access to an even
greater array of content. We intend to rapidly grow our customer base through
expanded domestic and international sales and marketing efforts and the
continued expansion and enhancement of our products and services. We believe
that the expansion of our digital content network will create significant
barriers to entry and help our solution become the global standard for digital
content aggregation and distribution.
Maintain and Extend Product and Technology Leadership. We believe that we
are currently the technology leader in aggregating and distributing digital
content to Web sites. We intend to maintain and extend our technology and
product leadership through continued research and development investments. We
plan to continue developing products and services that respond to changing
customer needs and evolving technologies and standards. Our development efforts
are focused on offering new types of content such as photos, audio and video and
adding complementary network services such as context-based e-commerce
applications. In addition, we are currently extending our platform to provide
our Web site customers with enhanced wireless content delivery capabilities.
Establish ScreamingMedia as a Leading Brand. We believe that strong brand
recognition is critical to our continued success. We intend to establish
ScreamingMedia as the leading global brand for digital content aggregation and
distribution. In September 1999, we launched our first brand-building campaign
through print advertising in major business publications. We intend to
aggressively extend our global brand-building campaign in 2000, which will
include offline and online advertising, appearing at industry trade shows,
sponsoring and appearing at industry conferences and other activities. We
anticipate that we will more than double our expenditures on marketing and
advertising in 2000.
Continue to Expand Our Alliance Program. We intend to continue developing
relationships with other Internet-related companies to expand our digital
content network. To date, through a program that we call our "Alliance Program,"
we have entered into contractual relationships with a variety of companies
including Agency.com, B2Bworks, Concentric Networks, Interwoven, Proxicom and
Red Hat. These companies help us generate sales leads by recommending our
products and services, where appropriate, as part of their overall service
package, and in some instances by bundling our SiteWare(TM) software with their
technology offerings. We intend to continue to enter into additional contractual
relationships with other Internet-related companies
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<PAGE> 31
that further enhance our business. In addition, where appropriate, we intend to
pursue strategic acquisitions that offer complementary products, services or
technologies.
Expand Our International Presence. There are significant opportunities to
continue to expand our digital content network outside the United States. In
particular, Latin America, Europe and Asia are expected to experience dramatic
growth in Internet use over the next several years. We intend to capitalize on
these opportunities. By moving into these markets early, just as the need for
Web content becomes critical, we believe we will be able to obtain a significant
advantage over our competitors. Our content processing technology allows us to
aggregate and manipulate any form of content in any language and consequently we
face few technological barriers to international expansion. Currently, we
aggregate and distribute content in different languages for customers both
within the United States and internationally. To further extend our
international presence, we opened a London office in January 2000 and we plan to
open an office in Miami in mid-2000 to service the Latin American market. We
will also pursue strategic relationships with international partners when
appropriate opportunities arise.
OUR SERVICES
Our customized content service employs two principal software applications:
- the Content Engine(R), which resides on our servers, processes, filters
and distributes incoming content to our customers; and
- SiteWare(TM), which is installed on our customers' servers, receives the
content and integrates it into customers' Web sites.
Content is delivered from our content providers to our servers via the
Internet, leased lines, and satellite and FM signals. We deliver content to our
customers over the Internet.
The key features of our service are:
- customization -- we work with our customers to create a series of custom
filters. Each filter is a file containing search parameters that is built
into the Content Engine(R) and causes it to extract exactly the type of
content the customer desires;
- real-time delivery -- as soon as we receive content, our Content
Engine(R) processes, filters and dispatches it almost instantaneously to
our customers' Web sites;
- control -- customers can use the Editor's Desk feature of SiteWare(TM) to
review the content we deliver and choose which items to display on their
sites. Alternatively, customers can choose to have ScreamingMedia publish
content directly to their Web sites without an intervening step; and
- integration -- once a customer has chosen the desired content,
SiteWare(TM) automatically integrates it into the customer's Web site.
Customers can choose to receive content in most commonly-used formats,
including XML, HTML, and database-ready formats. Our system enables
content to appear on the customer's site in a manner consistent with the
look and feel of the site.
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CUSTOMERS
As of March 15, 2000, we had entered into contracts with over 750
customers. Our customers are predominantly operators of Web sites, spanning a
broad spectrum of Internet categories. The following is a representative list of
our customers:
BUSINESS-TO-BUSINESS
ChemConnect
Commerce One
eSteel
Power Marketers Association
TECHNOLOGY
EarthWeb
Red Hat
Sun Microsystems, Inc.
BUSINESS AND FINANCE
Accounting.com
Insurance Information Institute
MSN MoneyCentral
E-COMMERCE/ADVERTISING/PORTALS
About.com
AltaVista Shopping.com
AuctionRover
DoubleClick
GoEdison.com
ENTERTAINMENT
DVDfile
Entertaindom.com
iCAST
Trans-World Entertainment Company
HEALTH
Cancer Facts
drkoop.com
eNutrition.com
InteliHealth
National Multiple Sclerosis Society
Shared Medical Systems
thehealthchannel.com
INTERNATIONAL/FOREIGN LANGUAGE
LatPro.com
Telemundo
Yupi Internet
RECRUITING
CareerBuzz
Career Zone
E-cruiter.com
SPECIAL INTERESTS
The Black World Today
EVOTE.COM
The Gay Financial Network
Womens' Health Interactive
WIRELESS ENABLED
The New York Times on the Web
OmniSky
Oracle Corp.
With most of our customers, we initially enter into year-long contracts
that typically permit the customer to use a specified volume of content per
month. Customers pay a fixed monthly fee for any volume of content they actually
use up to this specified volume. Any content that the customer uses in excess of
this volume is billed additionally.
The following case studies illustrate the way in which a range of customers
across a variety of Internet categories have been able to use our services.
CASE STUDIES
thehealthchannel.com -- Using ScreamingMedia Content to Enhance
Stickiness. thehealthchannel.com had been subscribing to a content syndication
service that only provided headlines that transferred the visitor off their site
in order to read the articles. thehealthchannel.com needed a content service
that allowed them to keep their users on their site longer. ScreamingMedia
provided thehealthchannel.com with custom filters and our SiteWare(TM) software,
allowing them to access thousands of high-quality, full-text articles from our
Content Engine(R). Using SiteWare(TM), thehealthchannel.com is now able to
publish the entire text of articles in
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a manner consistent with the look and feel of their site. As a result,
thehealthchannel.com can now provide targeted content without driving away
traffic or surrendering advertising revenue to a third party.
The Black World Today -- Using ScreamingMedia to Help Increase Ad
Revenue. The Black World Today, or TBWT, wanted to create additional revenue
from advertising and sponsorships in order to expand, but had insufficient
page-views to attract the volume of advertising they desired. By using
ScreamingMedia, TBWT has been able to publish relevant, high-quality content,
thereby adding additional pages of targeted news content to their site. TBWT
believes that the use of ScreamingMedia's service has helped them to increase
their page-views and attract new advertisers.
Sun Microsystems, Inc. -- Using ScreamingMedia for Specialized
Content. Sun wanted to offer their large community of Java(TM) developers
real-time news from multiple sources, but did not want the inconvenience and
expense of creating and managing multiple content licensing deals.
ScreamingMedia provided Sun with a single source for custom-filtered articles
related to Java technology from multiple sources in real time and allowed them
to integrate these articles directly into Sun's Web site. By outsourcing the
provision of news for its Web site to ScreamingMedia, Sun was able to obtain a
range of highly specific articles and integrate these articles into its Web site
at low cost, with very little effort.
EVOTE.COM -- Using ScreamingMedia to Lower Editorial Costs. EVOTE needed
to provide high-quality, up-to-the-minute election news for the 2000
Presidential election, but it was not cost-effective to hire the additional
editorial staff it required. ScreamingMedia created a custom filter for EVOTE,
enabling EVOTE's editors to select election-related content from a wide variety
of sources with minimal effort. With custom content from ScreamingMedia, EVOTE
can now provide high-quality, real-time election news in a cost-effective and
efficient manner with no additional editorial staff.
InteliHealth -- Using ScreamingMedia to Maximize Editorial
Control. InteliHealth was looking for real-time, health-related news to
supplement its already extensive database of high-quality content. InteliHealth
chose ScreamingMedia because our Editor's Desk feature provided a mechanism for
their news editors to effectively review, classify and hand-pick the articles
they wanted. Additionally, our SiteWare(TM) software allowed them to publish
content to their site, in a manner consistent with InteliHealth's own look and
feel, with the click of a mouse. ScreamingMedia offered InteliHealth a large
quantity of filtered content and full editorial control over the content they
choose to publish on their Web site.
CONTENT PROVIDERS
We employ a specialized content acquisition team to build our network of
content providers. As of January 31, 2000, this team was composed of 13
employees. Members of this department typically specialize in a particular type
of source, such as newspapers, newswires, magazines or Web sites, or on major
geographic or vertical markets. We intend to hire additional content acquisition
staff as we expand.
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As of March 15, 2000, we obtained content from 496 publications supplied by
201 content providers, ranging from traditional news syndication services to
specialized media sources and including both domestic and international
publications. A representative list is provided below:
GENERAL NEWS SYNDICATION
AP Online
Comtex
The Christian Science Monitor
Knight-Ridder Tribune
Medical Tribune News Service
Newsletters.com
The New York Times Syndicate
Policy.com
Scripps Howard News Service
INTERNATIONAL/FOREIGN LANGUAGE
Deutsche Presse - Agentur
EFE
Fut Brasil
Latin Trade
LIFESTYLES/ENTERTAINMENT/SPORTS
AP Mega Sports
Asimba.com
Astrology.com
Theatre.com
ThirdAge.com
TVData Features Syndicate
BUSINESS AND INDUSTRY
American Banker
Business 2.0
Financial Gazette
Internet Wire
IRA Info
Microcap Stock Digest
Mutual Funds Interactive/Brill.com
Red Herring.com
Total Stock Research.com
LOCAL/REGIONAL
Albuquerque Journal
Arizona Republic
Atlanta Journal - Constitution
Knoxville News - Sentinel
Las Vegas Review Journal
MaineToday.com
New York Post.com
U-Wire.com
As of March 15, 2000, two of our content providers, Comtex and
Newsletters.com, provided 102, or 21%, of our 496 total publications. No other
content provider supplied more than 5% of our total publications as of that
date. As we expand our network of content providers, we expect that the
percentage of our total publications supplied by any single content provider
will decline.
In March 2000, we launched a new packaged news product called News!Stand.
This product offers customers a lower-cost, pre-edited news solution available
for purchase from our Web site. Customers are able to choose one or more of a
number of topical content packages, which are composed of items selected daily
by our editors. This content is sent to customers over the Internet and
automatically integrated into the look and feel of the customer's Web site.
TECHNOLOGY
ScreamingMedia's proprietary software platform is designed for flexibility,
scalability and reliability. The primary elements consist of SiteWare(TM)
software that is installed on each customer's Internet server computer and the
Content Engine(R) that resides on our own server computers. Key features of the
technology include:
Object-Oriented Multi-Tiered Architecture. Our software is based on the
distributed object model, which means that it recognizes groups of data as
compiled packages known as objects. Because it does this, it does not have
to identify the types of content it processes. This allows it to process
and transfer virtually any digital data, including text, photo, video and
audio content. The modularity resulting from our multi-tiered architecture
enhances our ability to modify and upgrade the network without interruption
to our services. Both of these features contribute to the scalability of
our services.
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Robust Processing and Filtering Technology. The algorithms employed in our
proprietary processing technology allow real-time processing and filtering
of all incoming content. Our proprietary processing algorithms normalize
and index all incoming content prior to the filtering stage. Our filtering
technology, which incorporates software we license from Verity Inc.,
recognizes patterns of words as well as identifying keywords, which allows
a high degree of customization and control.
Platform Independent Java Application. Our SiteWare(TM) software is
written entirely in Java. Using Java allows the software to function on all
major operating systems.
Compatibility With Evolving Technologies. Our technology enables us to
both deliver content to and aggregate content from a variety of Web
platforms and in a variety of standard and legacy data formats.
SiteWare(TM) can deliver content to Web sites in most commonly-used
formats, including XML, HTML, and database-ready formats. Our content
aggregation system can access content through a variety of delivery
channels, including satellite, leased lines and the Internet.
Content Engine(R)
The Content Engine(R) is composed of a number of elements of proprietary
software that interact with filtering technology based on software we license
from Verity. Our proprietary software parses, normalizes and indexes incoming
content. The filtering software, which incorporates the over 5,000 custom
filters we have built for our customers, matches content to client filters. When
content has been filtered, proprietary programs copy the content to
customer-specific files, prepare it for delivery in the form the customer
requires, and dispatch it over the Internet by means of a proprietary
communication protocol that communicates between the Content Engine(R) and
SiteWare(TM).
SiteWare(TM)
We provide our customers with our proprietary SiteWare(TM) software.
SiteWare(TM) allows the customer access to our services and enables
communication between the customer's server and the Content Engine(R).
SiteWare(TM) houses each customer's unique integration configuration and, upon
receiving data from the Content Engine(R), can immediately integrate that
information into the customer's Web site in the manner desired.
SiteWare(TM) includes a feature called the Editor's Desk that allows a
customer to exercise complete control over the content they select and publish
to their Web site. From the Editor's Desk, a customer can review articles and
publish selected stories to pre-determined locations on their Web site with a
single click of their mouse. Web sites that prefer to have "hands-free" content
delivery can choose to have us publish content directly to their Web site
without any further editorial involvement.
Scalable Network Infrastructure
The infrastructure supporting our network consists of multiple UNIX servers
that communicate internally and externally using the Internet Protocol. These
servers and the applications that run on them have a multi-tiered configuration,
which means that the functions they perform are distributed across multiple
machines. If one of these machines or applications stops functioning, either
through failure or for maintenance or upgrading, we will still be able to
provide our services. Our servers are hosted by GlobalCenter, which, in addition
to housing our servers, provides power, security and connectivity.
SALES AND MARKETING
Sales
We sell our services through a direct sales force. As of January 31, 2000,
our sales force was composed of 37 employees. Our sales staff is currently
located in New York, San Francisco and London. Our sales force is divided into
teams focused on international markets and vertical categories, such as health,
technology, finance and entertainment. We intend to hire additional sales people
as we expand.
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Marketing
Our marketing strategy is to build brand awareness and increase customer
familiarity with ScreamingMedia and our services through online and traditional
media advertising, public relations efforts and a presence at trade shows and
other industry events. In addition, we use online and offline promotions and
strategic marketing partnerships to help generate sales leads. Our Web site is
also used as a marketing and sales tool, providing current and potential
customers the ability to research and sample our services and to contact our
sales staff.
Alliance Program
To accelerate the growth of our digital content network, we have developed
our "Alliance Program". Under this program we have entered into contractual
relationships with a wide range of Internet-related businesses that offer
opportunities to market our products or to distribute our software, such as
Agency.com, Concentric Networks, B2Bworks and Proxicom. These companies
recommend our products and services, where appropriate, as part of their overall
service package. Under some of these arrangements, we share revenues from
relevant product lines. In other cases we enter into contractual arrangements
under which other companies bundle our SiteWare(TM) software with their
technology offerings. Bundling our software with complementary products
increases awareness of our services among likely customers, who can then access
our services without further installation of software. During 1999,
approximately 10% of our total revenue was derived from customers introduced to
us as a result of these contractual relationships. We anticipate that these
contractual relationships will continue to generate a significant percentage of
the leads through which we are introduced to potential customers in the future.
CUSTOMER SUPPORT
We believe that a high level of customer support is critical to our
success. We provide our customers and content providers with 24 hours a day,
seven days a week support. As of January 31, 2000, our customer support staff
was composed of 28 employees. We provide full life-cycle support, beginning with
assistance in configuring and installing the software we provide and building
the customized content filters requested by our clients, and extending to
ongoing technical support and account management. We also provide Web-based
customer support. We intend to hire additional customer support personnel as our
digital content network expands.
COMPETITION
The market for digital content aggregation and distribution on the Internet
is new and rapidly evolving. We expect competition to increase significantly in
the future as current competitors improve their offerings and as new
participants enter the market.
Our current competitors include:
- other Internet-focused aggregators and distributors of content;
- traditional newswires that have begun offering products for Web sites;
and
- providers of alternative forms of content for Web sites, such as
directories, maps, photographs, stock tickers and video clips.
We believe that the principal competitive factors in our market are
cost-effectiveness, ease of use, brand recognition, ease of integration,
scalability, and breadth, depth and timeliness of content.
We believe that we presently compete favorably with respect to most of
these factors, particularly breadth and depth of content, ease of integration
and cost-effectiveness. However, some of our competitors offer products with
different pricing models, delivery systems and types of content, and these
differences could prove attractive to potential customers.
Barriers to entry in our market are relatively low, and we expect to face
new competitors. Competition may come from traditional content providers that
are not currently focused on the Internet and from online
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providers of other types of content, as well as from new entrants. We expect our
existing competitors to offer new services and new features on their existing
products, any of which could make their services more attractive to potential
customers.
INTELLECTUAL PROPERTY
Our success will depend in part on our ability to protect our intellectual
property and other proprietary rights in our software and other technology. To
protect our proprietary rights, we rely on a combination of patent, trademark,
copyright, and trade secret laws, confidentiality and license agreements with
our employees, customers, partners, and others, and security features we have
built into our technology.
We have four pending U.S. patent applications, but presently do not have
any issued patents. Unless and until patents are issued, no patent rights can be
enforced. We have applied for registration in the United States for some of our
trademarks and service marks, including ScreamingMedia(SM), SiteWare(TM),
Content Engine(R) and others, and we intend to pursue registration of some of
our marks internationally.
Despite these protections, others still might be able to use our
intellectual property without our authorization. In addition, the laws of some
foreign countries do not protect proprietary rights to the same extent as do
U.S. laws. Moreover, potential competitors might be able to develop technologies
or services similar to ours without infringing our patents. In addition, if our
agreements with employees, consultants and others who participate in product and
service development activities are breached, we may not have adequate remedies,
and our trade secrets may become known or independently developed by
competitors. If we are unable to protect our intellectual property adequately,
it could materially affect our financial performance.
There can also be no assurance that other parties will not assert claims
that our products or names infringe on their proprietary rights. A third-party
infringement claim could be time-consuming to defend, result in costly
litigation, divert management's attention and resources, cause product and
service delays or require us to enter into royalty or licensing agreements.
EMPLOYEES
As of January 31, 2000, we had 141 full-time employees. Of these, 41 were
employed in sales and business development, 28 in customer support, four in
marketing, 13 in content acquisition, 20 in research and development and 35 in
general and administrative positions. None of our employees is represented by a
union. We believe that our relations with our employees are good.
FACILITIES
We are headquartered in New York City, where we lease approximately 25,000
square feet of space. This lease expires in March 2009. We have an option to
lease an adjacent 4,608 square feet and have recently entered into an agreement
to sublet a further adjacent 17,100 square feet. We also lease offices in London
and San Francisco and are in the process of opening an office in Miami.
LEGAL PROCEEDINGS
We are not presently a party to any material legal proceedings.
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MANAGEMENT
Our executive officers, key employees and directors, and their ages and
positions as of February 15, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jay Chiat................................. 68 Chairman of the Board of Directors
Kevin C. Clark............................ 39 Chief Executive Officer and Director
Alan S. Ellman............................ 36 President, Chief Operating Officer and
Director
David M. Obstler.......................... 40 Chief Financial Officer
Joseph F. Choti........................... 39 Chief Technical Officer
J. Terrence Waters........................ 41 President, International
Marianne Howatson......................... 51 Executive Vice President, Global Content
Management
Sean P. Morgan............................ 35 Senior Vice President of Sales
Roy R. Boling............................. 42 Director of Financial Operations
William P. Kelly.......................... 33 General Counsel, Secretary and Director
James D. Robinson III..................... 64 Director
Wm. Brian Little.......................... 57 Director
Kenneth B. Lerer.......................... 47 Director
Patrick J. McNeela........................ 51 Director
</TABLE>
Jay Chiat has served as chairman of our board of directors since November
1999 and as a director since April 1997. Between November 1998 and November
1999, he also served as interim chief executive officer. Since 1995, Mr. Chiat
has served as an advisor to several new media start-up businesses. Mr. Chiat is
the founder of Chiat/Day Advertising, Inc., an international advertising agency
for which he served as chairman from July 1968 to January 1995. Mr. Chiat is a
director of Cybergold, Inc., the Hereditary Disease Foundation, Department 56,
Inc. and SoftCom, Inc. Mr. Chiat has received numerous awards in the advertising
industry and was elected to the AAF Advertising Hall of Fame in 1999.
Kevin C. Clark has served as our chief executive officer since November
1999 and he has been a director since November 1998. From August 1998 until
November 1999, Mr. Clark pursued Internet investment activities as chairman and
chief executive officer of KMC Holdings LLC. Mr. Clark served as vice chairman
of Modem Media.Poppe Tyson from May 1998 to August 1998. From May 1997 to May
1998, Mr. Clark served as chairman and chief executive officer of Poppe Tyson, a
global digital marketing business. From March 1996 to May 1997, he served as a
director of and advisor to Poppe Tyson. Mr. Clark founded Cross Country Staffing
in 1986, and was chairman and chief executive officer from 1986 through 1994 and
chairman from June 1994 through March 1996. Mr. Clark serves as a director of
Healthmarket.com and Primary Knowledge, Inc. and as an advisor to the board of
Ecommerce Solutions, LLC.
Alan S. Ellman founded the company and has served as a director since 1993.
Mr. Ellman has served as president since 1995 and he has served as president and
chief operating officer since February 2000. From 1990 to 1993, Mr. Ellman was
the director of finance at ABC Radio Networks in New York, where his
responsibilities included managing domestic and international financial and
accounting operations.
David M. Obstler joined ScreamingMedia in March 2000 as its chief financial
officer. From September 1996 to July 1999, Mr. Obstler served as a vice
president in the investment banking department at J.P. Morgan where he was
responsible for advising companies in the telecommunications sector. From June
1993 to September 1996, Mr. Obstler was an executive director in the equity
capital markets department at Lehman Brothers. From September 1986 to June 1993,
Mr. Obstler worked in the investment banking department at Goldman Sachs, most
recently as a vice president.
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Joseph F. Choti has served as chief technology officer since October 1999.
From September 1998 to October 1999, Mr. Choti was chief technical officer of
Real Time Data Inc. From May 1996 to September 1998, Mr. Choti was chief
technical officer and director of product development at Applied Information
Services, Inc. From 1994 to 1996 Mr. Choti worked in the enterprise systems
research and development group of Bloomberg Financial Markets, LP.
J. Terrence Waters was appointed president, international in February 2000.
From July 1999 to February 2000, Mr. Waters has pursued Internet investment and
consulting activities as an independent consultant. From September 1985 to June
1999, Mr. Waters was employed by Gartner Group, Inc., a NYSE listed company,
most recently serving as senior vice president and managing director of
Executive Programs. Prior to this, Mr. Waters was vice president, worldwide
marketing from October 1990 to December 1993 and vice president, eastern region
sales from March 1987 to October 1990. Mr. Waters was employed by the Xerox
Corporation from September 1981 to August 1985.
Marianne Howatson has served as our executive vice president of global
content management since June 1999. From June 1998 through April 1999, Ms.
Howatson served as an advisor to Emap plc, the British publisher of Elle, New
Woman and Q magazines, on the acquisition by Emap plc of the Peterson Publishing
Company. From April 1997 through March 1998, Ms. Howatson was executive vice
president of Playboy Enterprises, Inc. and president of the Publishing Group of
Playboy. In this position Ms. Howatson oversaw Playboy's domestic and overseas
publishing businesses, including the U.S. edition of Playboy Magazine, its 15
foreign editions and new media business. From 1995 to April 1997, Ms. Howatson
was an equity partner and general manager of Cardinal Business Media. Prior to
that Ms. Howatson was group publisher at Gruner + Jahr USA Publishing and
publisher of Conde Nast Publications' Self magazine and American Express' Travel
and Leisure magazine.
Sean P. Morgan has served as our senior vice president of sales since
February 1997. Prior to joining us, Mr. Morgan founded Gravity Sports, a firm
that created sports-based, cross-promotional events for companies, for which he
served as president from 1991 to 1997. Prior to that, Mr. Morgan directed the
Manhattan marketing operations for Community Quote Graphics Inc., a provider of
data services for the commodities and futures markets.
Roy R. Boling has served as director of financial operations since April
1999. Mr. Boling served as director of financial operations for RCN Corp. from
July 1998 to April 1999. From May 1997 through July 1998, he served initially as
controller and then as vice president/controller of Javanet, Inc., a regional
Internet service provider that RCN Corp. acquired in July 1998. From June 1996
to May 1997, Mr. Boling served as a consultant for Polska Telewisa Kablowa, a
Polish cable concern and a subsidiary of Chase Enterprises, a real estate and
international cable company. From May 1991 through June 1996, Mr. Boling served
first as business/operations manager of radio properties, then as station
manager, for 1080 Corporation, an AM/FM radio station in Hartford, Connecticut,
a subsidiary of Chase Enterprises.
William P. Kelly has served as general counsel, director and secretary
since April 1997. From 1991 until February 2000, Mr. Kelly was engaged in the
practice of law in the area of complex civil litigation. From 1995 to 1996, he
was associated with the law firm of Condon & Forsyth. Mr. Kelly was a founder in
1996 of the law firm of McCarthy & Kelly LLP. Since February 2000, he has been
employed full time as our general counsel.
James D. Robinson III has served as a director of since April 1997. He is
co-founder, chairman and chief executive officer of RRE Investors, LLC, a
private information technology venture investment firm, and since 1996, he has
been chairman of Violy, Byorum & Partners Holdings. Mr. Robinson served as
chairman and chief executive officer of American Express Company from 1977 to
1993. Mr. Robinson is a director of The Coca-Cola Company, Bristol-Myers Squibb
Company, First Data Corporation, Cambridge Technology Partners and Concur
Technologies, Inc. He is a limited partner and advisor to International Equity
Partners and serves on the boards of InfiCorp Holdings, Inc., Ibero-American
Media Partners and Qpass Inc., all private companies. Mr. Robinson is a member
of the Business Council and the Council on Foreign Relations.
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Wm. Brian Little has served as a director since June 1999. Since January
1995, Mr. Little has been a private investor. During 1994, Mr. Little was a
special limited partner of Forstmann Little & Co. From 1978 through 1993, Mr.
Little served as a founding general partner of Forstmann Little & Co. Mr. Little
serves on the boards of directors of The Topps Company, Inc., Department 56 Inc.
and Aldila, Inc.
Kenneth B. Lerer has served as a director since November 1998. Mr. Lerer
has served since May 1996 as the president and chief operating officer of
Robinson, Lerer and Montgomery, a financial consulting firm providing services
to Fortune 500 companies. In addition, Mr. Lerer has served as a senior vice
president of America Online since October 1999. From 1980 to 1996, Mr. Lerer was
vice president of corporate affairs at Warner Amex Cable. Mr. Lerer is chairman
of the board of the Public Theater/New York Shakespeare Festival and is a
director of Oxygen Media, Inc., an Internet and cable company.
Patrick J. McNeela has served as a director since December 1999. Since
December 1997, Mr. McNeela has served as vice president of General Electric
Investment Company, Private Equity Group. From January 1995 to December 1997, he
was senior vice president and manager of GE Capital Corporation, Equity Capital
Group.
CLASSES OF DIRECTORS
Our certificate of incorporation divides our board of directors into three
classes, denominated as Class I, Class II and Class III. Members of each class
hold office for staggered three-year terms. At each annual meeting of our
stockholders beginning in 2001, the successors to the directors whose term
expires at that meeting will be elected to serve until the third annual meeting
after their election or until their successor has been elected and qualified.
Messrs. Kelly, Lerer and Robinson will serve as Class I directors whose terms
expire at the 2001 annual meeting of stockholders. Messrs. Little, McNeela and
Ellman will serve as Class II directors whose terms expire at the 2002 annual
meeting of stockholders. Messrs. Chiat and Clark will serve as Class III
directors whose terms expire at the 2003 annual meeting of stockholders. With
respect to each class, each director's term will be subject to the election and
qualification of his or her successor, or his or her earlier death, resignation
or removal. These provisions, when taken in conjunction with other provisions of
our certificate of incorporation authorizing the board of directors to fill
vacant directorships, may delay a stockholder from removing incumbent directors
and simultaneously gaining control of the board of directors by filling the
vacancies with its own nominees.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, fees to be paid to our independent auditors and the performance
of our independent auditors. The audit committee consists of Messrs. Little,
McNeela and Robinson. The compensation committee reviews and recommends to the
board of directors the salaries, benefits and stock option grants for all
employees, consultants, directors and other individuals compensated by us. The
compensation committee also administers our stock option and other employee
benefit plans. The compensation committee currently consists of Messrs. Chiat,
Little and Robinson. In 1999, the compensation committee consisted of Messrs.
Chiat, Robinson and Ellman. During 1999, Alan S. Ellman served as our president,
and from January through November 1999, Jay Chiat served as our interim chief
executive officer.
COMPENSATION OF DIRECTORS
We do not currently pay cash fees to our directors for attending board or
committee meetings, but we reimburse directors for their reasonable expenses
incurred in connection with attending these meetings. Directors are eligible for
grants of awards under our stock equity plans, as described below under "Stock
Plans."
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee. See "Certain Relationship and Related Transactions" for a description
of transactions between us and entities affiliated with members of the
compensation committee.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
compensation earned in 1999 by both of the individuals who served as
ScreamingMedia's chief executive officer during 1999 and the remaining four most
highly compensated executive officers as of December 31, 1999 whose salary and
bonus earned in 1999 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION ($) ($) ($) (#) ($)
------------------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Jay Chiat................................ $ -- $ -- $20,870(5) -- $ --
Chairman of the Board(1)
Kevin C. Clark(2)........................ 46,140 -- -- 1,530,000 --
Chief Executive Officer
Alan S. Ellman........................... 95,870 100,000 -- -- --
President and Chief Operating Officer
Gregoire Sentilhes(3).................... 59,222 -- -- 340,000(6) 80,000(7)
Former President, International
Marianne Howatson(4)..................... 103,930 70,000 -- 1,020,000 --
Executive Vice President, Global
Content Management
Sean P. Morgan........................... 85,890 100,250 -- -- --
Senior Vice President of Sales
</TABLE>
- ---------------
(1) Mr. Chiat was our interim chief executive officer until November 1999 but
resigned from that position when Mr. Clark joined ScreamingMedia as our
chief executive officer. Mr. Chiat was not paid any cash compensation for
his services as chief executive officer.
(2) Mr. Clark joined ScreamingMedia on November 8, 1999 at an annual salary of
$300,000.
(3) Mr. Sentilhes joined ScreamingMedia on September 1, 1999 at an annual salary
of $175,000. Mr. Sentilhes left ScreamingMedia on February 8, 2000.
(4) Ms. Howatson joined ScreamingMedia on June 7, 1999 at an annual salary of
$180,000.
(5) We maintain an apartment in New York City for business purposes. This amount
represents the cost in 1999 of allowing Mr. Chiat to use the apartment for
his personal use.
(6) This number excludes 765,000 shares subject to unvested options that expired
when Mr. Sentilhes left ScreamingMedia on February 8, 2000.
(7) This amount represents consulting fees paid to Mr. Sentilhes in 1999 for
work he did for us as a consultant before he became one of our officers.
37
<PAGE> 42
OPTION GRANTS IN 1999
The following table sets forth information concerning individual grants of
stock options made during 1999 to each of the executive officers named in the
Summary Compensation Table. Potential realizable value is presented net of the
option exercise price, but before any federal or state income taxes associated
with exercise, and is calculated assuming that the fair market value on the date
of the grant appreciates at the indicated annual rates, compounded annually, for
the term of the option. The 0%, 5% and 10% assumed rates of appreciation are
mandated by the rules of the SEC and do not represent our estimate or projection
of future increases in the price of our common stock. Actual gains will be
dependent on the future performance of our common stock and the option holder's
continued employment throughout the vesting period. Accordingly, the amounts
reflected in the following table may not actually be achieved.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK PRICE
SHARES GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM
UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
- ---- ------------------ ------------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jay Chiat............ -- -- -- -- -- -- --
Kevin C. Clark....... 1,530,000(1) 24.7% 1.91 11/08/04 $6,075,000 $8,561,534 $11,569,590
Alan S. Ellman....... -- -- -- -- -- -- --
Gregoire Sentilhes... 1,105,000(2)(3) 17.9 1.06 09/01/04 2,106,000 3,011,098 4,106,031
Marianne Howatson.... 1,020,000(4) 16.5 1.06 06/07/04 1,944,000 2,779,475 3,790,182
Sean P. Morgan....... -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Fair value of our common stock at the time the stock options were granted
was estimated to be $5.88 per share. This estimate is based on the amount
received from the issuance of convertible preferred stock prior to the grant
date of these stock options, giving effect to the increase in the value of
our company from the time the proceeds were received from the preferred
stock offering to the date on which these stock options were issued. Had the
assumed initial public offering price been used in calculating the potential
realizable values at assumed annual rates of stock price appreciation for
the option term of 0%, 5% and 10%, the potential realizable values would
have been $15,435,000, $20,507,529 and $26,643,964, respectively.
(2) Fair value of our common stock at the time the stock options were granted
was estimated to be $2.96 per share, which is based on the value given to
our common stock in a convertible preferred stock offering around the time
of the grants of these stock options. Had the assumed initial public
offering price been used in calculating the potential realizible values at
assumed annual rates of stock price appreciation for the option term of 0%,
5% and 10%, the potential realizable values would have been $12,088,700,
$15,752,194 and $20,184,003, respectively.
(3) This number includes 765,000 shares subject to unvested options that expired
when Mr. Sentilhes left ScreamingMedia on February 8, 2000.
(4) Fair value of our common stock at the time the stock options were granted
was estimated to be $2.96 per share, which is based on the value given to
our common stock in a convertible preferred stock offering around the time
of the grants of these stock options. Had the assumed initial public
offering price been used in calculating the potential realizable values at
assumed annual rates of stock price appreciation for the option term of 0%,
5% and 10%, the potential realizable values would have been $11,158,800,
$14,540,486 and $18,631,442, respectively.
38
<PAGE> 43
1999 OPTION EXERCISES AND OPTION VALUES
The following table sets forth information concerning unexercised stock
options held of December 31, 1999 by the executive officers named in the Summary
Compensation Table. None of these persons exercised any options during 1999. The
value of "in-the-money" options represents the difference between the exercise
price of an option and the fair market value of our common stock as of December
31, 1999, which, solely for purposes of this calculation, we estimate to be the
assumed initial public offering price of $12.00.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jay Chiat...................................... -- -- -- --
Kevin C. Clark................................. 382,500 1,147,500 $3,859,425 $11,578,275
Alan S. Ellman................................. -- -- --
Gregoire Sentilhes............................. 340,000 765,000(1) 3,719,600 8,369,100
Marianne Howatson.............................. 170,000 850,000 1,859,800 9,299,000
Sean P. Morgan................................. -- -- -- --
</TABLE>
- ---------------
(1) These 765,000 shares were subject to unvested options that expired when Mr.
Sentilhes left ScreamingMedia on February 8, 2000.
EMPLOYMENT AGREEMENTS
Kevin C. Clark. We are a party to a three-year employment agreement with
Kevin C. Clark, dated November 8, 1999. Pursuant to this agreement, he serves as
our chief executive officer. Mr. Clark receives an annual salary of $300,000 per
year, is eligible to participate in any bonus plans we have for our senior
executives, and participates at the highest level in all of our benefit plans
and fringe benefit arrangements. On his first day of employment, Mr. Clark
received stock options to purchase 1,530,000 shares of our common stock at an
exercise price of $1.91 per share. Of these options, 382,500 vested on December
1, 1999 and the remainder will vest quarterly in equal installments over a two
and one-half year period beginning November 8, 1999. Under the employment
agreement, we are obligated to pay Mr. Clark an additional payment to reimburse
him for any excise tax imposed under Section 4999 of the Internal Revenue Code
on any payment, including any gross-up payments, made to Mr. Clark, whether
under his employment agreement or otherwise. If Mr. Clark is terminated without
cause or he quits for good reason, he will receive his base salary, medical and
other insurance benefits for six months following termination. In addition, all
options held by Mr. Clark that would have vested within one year after
termination, had he been employed for that period, will automatically vest on
the date of his termination. Mr. Clark is subject to six-month post-termination
noncompetition and nonsolicitation covenants.
Marianne Howatson. We are party to an employment agreement with Marianne
Howatson, dated June 7, 1999. Pursuant to this agreement, she was paid a signing
bonus of $70,000 and receives an annual salary of $180,000. In addition, Ms.
Howatson was granted options to purchase 1,020,000 shares of our common stock at
an exercise price of $1.06 per share. These options vest in 36 substantially
equal monthly installments, as long as Ms. Howatson remains employed with us.
Ms. Howatson participates in our standard benefit plans.
STOCK PLANS
1999 Stock Option Plan
General. We have reserved for issuance 8,500,000 shares of common stock
under our 1999 stock option plan, subject to adjustment in the event of a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split or other similar corporate event. If an option expires, terminates or
becomes unexercisable for any reason without having been exercised in full, the
unpurchased shares will again be available for future option grants under the
plan.
39
<PAGE> 44
Options granted under the plan may be incentive stock options within the
meaning of Section 422 of the Internal Revenue Code or non-qualified stock
options.
Administration. The plan is administered by our compensation committee.
The committee has the authority to adopt, amend and rescind rules and
regulations as it determines advisable for administration of the plan. The
committee also has the sole authority to determine who will be granted options
and to determine the terms of the options, including the number of shares and
the exercise price of the option.
Eligibility. Options may be granted under the plan to our officers,
employees, directors, consultants, advisors and representatives, but incentive
stock options may be granted only to our employees.
Terms and Conditions of Options. The number of shares of common stock to
be subject to an option and the option's exercise price are determined by the
committee. Incentive stock options may not be granted at an exercise price less
than 100% of the fair market value of the common stock on the date of grant.
Non-qualified options may not be granted under the plan at an exercise price
less than 85% of the fair market value of the common stock on the date of grant.
Options granted under the plan become exercisable at the times and upon the
conditions that the committee may determine, as reflected in the applicable
option agreement. The committee determines the term of the option, which
generally may not exceed ten years from the date of grant.
If there is a sale of substantially all of our property and assets or if a
change in control occurs, the purchaser of our assets or common stock may, in
its discretion, deliver to the optionees the same kind of consideration that is
delivered to our stockholders as a result of the sale or change in control that
has a value equal to the option had it been exercised in full and no shares had
been sold prior to the sale or change in control. The committee also has the
authority, but not the obligation, to accelerate the exercisability of any
options granted under the plan upon a merger, consolidation, sale of
substantially all of our property and assets or upon a change in control. If
there is a hostile change in control, each option outstanding under the plan
will automatically accelerate in full and unvested shares will vest in full
immediately. If we are dissolved or liquidated, all options outstanding under
the plan will terminate, but each optionee, if then employed by us or any of our
subsidiaries, will have the right to exercise his or her options immediately
before the dissolution or liquidation.
The option exercise price must be paid in full at the time of exercise, and
is payable by any one of the following methods or a combination thereof:
- in cash;
- by delivery of a promissory note, provided that a note may be used only
under the circumstances and according to the terms established by the
committee; or
- by delivery of previously acquired shares of common stock.
Termination of Employment or Service. If an optionee's employment or
service terminates because of disability or death, the optionee's options will
terminate on the last day of the twelfth month from the date of cessation of
employment or service. If an optionee's employment or service terminates within
six months of the date on which there occurs a hostile change of control, any
options held by the optionee will immediately accelerate, and any shares which
are not vested at the time of termination will automatically vest in full and
may be exercised during the three-month period after the date of cessation of
employment or service. The committee also has the authority to permit
post-termination exercise of an option under other circumstances. In any event,
no option may be exercised after the original exercise period has expired.
Amendment, Termination of Plan. Unless earlier terminated by the board of
directors, the plan will terminate ten years from the date of its adoption. The
board of directors may terminate, modify or amend the plan at any time, except
that an amendment will be subject to stockholder approval if the amendment would
increase the maximum number of shares reserved for the plan or change the class
of persons eligible to receive options, or make any other change that requires
stockholder approval under applicable law or regulations. The committee
generally may terminate, amend or modify any outstanding option without the
40
<PAGE> 45
optionee's consent, except that the committee cannot change the number of shares
subject to the option, its exercise price or its term without the optionee's
consent.
Since the amount of benefits to be received by any plan participant is
determined by the committee, the amount of future benefits allocated to any
employee or group of employees in any particular year is not determinable.
2000 Equity Incentive Plan
General. We have reserved for issuance a maximum of 4,000,000 shares of
common stock under our 2000 equity incentive plan. No more than 1,000,000 shares
of common stock may be made subject to options granted to any of our executive
officers within a twelve month period. If an award granted under the plan
expires or is terminated, the shares of common stock underlying the award will
again be available under the plan.
Types of Awards. The following awards may be granted under the plan:
- stock options, including incentive stock options and non-qualified stock
options;
- restricted stock;
- phantom stock;
- stock bonuses; and/or
- other stock-based awards.
Administration. The plan will initially be administered by the
compensation committee, although it may be administered by either our full board
of directors or any other committee designated by the board.
The committee may, subject to the provisions of the plan, determine the
persons to whom awards will be granted, determine the type of award to be
granted, the number of shares to be made subject to awards, the exercise price
and other terms and conditions of the awards, and to interpret the plan and
prescribe, amend and rescind rules and regulations relating to the plan. The
committee may delegate to any of our senior management the authority to make
grants of awards to our employees who are not our executive officers or
directors.
Eligibility. Awards may be granted under the plan to employees, directors
and consultants, as selected by the committee.
Terms and Conditions of Options. Stock options may be either "incentive
stock options," as that term is defined in Section 422 of the Internal Revenue
Code, or non-qualified stock options. The exercise price of a stock option
granted under the plan is determined by the committee at the time the option is
granted, but the exercise price of an incentive stock option may not be less
than the market value per share of common stock on the date of grant. Stock
options are exercisable at the times and upon the conditions that the committee
may determine, as reflected in the applicable option agreement. The committee
will determine the term of the option, which may not exceed ten years from the
date of grant.
The option exercise price must be paid in full at the time of exercise, and
is payable by any one of the following methods or a combination thereof:
- in cash or cash equivalents;
- the surrender of previously acquired shares of common stock that have
been held by the participant for at least six months prior to the date of
surrender;
- if so determined by the committee as of the grant date, authorization for
us to withhold a number of shares otherwise payable pursuant to the
exercise of an option; or
- through a "broker cashless exercise" procedure approved by us.
41
<PAGE> 46
The committee may, in its sole discretion, authorize ScreamingMedia to make
or guarantee loans to a participant to assist the participant in exercising
options.
At the time of grant of an option, the committee may provide that the
participant may elect to exercise all or any part of the option before it
becomes vested and exercisable. If the participant elects to exercise all or
part of a non-vested option, the participant will be issued shares of restricted
stock which will vest in accordance with the vesting schedule set forth in the
original option agreement. The restricted shares will be subject to our right to
repurchase the shares following termination of the participant's employment or
service with us.
Restricted Stock. The plan provides for awards of common stock that are
subject to restrictions on transferability and others imposed by the committee.
Except as provided for under the award agreement relating to the restricted
stock, a participant granted restricted stock will have all of the rights of a
stockholder.
Phantom Stock. The plan provides for awards of phantom stock which, upon
vesting, entitle the participant to receive an amount in cash or common stock
equal to the fair market value of the number of shares. Vesting of all or a
portion of a phantom stock award may be subject to various conditions
established by the committee.
Stock Bonuses; Other Awards. The plan provides that the committee, in its
discretion, may award shares of common stock to employees. In addition, the
committee may grant other awards valued in whole or in part, by reference to, or
otherwise based on, common stock.
Termination of Employment or Service. Generally, unless otherwise
determined by the committee, the termination of a participant's employment or
service will immediately cancel any unvested portion of awards granted under the
plan. However, if a participant's employment or service terminates other than
because of death, disability or retirement, all options that are exercisable at
the time of termination may be exercised by the participant for up to 90 days
after the date of termination. If a participant's employment or service
terminates for cause, all options held by the participant will immediately
terminate. If a participant's employment or service terminates as a result of
death, all options that are exercisable at the time of death may be exercised by
the participant's heirs or distributees for one year. If a participant's
employment or service terminates because of disability or retirement, all
options that are exercisable at the time of termination may be exercised for a
period of one year. In no case may an option be exercised after it expires in
accordance with its terms.
Change in Control. In the event of a change in control, awards granted
under the plan may be assumed by a successor. If not assumed, awards become
immediately vested and/or exercisable. If a participant is terminated or
constructively terminated within two years following a change in control, awards
granted to the participant become immediately vested and/or exercisable.
Amendment, Termination of Plan. The board of directors may modify or
terminate the plan or any portion of the plan at any time, except that an
amendment that requires stockholder approval in order for the plan to continue
to comply with any law, regulation or stock exchange requirement will not be
effective unless approved by the requisite vote of our stockholders. No options
may be granted under the plan after the day prior to the tenth anniversary of
its adoption date.
Since the amount of benefits to be received by any employee plan
participant is determined by the committee, the amount of future benefits
allocated to any employee or group of employees in any particular year is not
determinable.
Employee Stock Purchase Plan
General. The employee stock purchase plan is designed to encourage the
purchase by our employees of shares of our common stock and to comply with the
requirements of Section 423 of the Internal Revenue Code so as to assure the
participants of favorable tax treatment with respect to shares purchased under
the plan. The employee stock purchase plan will be administered by a committee
established by the board of
42
<PAGE> 47
directors. The committee may make such rules and regulations and establish such
procedures for the administration of the employee stock purchase plan as it
deems appropriate.
Shares Available. The committee has authorized for issuance under the plan
a total of 450,000 shares of common stock, subject to adjustment by the
committee in the event of a recapitalization, stock split, stock dividend or
similar corporate transaction, plus an annual increase in the number of shares
to be added on the first day of our fiscal year beginning in 2001 equal to the
lessor of:
- 200,000 shares;
- 0.5% of the outstanding shares on such date; or
- a lesser amount determined by the committee.
Eligibility. Subject to certain procedural requirements, all of our
employees who have at least six months of service and work more than 20 hours
per week will be eligible to participate in the employee stock purchase plan,
except that employees who own five percent or more of our common stock or the
common stock of any of our subsidiaries will not be eligible to participate. All
our full-time employees will be eligible to participate in the first offering
period under the plan.
Stock Purchases. Under the employee stock purchase plan, each eligible
employee will be permitted to purchase shares of our common stock through
regular payroll deductions and/or cash payments in an amount equal to 1% to 15%
of the employee's compensation for each payroll period. The fair market value of
the shares of common stock which may be purchased by any employee under this or
any of our other plans that is intended to comply with Section 423 of the
Internal Revenue Code during any calendar year may not exceed $25,000.
The employee stock purchase plan provides for a series of consecutive,
overlapping offering periods that generally will be 24 months long. Successive
six-month purchase periods will run during each offering period. Offering
periods generally will commence on January 1 and July 1 of each year during the
term of the plan, and purchase periods will run from January 1 to June 30 and
from July 1 to December 31. The first offering period will commence on the first
day of regular trading and end on the last trading day on or before June 30,
2002.
During each offering period, participating employees will be able to
purchase shares of common stock with payroll deductions at a purchase price
equal to 85% of the fair market value of the common stock at either the
beginning of each offering period or the end of each purchase period within the
offering period, whichever price is lower.
To the extent permitted by applicable laws, regulations, or stock exchange
rules, if the fair market value of the shares at the end of any purchase period
is lower than the fair market value of the shares on the date the related
offering period began, then all participants in that offering period will be
automatically withdrawn from the offering period immediately after the exercise
of their option on the date the purchase period ends. The participants will
automatically be re-enrolled in the immediately following offering period when
that offering period begins.
The options granted to a participant under the employee stock purchase plan
are not transferable otherwise than by will or the laws of descent and
distribution, and are exercisable, during the participant's lifetime, only by
the participant.
Amendment or Termination of Plan. The board of directors may from time to
time amend or terminate the employee stock purchase plan, but no amendment or
termination may adversely affect the rights of any participant without the
consent of that participant and, to the extent required by Section 423 of the
Internal Revenue Code or any other law, regulation or stock exchange rule, no
amendment will be effective without the approval of stockholders entitled to
vote thereon. Additionally, the committee may make amendments that it deems
necessary to comply with applicable laws, rules and regulations.
43
<PAGE> 48
Since the amount of benefits to be received by each participant in the
employee stock purchase plan is determined by his or her elections, the amount
of future benefits to be allocated to any individual or group of individuals
under the plan in any particular year is not determinable.
Management Incentive Plan
Prior to the completion of this offering, we intend to adopt a management
incentive plan. The plan will be administered by the compensation committee who
will have the authority to determine the plan's participants, as well as the
terms and conditions of incentive awards. The payment of bonuses under the
management incentive plan will be based upon the achievement of performance
goals set by the compensation committee, which may include any, all or none of
the following:
- pre-tax income or after-tax income;
- earnings or book value per share;
- sales or revenue;
- operating expenses;
- increases in the market price of common stock;
- implementation or completion of critical projects or processes;
- comparison of actual performance during a performance period against
budget for that period;
- growth of revenue; or
- reductions in expenses.
Minimum bonuses will be based on achievement of 80% of the performance goals and
maximum bonuses will be based on achievement of 150% of the performance goals. A
bonus will be paid only if the participant is employed by ScreamingMedia or its
affiliates on the day the bonus is to be paid. Under the plan, no payment may be
made to one of our executive officers that exceeds 150% of the officer's annual
base salary. In the event of a change in control, the performance period in
effect at the time of the change in control will be deemed to have been
completed, the maximum targets will be deemed to have been attained, and a pro
rata portion of the award will be paid in cash to the participant.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors shall not be liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by the Delaware General Corporate Law as it now
exists or as it may be amended. As of the date of this prospectus, the Delaware
General Corporate Law permits limitations of liability for a director's breach
of fiduciary duty other than liability:
- for any breach of the director's duty of loyalty to a company or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- under Section 174 of the Delaware General Corporate Law or
- for any transaction from which the director derived an improper personal
benefit.
In addition, our bylaws provide that we must indemnify all of our directors,
officers, employees and agents for acts performed on our behalf in that
capacity.
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<PAGE> 49
RELATED PARTY TRANSACTIONS
CONVERTIBLE LOANS TO THE COMPANY BY OFFICERS AND DIRECTORS
Between October 1998 and March 1999, several of our officers, directors and
related persons lent us an aggregate of $550,000, including $250,000 from Mr.
Chiat, $100,000 from Mr. Clark and $50,000 each from Brian Cavanaugh, Messrs.
Lerer and Robinson and his spouse. Our obligation to repay these loans was
evidenced by convertible promissory notes of terms between 32 and 36 months. The
promissory notes bore interest at 9.5% per annum, payable quarterly.
The promissory notes were convertible into our common stock upon and after
the earlier of (1) raising at least $1,000,000 in an equity financing and (2) a
trigger date, which ranged from April 30, 1999 to August 15, 1999. The
completion of our Series A preferred stock financing triggered conversion of the
Notes in March 1999. The number of shares receivable upon conversion of each
promissory note was determined by dividing the outstanding principal by a 7%
discount on the per-share price determined by reference to the per-share price
of our Series A preferred stock offering. Upon conversion of the promissory
notes in March 1999 at a conversion price of $0.985 per share, which reflected a
7% discount from the $1.06 per share fair value at the time of issuance, all of
the outstanding principal amount of the promissory notes was converted into an
aggregate 558,556 shares of common stock.
In 1996, we received a non-interest bearing loan from our president, Alan
S. Ellman, for $19,350 that we repaid during 1999.
RETENTION OF ROBINSON, LERER & MONTGOMERY
In April 1999, we executed an agreement employing the firm of Robinson,
Lerer & Montgomery for corporate communications services for a monthly fee of
$20,000. The services provided under this contract are general public relations
advice and consultancy services. The contract is cancelable at any time without
advance notice. Kenneth Lerer, a principal of Robinson, Lerer & Montgomery is
one of our directors. Linda Robinson, another principal of Robinson, Lerer &
Montgomery, is the spouse of James Robinson III, who is one of our directors and
principal stockholders.
INVESTMENT IN SOFTCOM, INC.
In May 1999, we invested $150,000 to purchase 384,615 shares of Series A
preferred stock of SoftCom, Inc. The SoftCom shares are convertible on a
one-for-one basis into SoftCom common stock. We also hold a warrant that expires
May 14, 2004 for purchase of up to 19,231 additional shares of Series A
preferred stock of SoftCom at an exercise price of $0.39 per share. Jay Chiat,
our chairman and former interim chief executive officer, became a director of
SoftCom at the closing of this investment. The purchase price was negotiated at
arms' length and reflects the fair market price at the time of our investment.
45
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31, 2000 by:
- each of our executive officers and directors;
- each person, entity or group known by us to own beneficially more than 5%
of our outstanding common stock; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. These rules generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and include shares of common
stock issuable upon the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
Percentage ownership calculations are based on 31,832,629 shares
outstanding as of January 31, 2000, which includes shares of common stock that
will be issued on the conversion of outstanding shares of convertible preferred
stock on completion of this offering.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES BENEFICIALLY OWNED
BENEFICIALLY --------------------
OWNED BEFORE AFTER
NAME PRIOR TO OFFERING OFFERING OFFERING
- ---- ----------------- -------- --------
<S> <C> <C> <C>
Jay Chiat................................................. 3,397,185 10.7% 9.2%
Kevin C. Clark(1)......................................... 938,805 2.9 2.5
Alan S. Ellman............................................ 5,264,900 16.5 14.3
Gregoire Sentilhes(2)..................................... 340,000 1.1 *
Marianne Howatson(3)...................................... 255,000 * *
Sean P. Morgan............................................ 680,000 2.1 1.8
William P. Kelly.......................................... 846,600 2.7 2.3
James D. Robinson III(4).................................. 2,940,779 9.2 8.0
Wm. Brian Little(5)....................................... 338,076 1.1 *
Kenneth B. Lerer.......................................... 390,779 1.2 1.1
Patrick J. McNeela(6)..................................... -- -- --
All executive officers and directors as a group (14
persons)................................................ 15,392,124 48.4 41.8
</TABLE>
- ---------------
* Represents less than 1% of outstanding shares of common stock.
(1) Includes options to purchase 497,250 shares of common stock.
(2) Consists of options to purchase 340,000 shares of common stock.
(3) Consists of options to purchase 255,000 shares of common stock.
(4) Includes 220,779 shares of common stock held by members of Mr. Robinson's
family. Mr. Robinson disclaims beneficial ownership of these shares.
(5) Includes options to purchase 73,379 shares of common stock. Also includes
264,697 shares of common stock that will be issued upon the automatic
conversion of our convertible preferred stock on closing of this offering,
which are beneficially owned by Mr. Little through AMCITO Partners, L.P. Mr.
Little has sole voting and dispositive power over the shares held by AMCITO
Partners, L.P.
(6) Excludes 1,518,195 shares of common stock that will be issued upon the
automatic conversion of our convertible preferred stock on closing of this
offering, which are held by General Electric Pension Trust and for which
General Electric Pension Trust has sole voting and dispositive power. Mr.
McNeela is a vice president of General Electric Investment Corporation, the
investment manager of General Electric Pension Trust. Mr. McNeela disclaims
any beneficial ownership of these shares.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Under our certificate of incorporation, we are authorized to issue
100,000,000 shares of common stock and 5,000,000 shares of preferred stock.
Shares of each class have a par value of $0.01 per share. The following
description summarizes the material provisions of our capital stock.
COMMON STOCK
As of January 31, 2000, there were 15,719,156 shares of common stock
outstanding, which were held of record by 14 shareholders. An additional
14,299,234 shares of common stock will be issued to approximately 80
shareholders at the time the registration statement for this offering becomes
effective and on closing, respectively, in each case as the result of mandatory
conversion of our outstanding preferred stock.
Each share of our common stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. Subject to any preference rights of holders of preferred stock, the
holders of common stock are entitled to receive dividends, if any, declared from
time to time by the directors out of legally available funds. In the event of
our liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in all assets remaining after the payment of
liabilities, subject to any rights of holders of preferred stock to prior
distribution.
The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable and the shares of common stock to be issued on completion
of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock and to designate the
rights, preferences and privileges of each series of preferred stock, which may
be greater than the rights attached to the common stock. It will not be possible
to state the actual effect of the issuance of any shares of preferred stock on
the rights of holders of common stock until the board of directors determines
the specific rights attached to that preferred stock. The effects of issuing
preferred stock could include one or more of the following:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change of control of ScreamingMedia.
There are currently 4,205,657 shares of preferred stock outstanding,
comprising 1,527,085 shares of Series A preferred stock and 2,678,572 shares of
Series B preferred stock. On January 31, 2000, the preferred stock was held of
record by approximately 80 holders. The Series A preferred stock will
automatically convert into 5,192,089 shares of common stock at the time the
registration statement for this offering becomes effective. The Series B
preferred stock will automatically convert into 9,107,145 shares of common stock
on closing of this offering. Following these conversions, there will be no
preferred stock outstanding, and we have no current plans to issue any shares of
preferred stock.
WARRANTS
As of January 31, 2000, we had the following warrants to purchase shares of
common stock outstanding:
- Carter, Ledyard, Milburn, LLP holds a warrant for the issue of 24,286
shares at an exercise price of $2.06 per share;
- Hut Sachs Studio holds a warrant for the issue of 24,286 shares at an
exercise price of $2.06 per share; and
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<PAGE> 52
- Deutsche Bank Securities Inc. holds a warrant for the issue of 409,819
shares at an exercise price of $3.29 per share.
All of the warrants listed above are currently exercisable, subject to
applicable lock-up agreements, and contain standard anti-dilution provisions.
OPTIONS
As of January 31, 2000, options to purchase a total of 6,408,878 shares of
common stock were outstanding, of which 1,555,934 have vested. The exercise
prices of the vested options range from $0.29 to $1.91.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
Some provisions of our certificate of incorporation and bylaws may be
deemed to have an anti-takeover effect and may delay or prevent a tender offer
or takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
Classified Board of Directors
Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board of
directors is elected each year. These provisions, when coupled with the
provision of our certificate of incorporation authorizing the board of directors
to fill vacant directorships or increase the size of the board of directors, may
deter a stockholder from removing incumbent directors and simultaneously gaining
control of the board of directors by filling the vacancies created by this
removal with its own nominees.
Cumulative Voting
Our certificate of incorporation expressly denies our stockholders the
right to cumulative voting in the election of directors.
Stockholder Action; Special Meeting of Stockholders
Our certificate of incorporation eliminates the ability of stockholders to
act by written consent. It further provides that special meetings of our
stockholders may be called only by the chairman of the board of directors, the
president or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS NOMINATIONS
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice in
writing. To be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 90 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders.
However, in the event that the annual meeting is called for a date that is not
within 30 days before or after that anniversary date, notice by the stockholder
in order to be timely must be received not later than the close of business on
the tenth day following the date on which notice of the date of the annual
meeting was mailed to stockholders or made public, whichever first occurs. Our
bylaws also specify requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at an
annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock will
be available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate
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<PAGE> 53
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of ScreamingMedia by means
of a proxy contest, tender offer, merger or otherwise.
AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless either a corporation's certificate of incorporation or bylaws require a
greater percentage. Our certificate of incorporation imposes supermajority vote
requirements in connection with business combination transactions and the
amendment of provisions of our certificate of incorporation and bylaws,
including those provisions relating to the classified board of directors, action
by written consent and the ability of stockholders to call special meetings.
RIGHTS AGREEMENT
Under Delaware law, every corporation may create and issue rights entitling
the holders of the rights to purchase from the corporation shares of its capital
stock of any class or classes, subject to any provisions in its certificate of
incorporation. The price and terms of the shares must be stated in the
certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of the rights.
We have entered into a stockholder rights agreement. Our rights agreement
provides that each share of our common stock outstanding after this offering
will have one right to purchase one-hundredth of a preferred share attached to
it. The purchase price for one one-hundredth of a preferred share will be four
times the average closing price of our common stock for the first five days of
trading after the consummation of this offering.
Initially, the rights under our rights agreement are attached to
outstanding certificates representing our common stock and no separate
certificates representing the rights will be distributed. The rights will
separate from our common stock and be represented by separate certificates
approximately 10 days after someone acquires or commences a tender offer for 15%
of our outstanding common stock.
After the rights separate from our common stock, certificates representing
the rights will be mailed to record holders of our common stock. Once
distributed, the rights certificates alone will represent the rights.
All shares of our common stock issued prior to the date the rights separate
from the common stock will be issued with the rights attached. The rights are
not exercisable until the date the rights separate from the common stock. The
rights will expire on the tenth anniversary of the date of the completion of
this offering unless earlier redeemed or exchanged by us.
If an acquiror obtains or has the rights to obtain 15% or more of our
common stock, then each right will entitle the holder to purchase a number of
shares of our common stock equal to two times the purchase price of each right.
Each right will entitle the holder to purchase a number of shares of common
stock of the acquiror having a then current market value of twice the purchase
price if an acquiror obtains 15% or more of our common stock and any of the
following occurs:
- we merge into another entity;
- an acquiring entity merges into us; or
- we sell more than 50% of our assets or earning power.
Under our rights agreement, any rights that are or were owned by an acquiror of
more than 15% of our outstanding common stock will be null and void.
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<PAGE> 54
Our rights agreement contains exchange provisions which provide that after
an acquiror obtains 15% or more, but less than 50% of our outstanding common
stock, our board of directors may, at its option, exchange all or part of the
then outstanding and exercisable rights for shares of our common stock. In that
event, the exchange ratio is one common share per right, adjusted to reflect any
stock split, stock dividend or similar transaction.
Our board of directors may redeem all of the outstanding rights under our
rights agreement prior to the earlier of (1) the time that an acquiror obtains
15% or more of our outstanding common stock or (2) the final expiration date of
the rights agreement. The redemption price under our rights agreement is $0.01
per right, subject to adjustment. The right to exercise the rights will
terminate upon the action of our board ordering the redemption of the rights and
the only right of the holders of the rights will be to receive the redemption
price.
Holders of the rights will have no rights as our stockholders including the
right to vote or receive dividends, simply by virtue of holding the rights.
Our rights agreement provides that the provisions of the rights agreement
may be amended by the board of directors prior to 10 days after someone acquires
or commences a tender offer for 15% of our outstanding common stock without the
approval of the holders of the rights. However, after that date, the rights
agreement may not be amended in any manner which would adversely effect the
interests of the holders of the rights, excluding the interests of any acquiror.
In addition, our rights agreement provides that no amendment may be made to
adjust the time period governing redemption at a time when the rights are not
redeemable.
Our rights agreement contains rights that have anti-takeover effects. The
rights may cause substantial dilution to a person or group that attempts to
acquire us without conditioning the offer on a substantial number of rights
being acquired. Accordingly, the existence of the rights may deter acquirors
from making takeover proposals or tender offers. However, the rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of our board to negotiate with an acquiror on behalf of all the stockholders. In
addition, the rights should not interfere with a proxy contest.
TRANSFER AGENT REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company. Its address is 40 Wall Street, New York, New York
10005.
LISTING
We expect our common stock to be approved for quotation on The Nasdaq
National Market under the symbol "SCRM."
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<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales in the public markets of substantial amounts of common stock,
including shares issued on the exercise of outstanding options and warrants,
could adversely affect the market prices prevailing from time to time for the
common stock. It could also impair our ability to raise capital through future
sales of equity securities.
After completion of this offering, we will have 35,018,390 shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. All of the 5,000,000 shares of
common stock sold in this offering will be freely transferable without
restriction or further registration under the Securities Act, except for any of
the shares that are acquired by affiliates as that term is defined in Rule 144
under the Securities Act.
Shares acquired by affiliates and the remaining shares held by existing
shareholders are restricted securities as that term is defined in Rule 144 under
the Securities Act. Restricted securities may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rule
144, which is summarized below. The following table illustrates the shares
eligible for sale in the public market assuming Credit Suisse First Boston
Corporation does not release any portion of the shares subject to lock-up
agreements described below and under "Underwriting."
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<C> <S>
30,018,390 After 180 days from the date of this prospectus, subject, in
some cases, to volume and manner of sale limitations under
Rule 144.
0 At various times after 180 days after the date of this
prospectus on expiration of applicable one year holding
periods, subject to volume and manner of sale limitations
under Rule 144.
</TABLE>
LOCK-UP
We have agreed that, without the prior written consent of Credit Suisse
First Boston, we will not, directly or indirectly, offer, sell or otherwise
dispose of any shares of capital stock or any securities that may be converted
into or exchanged for shares of capital stock for a period of 180 days from the
date of this prospectus. Each of our officers, directors and all of our existing
stockholders and warrant holders have also entered into an agreement to the same
effect. While the underwriters may release these shares from the restrictions at
any time, this will be done, if at all, only on a case-by-case basis. The
underwriters do not currently have any intention of consenting to a waiver of
these restrictions.
RULE 144
In general, Rule 144 has the effect that, beginning 90 days after the date
of this prospectus, a person who has beneficially owned ordinary shares for at
least one year would be entitled to sell within any three month period a number
of shares that does not exceed the greater of:
- 1% of the total number of shares of common stock then outstanding; or
- the average weekly trading volume of the common stock on The Nasdaq
National Market during the four calendar weeks preceding the filing of
notice on Form 144 with respect to the 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.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner which was not an affiliate, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of
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<PAGE> 56
Rule 144. Therefore, unless otherwise restricted, shares eligible for sale under
Rule 144(k) may be sold immediately on completion of this offering.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases ordinary shares from us in connection with
a compensatory stock or option plan or other written agreement before the
effective date of this prospectus is entitled to resell those shares 90 days
after the effective date of this prospectus in reliance on Rule 144, without
having to comply with the restrictions, including the holding period, contained
in Rule 144.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. It permits
non-affiliates to sell their Rule 701 shares in reliance on Rule 144 without
having to comply with the holding period, public information, volume limitation
or notice provisions of Rule 144. All holders of Rule 701 shares are required to
wait until 90 days after the date of this prospectus before selling those
shares.
STOCK OPTIONS
Following the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of common stock
issued or reserved for issuance under our various stock option plans. The
registration statement will become effective automatically upon filing. As of
March 15, 2000, options to purchase 6,876,378 shares of common stock were issued
and outstanding, of which 1,787,702 shares have vested. Accordingly, shares
registered under the registration statement will, subject to vesting provisions
and Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market immediately after the 180-day lock-up agreements expire.
REGISTRATION RIGHTS
Within the six months following the closing of this offering, the holders
of the common stock issued on conversion of our Series B preferred stock may
require us on up to two occasions to use our best efforts to file a registration
statement covering the public sale of part of that common stock having an
aggregate offering price of more that $10 million. We have the right to delay
any registration required by up to 90 days.
In addition to this right, the holders are also entitled to require us to
register their shares on any registration that we initiate, and we are obliged
to undertake three registrations per year on Form S-3, provided that a minimum
of $3 million worth of shares of common stock are offered on each registration.
The holders of the warrants issued to Deutsche Bank Securities Inc. and
Tomar Associates Inc. may also require us to include the shares issued to them
on exercise of the warrant in a future registration statement. The Deutsche Bank
warrant entitles the holder to registration of its shares under any future
registration statement relating to our equity securities, while the Tomar
Associates warrant entitles the holder to registration under any registration
statement filed more than one year after our initial public offering, other than
a registration statement otherwise registering only shares to be sold by us.
Under both warrants, these rights do not apply to registration statements filed
in connection with our employee stock plans.
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<PAGE> 57
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a Non-U.S. Holder. As used in this prospectus, the term "Non-U.S. Holder" is
a person that is not:
- a citizen or individual resident of the United States for U.S. federal
income tax purposes;
- a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision of the United States;
- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
- a trust, in general, if it is subject to the primary supervision of a
court within the United States and the control of one or more U.S.
persons.
An individual may, subject to some exceptions, be treated as a resident of
the United States for U.S. federal income tax purposes, instead of a
nonresident, by, among other things, being present in the United States for at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year -- counting for
these purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days present
in the second preceding year. Residents are subject to U.S. federal taxes as if
they were U.S. citizens.
This discussion does not consider:
- U.S. state and local or non-U.S. tax consequences;
- specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position, including, if the Non-U.S. Holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by determinations made at the partner
level;
- the tax consequences for the shareholders, partners or beneficiaries of a
Non-U.S. Holder;
- special tax rules that may apply to some Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities and
traders in securities; or
- special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a straddle, hedge or conversion transaction.
The following discussion is based on provisions of the U.S. Internal
Revenue Code of 1986, applicable Treasury regulations, and administrative and
judicial interpretations, all as of the date of this prospectus, and all of
which may change, retroactively or prospectively. The following summary is for
general information. Accordingly, each Non-U.S. Holder should consult a tax
advisor regarding the U.S. federal, state, local and non-U.S. income and other
tax consequences of acquiring, holding and disposing of shares of our common
stock.
DIVIDENDS
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. In the event, however, that dividends are paid on shares of
common stock, dividends paid to a Non-U.S. Holder of common stock generally will
be subject to withholding of U.S. federal income tax at a 30% rate, or a lower
rate as may be provided by an applicable income tax treaty. Canadian holders of
the common stock, for example, will generally be subject to a reduced rate of
15% under the Canada-U.S. Income Tax Treaty. Non-U.S. Holders should consult
their tax advisors regarding their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct
of a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an individual, a
fixed base, in the United States, as provided in that treaty, referred to as
U.S. trade or
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<PAGE> 58
business income, are generally subject to U.S. federal income tax on a net
income basis at regular graduated rates, but are not generally subject to the
30% withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service form with the payor. Any U.S. trade or business income received
by a Non-U.S. Holder that is a corporation may also, under some circumstances,
be subject to an additional "branch profits tax" at a 30% rate or a lower rate
as specified by an applicable income tax treaty.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. For dividends paid after
December 31, 2000:
- a Non-U.S. Holder of common stock who claims the benefit of an applicable
income tax treaty rate generally will be required to satisfy applicable
certification and other requirements;
- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number; and
- look-through rules will apply for tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for a refund with the
IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
- the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S.
Holder;
- the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for more than 182 days in the
taxable year of the disposition and meets other requirements;
- the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to some U.S. expatriates; or
- we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition or period that the
Non-U.S. Holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
plus its other assets used or held for use in trade or business. We believe that
we have not been, are not currently, and do not anticipate becoming, a "U.S.
real property holding corporation," and thus we believe that the effects which
could arise if we were ever a "U.S. real property holding corporation" will not
apply to a Non-U.S. Holder. Even if we were, or were to become, a "U.S. real
property holding corporation," no adverse tax consequences would apply to a
Non-U.S. Holder whose holdings, direct and indirect, at all times during the
applicable period, constituted 5% or less of our common stock, provided that our
common stock was regularly traded on an established securities market.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.
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<PAGE> 59
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the IRS and to each Non-U.S. Holder the amount
of dividends paid to that holder and the tax withheld with respect to those
dividends. Copies of the information returns reporting those dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
Under some circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends prior to 2001 to an address outside the United
States. For dividends paid after December 31, 2000, however, a Non-U.S. Holder
of common stock that fails to certify its Non-U.S. Holder status in accordance
with applicable U.S. Treasury Regulations may be subject to backup withholding
at a rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker through a non-U.S. branch of a U.S.
broker generally will be subject to information reporting and backup withholding
at a rate of 31% unless the holder either certifies its status as a Non-U.S.
Holder under penalties of perjury or otherwise establishes an exemption. The
payment of the proceeds of the disposition by a Non-U.S. Holder of common stock
to or through a non-U.S. office of non-U.S. broker will not be subject to backup
withholding or information reporting unless the non-U.S. broker is a "U.S.
related person." In the case of the payment of proceeds from the disposition of
common stock by or through a non-U.S. office of a broker that is a U.S. person
or a "U.S. related person," information reporting, but currently not backup
withholding, on the payment applies unless the broker receives a statement from
the owner, signed under penalty of perjury, certifying its non-U.S. status or
the broker has documentary evidence in its files that the holder is a Non-U.S.
Holder and the broker has no actual knowledge to the contrary. For this purpose,
a "U.S. related person" is:
- a "controlled foreign corporation" for U.S. federal income tax purposes;
- a foreign person, 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for such part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a U.S. trade or business; or
- effective after December 31, 2000, a foreign partnership if, at any time
during the taxable year, (A) at least 50% of the capital or profits
interest in the partnership is owned by U.S. persons or (B) the
partnership is engaged in a U.S. trade or business.
Effective after December 31, 2000, backup withholding may apply to the
payment of disposition proceeds by or through a non-U.S. office of a broker that
is a U.S. person or a "U.S. related person" unless certification requirements
are satisfied or an exemption is otherwise established and the broker has no
actual knowledge that the holder is a U.S. person. Non-U.S. Holders should
consult their own tax advisors regarding the application of the information
reporting and backup withholding rules to them, including changes to these rules
that will become effective after December 31, 2000.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.
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<PAGE> 60
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and Thomas Weisel Partners LLC are acting as representatives,
the following respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities Inc................................
Thomas Weisel Partners LLC..................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of our common stock at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to the
selling group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us............ $ $ $ $
Expenses payable by us.............. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
for grants of employees stock options pursuant to the terms of any plan in
effect on the date of this prospectus, issuances of securities pursuant to the
exercise of employee stock options outstanding on the date of this prospectus,
employee stock purchases pursuant to the term of any plan in effect on the date
of this prospectus or the issuance of shares pursuant to the exercise of any
warrants outstanding on the date of this prospectus.
Our officers and directors and all our existing stockholders and warrant
holders have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of our
common
56
<PAGE> 61
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our common stock, whether any such
transaction is to be settled by delivery of our common stock or such other
securities, in cash or otherwise, or publicly disclose the intention to make any
such offer, sale, pledge or disposition, or to enter into any such transaction,
swap, hedge or other arrangement, without, in each case, the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for our employees and certain other
persons associated with us who have expressed an interest in purchasing common
stock in the offering. The number of shares of common stock available for sale
to the general public in the offering will be reduced to the extent these
persons purchase these reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock listed on The Nasdaq
Stock Market's National Market under the symbol "SCRM."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the representatives, and may not reflect the market price for our
common stock that may prevail following this offering. We will consider, among
others, the following principal factors in determining the initial public
offering price:
- the information in this prospectus and otherwise available to the
representatives;
- market conditions for initial public offerings;
- the history of and prospects for the industry in which we will compete;
- our past and present operations;
- our past and present earnings and current financial position;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the recent prices of, and the demand for, publicly traded common stock of
generally comparable companies; and
- the general condition of the securities markets at the time of this
offering.
We can offer no assurance that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market subsequent to this offering or that an active trading market for our
common stock will develop and continue after this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
57
<PAGE> 62
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of our common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
A prospectus in electronic format may be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
Other than the prospectus in electronic format, the information contained
on any underwriter's Web site and any information contained on any other Web
site maintained by an underwriter is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been
approved or endorsed by us or any underwriter in its capacity as an underwriter
and should not be relied upon by investors.
Thomas Weisel Partners, LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as a lead or
co-manager on numerous public offerings of equity securities. Thomas Weisel
Partners does not have any material relationship with us or any of our officers,
directors or other controlling persons, except with respect to its contractual
relationship with us pursuant to the underwriting agreement entered into in
connection with this offering.
In connection with the placement of 2,678,572 shares of Series B preferred
stock in our October 1999 private placement, we issued Deutsche Bank Securities
Inc., one of the representatives of the underwriters, a warrant to purchase
409,819 shares of our common stock. This warrant is exercisable at a price of
$3.29 per share.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom this
purchase confirmation is received that the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under these securities laws. Where required by
law, the purchaser who receives a purchase confirmation will be deemed to be
purchasing as principal and not as agent and will be deemed to have reviewed the
text above under "Resale Restrictions."
58
<PAGE> 63
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada. All or a
substantial portion of the assets of the issuer and these persons may be located
outside of Canada and, as a result, it may not be possible to satisfy a judgment
against the issuer or these persons in Canada or to enforce a judgment obtained
in Canadian courts against the issuer or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of any investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. The
underwriters will be represented in connection with the offering by Cravath,
Swaine & Moore, New York, New York.
EXPERTS
The financial statements of ScreamingMedia as of December 31, 1998 and 1999
and for the years ended December 31, 1999 and 1998, included in this prospectus,
have been audited by Deloitte and Touche LLP, independent auditors, as stated in
their report appearing in this prospectus and are included in reliance upon the
report of that firm given upon their authority as experts in accounting and
auditing.
Our financial statements for the year ended December 31, 1997 included in
this prospectus and in the registration statement have been audited by David
Tarlow & Co., C.P.A., P.C., independent auditors, as stated in their report
appearing in this prospectus, and are included in reliance upon the report of
that firm given upon their authority as experts in accounting and auditing.
59
<PAGE> 64
CHANGE IN ACCOUNTANTS
Effective June 16, 1999, Deloitte & Touche LLP was engaged commencing with
the fiscal years December 31, 1998 and December 31, 1999 as our independent
auditors, replacing David Tarlow & Co., C.P.A., P.C., who had previously served
as our independent auditors. The decision to dismiss David Tarlow & Co., C.P.A.,
P.C. and to engage Deloitte & Touche LLP was approved by our board of directors.
In the period from January 1, 1997 to June 16, 1999, David Tarlow & Co., C.P.A.,
P.C. issued no audit report that was qualified or modified as to uncertainty,
audit scope or accounting principles, no adverse opinions or disclaimers of
opinion on any of our financial statements, and there were no disagreements with
David Tarlow & Co., C.P.A., P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures.
Prior to June 16, 1999, we had not consulted with Deloitte & Touche LLP on items
which involved our accounting principles or the form of audit opinion to be
issued on our financial statements.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is a part of a registration statement on Form S-1 that we
have filed with the Securities and Exchange Commission under the Securities Act,
with respect to the common stock offered in this prospectus. This prospectus
does not contain all the information which is in the registration statement.
Certain parts of the registration statement are omitted as allowed by the rules
and regulations of the SEC. We refer you to the registration statement for
further information about our company and the securities offered in this
prospectus. You can inspect and copy the registration statement and the reports
and other information we file with the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on the
operation of the public reference room by calling the SEC at 1-800-SEC-0330. The
same information will be available for inspection and copying at the regional
offices of the SEC located at 7 World Trade Center, 13(th) Floor, New York, N.Y.
10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can also obtain copies of this material from the public
reference room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC also maintains a Web site which provides on-line
access to reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at the address
www.sec.gov.
Upon the effectiveness of the registration statement, we will become
subject to the information requirements of the Exchange Act. We will then file
reports, proxy statements and other information under the Exchange Act with the
SEC. You can inspect and copy these reports and other information of our company
at the locations set forth above or download these reports from the SEC's Web
site.
We have applied to have our common stock approved for quotation on The
Nasdaq National Market. Reports, proxy statements and other information
concerning us can be inspected at the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
60
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Independent Auditors' Report................................ F-3
Balance Sheets as of December 31, 1998 and 1999............. F-4
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Statements of Stockholders' Equity (deficiency) for the
years ended
December 31, 1997, 1998 and 1999.......................... F-7
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-8
Notes to Financial Statements............................... F-9
</TABLE>
F-1
<PAGE> 66
The following report is in the form that will be signed upon completion of
the stock split described in Note 12 to the financial statements, assuming that
from March 27, 2000 to the date of such completion, no other material events
have occurred that would affect the accompanying financial statements or
required disclosures therein. If the stock split ratio changes, all references
to number of shares, per share amounts and stock option data included within the
financial statements will also change.
Deloitte & Touche LLP
New York, New York
March 27, 2000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Screaming Media.com Inc.
We have audited the accompanying balance sheets of Screaming Media.com Inc.
(the "Company") as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity (deficiency) and cash flows for each of the two
years in the period 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1999, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
New York, New York
January 19, 2000 (March , 2000 to
Note 12)
F-2
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Screaming Media.com Inc.
New York, New York
We have audited the accompanying statements of operations, stockholders
equity (deficiency) and cash flows of Screaming Media.com Inc. for the year
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on those
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Screaming
Media.com Inc. for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ DAVID TARLOW & CO., C.P.A.,
P.C.
--------------------------------------
David Tarlow & Co., C.P.A., P.C.
New York, New York
December 28, 1999
F-3
<PAGE> 68
SCREAMING MEDIA.COM INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 120,357 $ 22,121,667
Accounts receivable, net of allowance for doubtful
accounts of $10,000 and $138,802 as of
December 31, 1998 and 1999, respectively........ 92,112 1,398,980
Prepaid expenses................................... -- 3,248,295
------------ ------------
Total current assets....................... 212,469 26,768,942
PROPERTY AND EQUIPMENT -- Net of accumulated
depreciation....................................... 41,333 4,552,495
INVESTMENTS.......................................... -- 349,987
OTHER ASSETS......................................... 20,232 698,751
------------ ------------
TOTAL ASSETS............................... $ 274,034 $ 32,370,175
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses.............. $ 124,249 $ 3,273,527
Current portion of notes payable -- stockholder.... 19,351 --
Deferred revenue................................... 45,108 873,360
Current portion of capital lease obligations....... -- 691,643
------------ ------------
Total current liabilities.................. 188,708 4,838,530
------------ ------------
NONCURRENT LIABILITIES:
Notes payable -- stockholders, less current
portion......................................... 275,000 --
Capital lease obligations, less current portion.... -- 646,586
------------ ------------
Total liabilities.......................... 463,708 5,485,116
------------ ------------
COMMITMENTS
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series B convertible preferred stock, $0.01 par
value, no shares authorized, issued, and
outstanding, 1998, 2,678,572 shares authorized,
issued, and outstanding, 1999, no shares
authorized, issued and outstanding 1999 -- pro
forma........................................... -- 27,433,838 $ --
------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $0.0001 par value, 4,000,000
shares authorized and issued, and 3,620,000
shares outstanding at December 31, 1998 and no
shares authorized, issued, and outstanding at
December 31, 1999 and 1999 -- pro forma......... 400 -- --
</TABLE>
F-4
<PAGE> 69
BALANCE SHEETS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Series A convertible preferred stock, $0.01 par
value, no shares authorized, issued, and
outstanding, 1998, 1,527,085 shares authorized,
issued, and outstanding at December 31, 1999 and
no shares authorized, issued and outstanding at
December 31, 1999 -- pro forma.................. -- 15,271 --
Common stock, $0.0001 par value, 3,400,000 shares
authorized and issued, and 2,720,000 shares
outstanding at December 31, 1998 and no shares
authorized, issued and outstanding at December
31, 1999 and 1999 -- pro forma.................. 340 -- --
Common stock, $0.01 par value, no shares
authorized, issued, and outstanding, 1998,
100,000,000 shares authorized and 17,691,156 and
31,990,390 issued and 15,719,156 and 30,018,390
outstanding at December 31, 1999 and 1999 -- pro
forma, respectively............................. -- 176,912 319,904
Additional paid-in capital......................... 474,874 22,784,138 50,090,255
Warrants........................................... -- 787,000 787,000
Deferred compensation.............................. -- (10,379,049) (10,379,049)
Treasury stock..................................... (19,311) (19,311) (19,311)
Accumulated deficit................................ (645,977) (13,913,740) (13,913,740)
------------ ------------ ------------
Total stockholders' equity (deficiency).... (189,674) (548,779) $ 26,885,059
------------ ------------ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)....................................... $ 274,034 $ 32,370,175
============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 70
SCREAMING MEDIA.COM INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ------------
<S> <C> <C> <C>
REVENUE:
Network services....................................... $ 246,143 $ 308,661 $ 2,479,660
Set-up fee............................................. 40,865 67,582 492,360
Other.................................................. 287,090 190,564 13,170
--------- ---------- ------------
Total revenue.................................. 574,098 566,807 2,985,190
--------- ---------- ------------
OPERATING EXPENSES:
Cost of services (excluding depreciation of $--, $--,
and $118,702 in 1997, 1998 and 1999, respectively,
shown below)........................................ 69,801 130,111 973,518
Research and development (excluding of stock-based
compensation of $63,943 shown below)................ 107,278 97,077 893,686
Sales and marketing (excluding of stock-based
compensation of $1,821,708 shown below)............. 87,200 104,204 3,768,005
General and administrative (excluding of stock-based
compensation of $25,000, $350,000 and $4,176,647, in
1997, 1998 and 1999, respectively, shown below)..... 346,214 454,970 4,330,384
Depreciation and amortization.......................... 33,117 26,119 451,309
Stock-based compensation............................... 25,000 350,000 6,062,298
--------- ---------- ------------
Total operating expenses....................... 668,610 1,162,481 16,479,200
--------- ---------- ------------
OPERATING LOSS........................................... (94,512) (595,674) (13,494,010)
--------- ---------- ------------
OTHER INCOME (EXPENSE):
Interest income........................................ -- -- 381,373
Interest expense....................................... (449) (10,993) (53,102)
Other expense.......................................... -- (3,160) --
--------- ---------- ------------
Total other income (expense)................... (449) (14,153) 328,271
--------- ---------- ------------
NET LOSS................................................. (94,961) (609,827) (13,165,739)
--------- ---------- ------------
BASIC NET LOSS PER SHARE................................. $ (0.05) $ (0.28) $ (0.85)
========= ========== ============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING............................................ 1,997,616 2,180,658 15,495,595
========= ========== ============
Pro forma basic net loss per share (unaudited)........... $ (0.61)
============
Pro forma weighted average number of shares of common
stock outstanding (unaudited).......................... 21,467,889
============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 71
SCREAMING MEDIA.COM INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
-------------------
PREFERRED STOCK SERIES A COMMON STOCK COMMON STOCK
------------------- ------------------- ------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997...... 3,250,000 $325 -- $ -- 3,230,000 $ 323 -- $ --
Stock issuance............... 750,000 75 -- -- 170,000 17 -- --
Net loss for the year ended
December 31, 1997.......... -- -- -- -- -- -- -- --
---------- ---- --------- ------- ---------- ----- ---------- --------
BALANCE, DECEMBER 31,
1997......................... 4,000,000 400 -- -- 3,400,000 340 -- --
Issuance of shares from
treasury for directors'
fees....................... -- -- -- -- -- -- -- --
Interest expense on
convertible note........... -- -- -- -- -- -- -- --
Net loss for the year ended
December 31, 1998......... -- -- -- -- -- -- -- --
---------- ---- --------- ------- ---------- ----- ---------- --------
BALANCE, DECEMBER 31,
1998......................... 4,000,000 400 -- -- 3,400,000 340 -- --
Reincorporation.............. (4,000,000) (400) -- -- (3,400,000) (340) 17,000,000 170,000
Stock grants................. -- -- -- -- -- -- 132,600 1,326
Issuance of Series A
preferred stock............ -- -- 1,527,085 15,271 -- -- -- --
Warrants granted to
investment bankers......... -- -- -- -- -- -- -- --
Warrants granted for legal
services................... -- -- -- -- -- -- -- --
Warrants granted for
architectural services..... -- -- -- -- -- -- -- --
Conversion of notes into
common stock............... -- -- -- -- -- -- 558,556 5,586
Interest expense on
convertible notes.......... -- -- -- -- -- -- -- --
Issuance of stock options to
employees.................. -- -- -- -- -- -- -- --
Amortization of deferred
compensation............... -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
Preferred stock dividends.... -- -- -- -- -- -- -- --
---------- ---- --------- ------- ---------- ----- ---------- --------
BALANCE, DECEMBER 31, 1999.... -- $ -- 1,527,085 $15,271 -- $ -- 17,691,156 $176,912
========== ==== ========= ======= ========== ===== ========== ========
<CAPTION>
TREASURY STOCK
-------------------------------------------
ADDITIONAL COMMON STOCK PREFERRED STOCK
PAID-IN DEFERRED --------------------- ------------------- ACCUMULATED
CAPITAL WARRANTS COMPENSATION SHARES AMOUNT SHARES AMOUNT DEFICIT
---------- -------- ------------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997...... $ 100,352 $ -- $ -- (1,360,000) $(13,318) (380,000) $(12,652) $ 58,811
Stock issuance............... 24,908 -- -- -- -- -- -- --
Net loss for the year ended
December 31, 1997.......... -- -- -- -- -- -- -- (94,961)
----------- -------- ------------ ---------- -------- -------- -------- ------------
BALANCE, DECEMBER 31,
1997......................... 125,260 -- -- (1,360,000) (13,318) (380,000) (12,652) (36,150)
Issuance of shares from
treasury for directors'
fees....................... 343,341 -- -- 680,000 6,659 -- -- --
Interest expense on
convertible note........... 6,273 -- -- -- -- -- -- --
Net loss for the year ended
December 31, 1998......... -- -- -- -- -- -- -- (609,827)
----------- -------- ------------ ---------- -------- -------- -------- ------------
BALANCE, DECEMBER 31,
1998......................... 474,874 -- -- (680,000) (6,659) (380,000) (12,652) (645,977)
Reincorporation.............. (169,260) -- -- (1,292,000) (12,652) 380,000 12,652 --
Stock grants................. 76,449 -- -- -- -- -- -- --
Issuance of Series A
preferred stock............ 5,381,176 -- -- -- -- -- -- --
Warrants granted to
investment bankers......... -- 687,000 -- -- -- -- -- --
Warrants granted for legal
services................... -- 50,000 -- -- -- -- -- --
Warrants granted for
architectural services..... -- 50,000 -- -- -- -- -- --
Conversion of notes into
common stock............... 544,414 -- -- -- -- -- -- --
Interest expense on
convertible notes.......... 35,138 -- -- -- -- -- -- --
Issuance of stock options to
employees.................. 16,441,347 -- (16,441,347) -- -- -- -- --
Amortization of deferred
compensation............... -- -- 6,062,298 -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- (13,165,739)
Preferred stock dividends.... -- -- -- -- -- -- -- (102,024)
----------- -------- ------------ ---------- -------- -------- -------- ------------
BALANCE, DECEMBER 31, 1999.... $22,784,138 $787,000 $(10,379,049) 1,972,000 $(19,311) -- $ -- $(13,913,740)
=========== ======== ============ ========== ======== ======== ======== ============
<CAPTION>
TOTAL
-----
<S> <C>
BALANCE, JANUARY 1, 1997...... $ 133,841
Stock issuance............... 25,000
Net loss for the year ended
December 31, 1997.......... (94,961)
------------
BALANCE, DECEMBER 31,
1997......................... 63,880
Issuance of shares from
treasury for directors'
fees....................... 350,000
Interest expense on
convertible note........... 6,273
Net loss for the year ended
December 31, 1998......... (609,827)
------------
BALANCE, DECEMBER 31,
1998......................... (189,674)
Reincorporation.............. --
Stock grants................. 77,775
Issuance of Series A
preferred stock............ 5,396,447
Warrants granted to
investment bankers......... 687,000
Warrants granted for legal
services................... 50,000
Warrants granted for
architectural services..... 50,000
Conversion of notes into
common stock............... 550,000
Interest expense on
convertible notes.......... 35,138
Issuance of stock options to
employees.................. --
Amortization of deferred
compensation............... 6,062,298
Net loss..................... (13,165,739)
Preferred stock dividends.... (102,024)
------------
BALANCE, DECEMBER 31, 1999.... $ (548,779)
============
</TABLE>
See notes to financial statements
F-7
<PAGE> 72
SCREAMING MEDIA.COM INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $(94,961) $(609,827) $(13,165,739)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization......................... 33,117 26,119 451,309
Stock/warrants issued for services.................... 25,000 350,000 105,400
Interest from beneficial conversion................... -- 6,273 35,138
Stock-based compensation.............................. -- -- 6,062,298
Changes in operating assets and liabilities:
Decrease (increase) in account receivable........... 41,114 (5,898) (1,306,868)
Increase in other assets............................ -- (1,000) (3,926,813)
Increase in account payable and accrued expenses.... 19,448 79,210 3,149,277
Increase in deferred revenue........................ -- 45,108 828,252
-------- --------- ------------
Net cash provided by (used in) operating
activities..................................... 23,718 (110,015) (7,767,746)
-------- --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................... (13,218) (6,675) (3,415,656)
Purchase of investments.................................. -- -- (349,987)
-------- --------- ------------
Net cash used in investing activities............ (13,218) (6,675) (3,765,643)
-------- --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of convertible preferred
stock, net............................................ -- -- 28,018,814
Borrowings from company directors and officers........... -- 252,114 275,000
Repayments of loans to stockholders...................... (10,500) (15,067) (19,350)
Repayment of capital lease obligation.................... -- -- (208,587)
Proceeds from sale of stock.............................. -- -- 5,468,822
-------- --------- ------------
Net cash (used in) provided by financing
activities..................................... (10,500) 237,047 33,534,699
-------- --------- ------------
NET INCREASE IN CASH....................................... -- 120,357 22,001,310
CASH, BEGINNING OF YEAR.................................... -- -- 120,357
-------- --------- ------------
CASH, END OF YEAR.......................................... $ -- $ 120,357 $ 22,121,667
======== ========= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest................................... $ 449 $ 35 $ 22,648
======== ========= ============
Cash paid for income taxes............................... $ 688 $ 1,018 $ 1,171
======== ========= ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
TRANSACTIONS:
Fixed assets acquired under capital leases............ $ -- $ -- $ 1,531,418
======== ========= ============
Conversion of promissory notes into common stock...... $ -- $ -- $ 550,000
======== ========= ============
Warrant granted to investment bankers................. $ -- $ -- $ 687,000
======== ========= ============
Warrant granted for legal services.................... $ -- $ -- $ 50,000
======== ========= ============
Warrant granted for architectural services............ $ -- $ -- $ 50,000
======== ========= ============
</TABLE>
See notes to financial statements
F-8
<PAGE> 73
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. ORGANIZATION AND NATURE OF BUSINESS
Screaming Media.com Inc. (formerly ScreamingMedia.net, Inc.) (the
"Company") was incorporated in the state of Delaware on January 22, 1999, for
the purpose of reincorporating The Interactive Connection, Inc. ("Interactive"),
a corporation incorporated in the state of New York on August 16, 1993. On
January 28, 1999, a merger took place between these two companies (under common
control) with the Company being the surviving corporation. The merger was
treated as if it were a pooling of interests (see Note 10).
The Company's primary business is aggregating, processing, filtering and
delivering content to its customers. The Company receives the data from various
content providers, processes and filters it using customized software to meet
individual customers' needs, and then distributes the content almost
instantaneously to such customers. Prior to 1999, the Company derived revenue
from other services, including Web hosting, server hosting and maintenance and
Web design and consulting.
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
BASIS OF PRESENTATION -- The financial statements of the Company have been
prepared on the accrual basis of accounting. A summary of the major accounting
policies followed in the preparation of the accompanying financial statements,
which conform to generally accepted accounting principles, is presented below.
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 amount of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION AND
AMORTIZATION -- Property and equipment are stated at cost, and in the case of
equipment under capital leases, the present value of the future minimum lease
payments, less accumulated depreciation and amortization. Depreciation and
amortization is calculated using the straight-line method over the estimated
useful lives of the depreciable assets, which range from three to seven years,
or, if shorter, the lease term. Improvements are capitalized, while repair and
maintenance costs are charged to operations as incurred.
INVESTMENTS -- Investments of less than 20% of the voting interest of other
companies are presented at cost. In the event that management identifies an
impairment in the estimated fair value of an investment to an amount below cost
(other than a temporary decline), such investment will be written down to fair
market value.
IMPAIRMENT OF ASSETS -- The Company's long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the net
carrying amount may not be recoverable. When such events occur, the Company
measures impairment by comparing the carrying value of the long-lived asset to
the estimated undiscounted future cash flows expected to result from use of the
assets and their eventual disposition. If the sum of the expected undiscounted
future cash flows were less than the carrying amount of the assets, the Company
would recognize an impairment loss. The impairment loss, if determined to be
necessary, would be measured as the amount by which the carrying amount of the
asset exceeds the fair
F-9
<PAGE> 74
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES -- (CONTINUED)
value of the asset. The Company determined that, as of December 31, 1998 and
1999, there had been no impairment in the carrying value of its long-lived
assets.
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE -- As of
January 1, 1999, costs of computer software developed or obtained for internal
use are capitalized while in the application development stage and are expensed
while in the preliminary stage and post-implementation stage. The Company
amortizes these capitalized costs over the life of the systems, which is
estimated to be two years. The Company capitalized approximately $1,314,000 of
internal development and software purchase costs relating to its internal use
software incurred during the application development stage. Prior to January 1,
1999, the Company had no significant costs related to software development.
Normal maintenance of internal use software is expensed as incurred.
DEFERRED REVENUES -- Deferred revenues represents amounts billed in excess
of revenues recognized. Such deferred revenues relate to set-up fees. (See
revenue recognition below.) Included in accounts receivable are amounts due
(under contract) relating to deferred revenues.
REVENUE RECOGNITION -- Income is derived primarily from the Company's
network services and related set-up fees. Network services contracts have a
minimum monthly charge. The minimum revenues from these services, net of rebates
and allowances, are recognized on a straight-line basis, over the lives of the
contracts, which are typically for terms of one year. Revenue amounts in
addition to the minimum charge are recognized as the services are delivered.
Revenue for set-up fees are recognized ratably over the initial term of the
contract, commencing with the service start date specified in the contract. The
Company has also derived revenue from its other Internet-related activities such
as Web Site development, custom programming and hosting. Such revenue is
recognized as earned over the term of each agreement.
ADVERTISING COSTS -- The costs of advertising are expensed as incurred.
INCOME TAXES -- The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes, pursuant to which deferred income tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities, using enacted tax rates currently in effect. State
and local taxes are based on factors other than income.
NET LOSS PER COMMON SHARE -- Basic loss per common share was computed by
dividing net loss by the weighted average number of shares of common stock
outstanding. Diluted loss per share has not been presented since the impact of
options, warrants and conversion of preferred shares would have been anti-
dilutive (see Notes 9 and 10).
UNAUDITED PRO FORMA NET LOSS PER SHARE AND UNAUDITED PRO FORMA
STOCKHOLDERS' EQUITY -- Unaudited pro forma net loss per share has been computed
in the same manner as net loss per common share as described above and also
gives effect to the conversion of all convertible preferred stock that will
automatically occur upon completion of the Company's initial public offering
(using the if-converted method) (see Notes 9 and 10). If the offering
contemplated by this prospectus is consummated, all of the convertible preferred
stock outstanding as of December 31, 1999 will automatically be converted into
an aggregate of 14,299,234 shares of common stock, based on the shares of all
convertible preferred stock outstanding at December 31, 1999. Unaudited pro
forma stockholders' equity at December 31, 1999, as adjusted for the
F-10
<PAGE> 75
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES -- (CONTINUED)
conversion of all convertible preferred stock, is disclosed on the balance
sheet. Pro forma basic net loss per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Net loss.................................................... $(13,165,739)
============
Shares used in computing basic net loss per share........... 15,495,595
Adjusted to reflect the effect of the automatic conversion
of all convertible preferred stock from the date of
issuance.................................................. 5,972,294
------------
Weighted average shares used in computing pro forma basic
net loss per share........................................ 21,467,889
============
Pro forma basic net loss per share.......................... $ (0.61)
============
</TABLE>
STOCK DIVIDEND -- On December 22, 1999, the Board of Directors of the
Company approved a 100% stock dividend (two-for-one stock split). The Company's
financial statements have been retroactively adjusted to show the effect of this
stock dividend for all periods presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable, and
notes payable, are carried at cost, which approximates their fair value because
of the short-term maturity of these instruments and the relatively stable
interest rate environment.
RECENT ACCOUNTING PRONOUNCEMENTS -- Effective January 1, 1998, the Company
adopted SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information. SFAS No. 131 establishes standards for the way business enterprises
report information about operating segments, as well as enterprise-wide
disclosures about products and services, geographic areas and major customers.
Management believes the Company operates in one segment. The Company's customers
are located in eight countries around the world with the majority being in the
United States. All of the Company's transactions have been conducted in United
States dollars. The Company does not have any material revenues or assets
outside of the United States. In 1999, one customer accounted for approximately
12% of net revenue.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. Generally, it
requires an entity to recognize all derivatives as either an asset or liability
and to measure those instruments at fair value, as well as to identify the
conditions for which a derivative may be specifically designated as a hedge.
SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The
Company does not currently engage or plan to engage in any derivative or hedging
activities.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and to amortize them over the
software's estimated useful life. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. The Company adopted the requirements of SOP
98-1 as of January 1, 1999.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes certain areas of the
F-11
<PAGE> 76
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES -- (CONTINUED)
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company believes that its current
revenue recognition principles comply with SAB No. 101.
3. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company maintains cash and cash equivalents with
two high credit quality domestic financial institutions. The Company performs
periodic evaluations of the relative credit standing of these institutions. From
time to time, the Company's cash balances with any one financial institution may
exceed Federal Deposit Insurance Corporation insurance limits.
The Company's customers are generally located in the United States. The
Company performs ongoing credit evaluations and generally does not require
collateral on accounts receivable. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of customers,
historical trends and other information; to date, such losses have been within
management's expectations.
4. INVESTMENTS
In May 1999, the Company paid $150,000 to purchase 384,615 shares of Series
A convertible preferred stock of SoftCom, Inc. ("SoftCom"), convertible on a
one-for-one basis into SoftCom common stock. The Company also holds a warrant
that expires on May 14, 2004, to purchase up to 19,231 additional shares of
Series A convertible preferred stock of SoftCom at an exercise price of $0.39
per share. The Chairman of the Company's Board of Directors serves on the Board
of Directors of SoftCom.
In June 1999, the Company paid $199,987 to purchase 11,996 shares of Series
A convertible preferred stock of i-Recall, Inc. ("i-Recall"), convertible on a
one-for-one basis into i-Recall common stock.
These investments represent ownership interest of less than 20% of
SoftCom's and i-Recall's equity and are accounted for under the cost method.
These securities are carried at cost since neither the SoftCom securities nor
the i-Recall securities are traded on a public market and there are no other
readily determinable fair values of such securities.
5. PROPERTY AND EQUIPMENT
Major classifications of property and equipment at December 31, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ----------
<S> <C> <C>
Software and computer equipment, including assets
under capital leases................................ $ 144,440 $3,359,869
Construction in process............................... -- 103,240
Leasehold improvements................................ -- 1,117,907
Office furniture and equipment........................ 39,775 565,670
--------- ----------
184,215 5,146,686
Less: accumulated depreciation and amortization....... (142,882) (594,191)
--------- ----------
Property and equipment, net......................... $ 41,333 $4,552,495
========= ==========
</TABLE>
Depreciation expense (including assets under capital leases) amounted to
$32,921, $26,119 and $451,309 for the years ended December 31, 1997, 1998 and
1999, respectively.
F-12
<PAGE> 77
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
6. INCOME TAXES
No provision for income taxes has been made because the Company has
sustained cumulative losses since the commencement of operations. At December
31, 1999, the Company had net operating loss carryforwards ("NOLs") of
approximately $13,767,000, which will be available to reduce future taxable
income. The NOLs are expected to expire in the following years (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
2008........................................................ $ 13
2010........................................................ 51
2012........................................................ 578
2013........................................................ 54
2014........................................................ 13,071
-------
$13,767
=======
</TABLE>
In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets.................................. $ 307,421 $ 6,549,864
Less valuation allowance............................. (307,421) (6,549,864)
--------- -----------
Net deferred taxes................................... $ -- $ --
========= ===========
</TABLE>
The Company's NOLs primarily generated the deferred tax assets. At December
31, 1998 and 1999, a valuation allowance was provided as the realization of the
deferred tax benefits is not likely.
The effective tax rate varies from the U.S. Federal statutory tax rate for
the years ended December 31, principally due to the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory tax................................. 35% 35% 35%
State and local taxes...................................... 12 12 12
Valuation allowance........................................ (47) (47) (47)
--- --- ---
Effective tax rate......................................... --% --% --%
=== === ===
</TABLE>
7. COMMITMENTS
OFFICE LEASES -- The Company leases office space in New York under
noncancelable operating leases expiring on March 31, 2009. These leases contain
provisions for escalations due to increases in real estate taxes and operating
costs.
F-13
<PAGE> 78
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
7. COMMITMENTS -- (CONTINUED)
The following schedule reflects future required minimum lease payments.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
2000........................................................ $ 580,875
2001........................................................ 581,636
2002........................................................ 572,852
2003........................................................ 576,334
2004........................................................ 576,334
Thereafter.................................................. 2,606,601
----------
Total....................................................... $5,494,632
==========
</TABLE>
Rent expense under these leases was $65,505, $70,260 and $295,672 for the
years ended December 31, 1997, 1998 and 1999, respectively.
EQUIPMENT LEASES -- Fixed assets included assets acquired under capital
leases of $0 and $1,531,418, at December 31, 1998 and 1999, respectively. The
related accumulated amortization was $0 and $141,371 for the years ended
December 31, 1998 and 1999, respectively.
The Company is a lessee under several capital lease agreements expiring
through 2002 with third parties for certain equipment. Future minimum lease
payments under noncancelable capital leases, together with the present value of
the net minimum payments as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ ----------
<S> <C>
2000........................................................ $ 768,163
2001........................................................ 523,047
2002........................................................ 162,280
----------
Total minimum lease payments................................ 1,453,490
Less: amount representing interest.......................... (115,261)
----------
Present value of minimum capital lease payments............. 1,338,229
Less: current portion....................................... (691,643)
----------
Long-term capitalized lease obligations..................... $ 646,586
==========
</TABLE>
The assets and liabilities under capital leases are recorded at the present
value of the minimum lease payments using effective interest rates ranging from
2.85% to 9.43% per annum.
8. RELATED PARTY TRANSACTIONS AND BALANCES
In October 1998, the Company entered into a convertible promissory note due
on October 19, 2001, with an officer of the Company whereby the Company received
cash of $250,000. In addition, in February and March 1999, the Company entered
into five convertible promissory notes with certain directors, officers and the
spouse of a director of the Company whereby the Company received cash totaling
$300,000. During 1999, these notes were converted into 538,556 shares of the
Company's common stock, which reflected a 7% discount from the then-fair value
of the common stock, which aggregated $41,398, as determined by reference to the
per-share price of the Company's Series A Preferred Stock offering. The
intrinsic value of this beneficial conversion feature has been recorded as
interest expense ratably from the date of issuance to
F-14
<PAGE> 79
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
8. RELATED PARTY TRANSACTIONS AND BALANCES -- (CONTINUED)
the earliest date on which the notes could be converted into common stock
ranging from 0 to 6 months, resulting in additional interest expense of $6,273
and $35,138 in 1998 and 1999, respectively.
In 1996, the Company entered into a promissory note with its president for
$19,350 that it repaid during 1999.
In April 1999, the Company entered into an agreement with a corporate
communications service firm ("Communications") for a monthly fee of $20,000. A
principal of Communications is a director of the Company. Additionally, another
principal of Communications is the spouse of a different director of the
Company. The Company has determined that the terms of this agreement are at
arms-length.
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In October 1999, the Company issued 2,678,572 shares of Series B
Convertible Preferred Stock ("Series B Preferred Stock") through a private
placement for $30,000,000 resulting in net proceeds to the Company of
$28,018,814. Each share of Series B Preferred Stock is convertible, at any time,
at the option of the holder, into two shares of common stock.
The Series B Preferred Stock was recorded at $27,331,814 which reflects the
face amount of the preferred stock reduced by all issuance costs, resulting in a
discount of $2,668,186. In connection with recording a $102,024 deemed dividend
(for periodic accretion) in 1999, the Company has reclassified such amount from
accumulated deficit to Series B redeemable preferred stock.
The Company will be required to redeem all outstanding shares of Series B
Preferred Stock on and after December 31, 2003, at $11.20 per share plus all
declared but unpaid dividends, if any. If total net revenue for the year ending
December 31, 2000, is less than $13,650,000, the conversion price will be
reduced as follows: (a) to $9.82 if net revenues for the year ending December
31, 2000, are at least $11,600,000 but less than $13,650,000 or (b) to $8.09 if
net revenues for the year ending December 31, 2000, are less than $11,600,000.
The carrying value of the Series B Preferred Stock is equal to its redemption
value, net of offering costs, as no dividends have been declared or paid on
these shares.
The Series B Preferred Stock will be automatically converted into two
shares of common stock upon the earlier of: (a) completion by the Company of an
initial public offering raising gross proceeds of at least $20,000,000 and at an
offering price per share of at least 150% of the then applicable conversion
price, or (b) obtaining the written consent of the holders of at least 66 2/3%
of the shares of Series B Preferred Stock then outstanding. Holders of a
majority of outstanding shares of Series B Preferred Stock may, at any time,
have the Company redeem all then outstanding shares of Series B Preferred Stock
at the original purchase price plus declared but unpaid dividends, if any.
The Series B Preferred Stock is senior to the Series A Preferred Stock,
which in turn is senior to the Common Stock with respect to payment of
dividends, if any, and liquidation preference. Series B and Series A Preferred
Stockholders are entitled to voting rights equal to the number of shares of
Common Stock into which the preferred stock is convertible. The Series B and A
holders have additional voting rights regarding matters that affect their
respective series of preferred stock. Series B Preferred Stockholders have
certain additional voting rights.
The Company incurred fees and expenses of $1,981,186 relating to the
placement of the Series B Preferred Stock and also issued a five year warrant on
to the placement agent to purchase 409,819 shares of common stock at an exercise
price of $3.29 per share until June 7, 2004. The Company calculated the value of
such warrant to be $687,000 using the Black-Scholes valuation method using the
following assumptions:
F-15
<PAGE> 80
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK -- (CONTINUED)
no dividend yield, a volatility factor of 50%, risk free interest rate of and
reduced additional paid-in capital by such amount.
10. STOCKHOLDERS' EQUITY (DEFICIENCY)
In January 1999, the Company was reincorporated in the state of Delaware.
Pursuant to that reorganization, common stockholders of Interactive received one
share of common stock of the Company with a par value of $0.01 per share in
exchange for each common share of Interactive with a par value of $0.0001 per
share. In addition, each preferred stockholder of Interactive received two
shares of the Company's common stock in exchange for each share of Interactive
preferred stock owned. Shares of common treasury stock and shares of preferred
treasury stock of Interactive common were replaced by shares of common treasury
stock of the Company at exchange rates of one for one and two for one,
respectively.
PREFERRED STOCK -- The Company is authorized to issue up to 5,000,000
shares of preferred stock.
In March 1999, the Company issued 1,527,085 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock") through a private placement, in
consideration of gross proceeds to the Company of $5,500,000.
Each share of Series A Preferred Stock is convertible at any time at the
election of the preferred stockholders into two shares of common stock, subject
to the provisions set forth in the Company's Certificate of Incorporation. The
preferred stockholders are entitled to voting rights equal to the number of
shares of common stock into which the Series A Preferred Stock is convertible.
The Series A Preferred Stock will automatically be convertible into common stock
upon the effectiveness of the filing by the Company of a registration statement
with Securities and Exchange Commission in connection with the Company's initial
public offering.
TREASURY STOCK -- At December 31, 1998 and 1999, common treasury stock was
comprised of 680,000 and 1,972,000 shares of common stock with a cost basis of
$6,659 and $19,311, respectively. At December 31, 1998 preferred treasury stock
consisted of 380,000 shares of preferred stock with a cost basis of $12,652. In
January 1999, pursuant to the reorganization of the Company, all of the shares
of preferred stock held in treasury were converted to 1,292,000 shares of common
stock held in treasury. There are no preferred shares of treasury stock at
December 31, 1999. During October 1998, the Company issued 680,000 shares of
common stock from shares held in treasury stock to two directors and recorded
compensation expense of $350,000 in connection with such grants. Such
compensation expense equaled the fair value of the stock at the time of grant.
WARRANTS -- In June 1999, in connection with legal services provided, the
Company issued a warrant to purchase up to 24,286 shares of Common Stock at an
exercise price of $2.06 per share. The warrant was valued at $50,000, using the
Black-Scholes options pricing model with the following assumptions: no dividend
yield, a volatility factor of 50%, risk free interest rate of 6.0%, and an
expected life of 5 years. The warrant may be exercised at any time prior to June
10, 2004. The exercise price and the number and type of securities for which the
warrant is exercisable are subject to adjustment in the event the Company issues
any stock dividends, combines or splits its Common Stock or issues rights to
acquire Common Stock under certain circumstances.
In June 1999, in connection with architectural services provided, the
Company issued a warrant to purchase up to 24,286 shares of Common Stock at an
exercise price of $2.06 per share. The warrant was valued at $50,000, which was
the invoiced amount of the services provided. The warrant may be exercised at
any time prior to June 15, 2004. The exercise price and the number and type of
securities for which the
F-16
<PAGE> 81
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
10. STOCKHOLDERS' EQUITY (DEFICIENCY) -- (CONTINUED)
warrant is exercisable are subject to adjustment in the event the Company issues
any stock dividends, combines or splits its Common Stock or issues rights to
acquire Common Stock under certain circumstances.
11. STOCK OPTION PLAN
The Company has established the 1999 Stock Option Plan (the "Plan") to
provide for the granting of nonqualified stock options and incentive stock
options to employees, directors and advisors to reward them for service to the
Company and to provide incentives for future service and enhancement of
shareholder value. As amended in April 1999, the Plan authorized the issuance of
stock options covering up to 8,500,000 shares of Common Stock. The options vest
in accordance with the terms of the agreements entered into by the Company and
the grantee of the options which range from immediate vesting to vesting ratably
over a four year period. A total of 6,496,278 options have been granted under
this plan at December 31, 1999. The weighted-average grant-date fair value of
the 6,496,278 stock options granted during 1999 was $2.84 per share. Of this
amount, 6,146,846 options having a weighted-average grant-date fair value of
$2.98 were granted at exercise prices below fair value of the Company's common
stock at the time of issuance. The remaining 349,452 options having a
weighted-average grant-date fair value of $0.36 were granted at exercise prices
in excess of the fair value of the Company's common stock at the time of
issuance.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options.
Transactions involving the incentive stock options granted are summarized
as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE
(IN SHARES) PRICE
----------- --------
<S> <C> <C>
Outstanding, January 1, 1999............................ -- $ --
Granted................................................. 6,496,278 $1.29
Exercised............................................... -- $ --
Forfeited............................................... (312,310) $0.49
--------- -----
Outstanding, December 31, 1999.......................... 6,183,968 $1.33
========= =====
</TABLE>
There were 1,484,154 options exercisable at December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING LIFE EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES (IN SHARES) (IN YEARS) PRICE (IN SHARES) PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.29..................................... 554,200 3.25 $0.29 176,562 $0.29
$1.06..................................... 3,364,032 3.25 $1.06 898,936 $1.06
$1.91-$2.06............................... 2,224,936 3.25 $1.96 408,656 $1.91
$3.24-$3.29............................... 40,800 3.25 $3.29 -- $ --
=======
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation," provides for a
fair value based method of accounting for employee options and options granted
to non-employees and measures compensation expense using an option valuation
model that takes into account, as of the grant date, the exercise price and
expected
F-17
<PAGE> 82
SCREAMING MEDIA.COM INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
11. STOCK OPTION PLAN -- (CONTINUED)
life of the option, the current price of the underlying stock and its expected
volatility, expected dividends on the stock, and the risk-free interest rate for
the expected term of the options.
In connection with the issuance of options to certain employees and
directors at prices below fair market value, the Company had recorded deferred
compensation expense of $10,379,049 as of December 31, 1999, net of recognized
compensation expense of $6,062,298 for the year ended December 31, 1999,
representing the unamortized difference between the exercise price and the
estimated fair market value of the Company's common stock at such date. Such
amount is included as a reduction of stockholders' equity (deficiency) and is
being amortized by charges to operations over the vesting period.
Pro forma disclosure as if the Company had adopted the cost recognition
requirement under SFAS 123 is presented below for the year ended December 31,
1999.
<TABLE>
<S> <C>
Net loss -- as reported..................................... $(13,165,739)
Net loss -- pro forma....................................... $(13,909,885)
Net loss per common share -- as reported.................... $ (0.85)
Net loss per common share -- pro forma...................... $ (0.90)
</TABLE>
The fair value of options granted under the Plan for the year ended
December 31, 1999, in complying with SFAS No. 123, was estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used: no dividend yield, a volatility factor of
50%, risk-free interest rate of 6.0% and expected lives of 3.25 years.
12. SUBSEQUENT EVENTS
On February 4, 2000, the Company entered into an agreement with another
tenant with contiguous space in the building to sublease the space with consent
of the landlord. The lease expires on January 31, 2009, and results in
additional straight line rent expense of $513,000 per year. The Company issued a
warrant to the tenant allowing the tenant the right to purchase 85,000 shares of
the Company's common stock at an exercise price of $3.29 per share. This warrant
may be exercised at any time and expires on February 4, 2005.
In addition, the tenant may require the Company to buy back the warrant at
$8.47 per share. The fair market value of the common stock at the issuance date
of the warrant is $11.76 per share. The value of the warrant has been determined
to be $957,000; such value was derived by using the Black-Scholes option model.
The value of the warrant will be amortized ratably over the life of the
additional space.
On March , 2000, the Board of Directors of the Company approved a
1.7-for-one stock split. The Company's financial statements have been
retroactively adjusted to show the effect of this stock split for all periods
presented.
******
F-18
<PAGE> 83
[SCREAMING MEDIA LOGO]
<PAGE> 84
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, other than
underwriting discounts and commissions, all of which will be paid by the
Company. All amounts are estimates, other than the registration fee and the NASD
fee.
<TABLE>
<S> <C>
Registration fee............................................ $19,800
NASD fee.................................................... 8,000
Nasdaq National Market application and listing fee.......... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving...................................... *
Transfer Agent fees and expenses............................ *
Blue sky fees and expenses.................................. *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL") as amended
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of ScreamingMedia) by reason of the fact that the
person is or was a director, officer, agent or employee of the ScreamingMedia or
is or was serving at our request as a director, officer, agent, or employee of
another corporation, partnership, joint venture, trust or other enterprise
against expenses, including attorneys' fees, judgment, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of ScreamingMedia, and with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful. The
power to indemnify applies to actions brought by or in the right of the
ScreamingMedia as well but only to the extent of defense expenses (including
attorneys' fees but excluding amounts paid in settlement) actually and
reasonably incurred and not to any satisfaction of judgment or settlement of the
claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of negligence or
misconduct in the performance of his duties to ScreamingMedia, unless the court
believes that in light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to such
actions to be entered in the books containing the minutes of the meetings of the
board of directors at the time such action occurred or immediately after such
absent director receives notice of the unlawful acts.
II-1
<PAGE> 85
Our Amended and Restated Certificate of Incorporation includes a provision
that eliminates the personal liability of its 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 ScreamingMedia or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- 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.
These provisions are permitted under Delaware law.
Our Amended and Restated Bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
- we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise determined by
our Board of Directors; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law.
The indemnification provisions contained in our Amended and Restated
Certificate of Incorporation and Amended and Restate Bylaws are not exclusive of
any other rights to which a person may be entitled by law, agreement, vote of
stockholders or disinterested directors or otherwise. In addition, we maintain
insurance on behalf of its directors and executive officers insuring them
against any liability asserted against them in their capacities as directors or
officers or arising out of such status.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception, we have issued and sold the following securities:
On October 20, 1998, our predecessor The Interactive Connection, Inc.,
issued a convertible promissory note to Jay Chiat, in the amount of $250,000,
due on October 19, 2001. This note was converted in April 1999 for 253,885
shares of Common Stock.
On January 28, 1999, we issued a total of 3,527,500 shares of Common Stock
to common stockholders of Interactive, who received one share of Common Stock of
the Company in exchange for each Common Share of Interactive. In addition, each
Preferred Stockholder of The Interactive Connection, Inc. received two shares of
the Company's Common Stock in exchange for each share of Interactive's Preferred
Stock owned. We also issued 127,500 shares of common stock to Brian Cavanaugh in
exchange for services rendered to the Company and 340,000 shares each of common
stock to Ken Lerer and Peter Leitner. These transactions are exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
On February 15, 1999, we issued convertible promissory notes to James D.
Robinson, Linda Robinson, Ken Lerer and Kevin C. Clark for a total amount of
$250,000, due on December 10, 2001. All notes were converted in April 1999 for a
total of 253,885 shares of Common Stock and are exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
On March 9, 1999, we issued a convertible promissory note to Brian
Cavanaugh, in the amount of $50,000, due on December 10, 2001. This note was
converted in April 1999 for 50,779 shares of Common Stock and is exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
On March 18, 1999, we issued and sold 1,107,366 shares of Series A
Preferred Stock for gross proceeds of $4.0 million to accredited investors,
exempt from the registration requirements of the Securities Act pursuant to
Regulation D.
II-2
<PAGE> 86
In April 1999, we issued and sold an additional 419,719 shares of Series A
Preferred Stock to accredited investors for gross proceeds of $1.5 million
exempt from the registration requirements of the Securities Act pursuant to
Regulation D.
In April 1999, we granted Danny Hills, Peter Adams, George Russell and
George Cain, members of our advisory board, options to purchase an aggregate of
94,452 shares of Common Stock at $1.06 per share, exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) and Rule 701.
In July 1999, we granted Brian Cavanaugh, Steve Tempini and Chris O'Brien,
members of our advisory board, options to purchase an aggregate 70,839 shares of
common stock at $1.06 per share, exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) and Rule 701.
In July 1999, we granted Wm. Brian Little, a director of the Company, a
five-year option to purchase 47,223 shares of Common Stock at $1.06 per share.
All options granted to directors and advisors were fully vested upon grant and
are exempt from the registration requirements of the Securities Act pursuant to
Rule 701.
In August 1999, we issued 5,100 shares of common stock to Elena Salij in
consideration for consultancy services, exempt from the registration
requirements of the Securities Act pursuant to Rule 701.
On October 6, 1999, we issued and sold 2,678,572 shares of our Series B
Convertible Preferred Stock at a price of $11.20 per share with Deutshe Bank
Securities Inc. serving as our exclusive placement agent to a group of
institutional accredited investors and a limited number of individuals, exempt
from the registration requirements pursuant to Section 4(2) and Regulation D.
On December 27, 1999, we granted a non-qualified stock option to Wm. Brian
Little to purchase 26,156 shares of Common Stock at an exercise price of $1.91
per share, exempt from the registration requirements of the Securities Act
pursuant to Rule 701.
In addition, as of January 31, 2000, the Company has granted options to
purchase a total of 6,408,878 shares of Common Stock to employees, including
certain senior managers, at a weighted average exercise price of approximately
$1.35 per share, exempt from the registration requirements of the Securities Act
pursuant to Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the
Company.
3.2 Form of Amended and Restated By-laws of the Company.
4.1 Form of ScreamingMedia's stock certificate.
4.2 Form of ScreamingMedia's Rights Plan.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.*
10.1 Master Lease Agreement No. 13330 dated July 16, 1999 by and
among the Registrant and Data General Corporation.+
10.2 Master Agreement No. 2430 dated December 9, 1999 by and
among the Registrant and Cisco Systems Capital Corporation.
10.3 Master Lease Agreement No. 7345913 dated May 25, 1999 by and
among the Registrant and Dell Financial Services L.P.
10.4.1 Agreement of Lease dated March 31, 1999, by and among the
Registrant and 601 West Associates LLC.+
10.4.2 First Lease Modification Agreement dated June 18, 1999 by
and among the Registrant and 601 West Associates LLC.+
10.5 Sublease Agreement dated February 4, 2000 by and among the
Registrant and Tomar Studio, Inc.+
</TABLE>
II-3
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.6 Warrant Agreement dated June 7, 1999, by and among the
Registrant and Deutsche Bank Securities Inc.+
10.7 Warrant Agreement dated June 10, 1999, by and among the
Registrant and Carter, Ledyard, Milburn, LLP.+
10.8 Warrant Agreement dated February 4, 2000 by and among the
Registrant and Tomar Associates, Inc.+
10.9 Letter Employment Agreement dated June 7, 1999 between the
Registrant and Marianne Howatson.+
10.10 Employment Agreement dated November 8, 1999, between the
Registrant and Kevin C. Clark.+
10.11 Series A Preferred Stock Purchase Agreement dated as of June
8, 1999 by and among the Registrant, the investors named
therein and i-Recall, Inc.+
10.12 Preferred Stock Purchase Agreement of Series A Preferred
Stock dated as of May 14, 1999 by and among the Registrant
and SoftCom, Inc.+
10.13 1999 Stock Option Plan.
10.14 Form of 2000 Equity Incentive Plan.
10.15 Form of ScreamingMedia Management Incentive Plan.
10.16 Agreement dated April 1999, by and among the Registrant and
Robinson, Lerer & Montgomery.+
10.17 Warrant Agreement dated June 15, 1999 by and among the
Registrant and Hut Sachs Studio.+
10.18 Form of Employee Stock Purchase Plan.
16 Letter regarding change in certifying accountant.+
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of David Tarlow & Co., C.P.A., P.C.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP.*
24 Power of Attorney (included on signature page of the
Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of thehealthchannel.com.
99.2 Consent of The Black World Today.
99.3 Consent of Sun Microsystems, Inc.
99.4 Consent of EVOTE.COM.
99.5 Consent of InteliHealth.
99.6 Consent of IDC.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
b. Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS.
The undersigned registrants hereby undertake to provide to the underwriters
at the closing certificates in such denominations and registered in such names
as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrants pursuant to the provisions described in Item 14, or otherwise, the
registrants have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. In the event that a claim
for indemnification by the registrants 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
II-4
<PAGE> 88
connection with the securities being registered, the registrants 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 registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on March 27, 2000.
SCREAMING MEDIA.COM INC.
By: *
------------------------------------
Name: Kevin C. Clark
Title: Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints
Kevin C. Clark and William P. Kelly, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any and all (1) amendments (including post-effective amendments) and additions
to this Registration Statement and (2) Registration Statements, and any and all
amendments thereto (including post-effective amendments), relating to the
offering contemplated pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
* Chairman of the Board March 27, 2000
- ------------------------------
Jay Chiat
* President Chief Operating Officer and Director March 27, 2000
- ------------------------------
Alan S. Ellman
* Chief Executive Officer and Director March 27, 2000
- ------------------------------
Kevin C. Clark
/s/ DAVID M. OBSTLER Chief Financial Officer March 27, 2000
- ------------------------------
David M. Obstler
* Principal Accounting Officer March 27, 2000
- ------------------------------
Roy R. Boling
* General Counsel, Secretary and Director March 27, 2000
- ------------------------------
William P. Kelly
* Director March 27, 2000
- ------------------------------
James D. Robinson III
* Director March 27, 2000
- ------------------------------
Wm. Brian Little
* Director March 27, 2000
- ------------------------------
Kenneth B. Lerer
* Director March 27, 2000
- ------------------------------
Patrick J. McNeela
*By: /s/ WILLIAM P. KELLY
------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the
Company.
3.2 Form of Amended and Restated By-laws of the Company.
4.1 Form of ScreamingMedia's stock certificate.
4.2 Form of ScreamingMedia's Rights Plan.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.*
10.1 Master Lease Agreement No. 13330 dated July 16, 1999 by and
among the Registrant and Data General Corporation.+
10.2 Master Agreement No. 2430 dated December 9, 1999 by and
among the Registrant and Cisco Systems Capital Corporation.
10.3 Master Lease Agreement No. 7345913 dated May 25, 1999 by and
among the Registrant and Dell Financial Services, L.P.
10.4.1 Agreement of Lease dated March 31, 1999, by and among the
Registrant and 601 West Associates LLC.+
10.4.2 First Lease Modification Agreement dated June 18, 1999 by
and among the Registrant and 601 West Associates LLC.+
10.5 Sublease Agreement dated February 4, 2000 by and among the
Registrant and Tomar Studios, Inc.+
10.6 Warrant Agreement dated June 7, 1999, by and among the
Registrant and Deutsche Bank Securities Inc.+
10.7 Warrant Agreement dated June 10, 1999, by and among the
Registrant and Carter, Ledyard, Milburn, LLP.+
10.8 Warrant Agreement dated February 4, 2000 by and among the
Registrant and Tomar Studios, Inc.+
10.9 Letter Employment Agreement date June 7, 1999 between the
Registrant and Marianne Howatson.+
10.10 Employment Agreement dated November 8, 1999, 2000 between
the Registrant and Kevin C. Clark.+
10.11 Series A Preferred Stock Purchase Agreement dated as of June
8, 1999 by and among the Registrant, the investors named
therein and i-Recall, Inc.+
10.12 Preferred Stock Purchase Agreement of Series A Preferred
Stock dated as of May 14, 1999 by and among the Registrant
and SoftCom, Inc.
10.13 1999 Stock Option Plan.
10.14 Form of 2000 Equity Incentive Plan.
10.15 Form of ScreamingMedia Management Incentive Plan.
10.16 Agreement dated April 1999, by and among the Registrant and
Robinson, Lerer & Montgomery.+
10.17 Warrant Agreement dated June 15, 1999, by and among the
Registrant and Hut Sachs Studio.+
10.18 Form of Employee Stock Purchase Plan.
16 Letter regarding change in certifying accountant.+
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of David Tarlow & Co., C.P.A., P.C.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP.*
24 Power of Attorney (included on signature page of the
Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of thehealthchannel.com.
99.2 Consent of The Black World Today.
99.3 Consent of Sun Microsystems, Inc.
99.4 Consent of EVOTE.COM.
99.5 Consent of InteliHealth.
99.6 Consent of IDC.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SCREAMINGMEDIA INC.
The undersigned, Kevin C. Clark, certifies that he is Chief
Executive Officer of Screaming Media.com Inc., a corporation organized and
existing under the laws of the State of Delaware (hereinafter called the
"Corporation"), and does hereby certify as follows:
1. The current name of the Corporation is Screaming Media.com Inc. The
Corporation was originally incorporated was Screaming Media.net, Inc. and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on January 21, 1999. The original
Certificate of Incorporation was amended on 21 December, 1999.
3. This Amended and Restated Certificate of Incorporation was duly
adopted by and in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware as set forth in Title 8 of
the Delaware Code (the "GCL").
4. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Corporation's Certificate of
Incorporation.
5. Effective upon the filing of this Amended and Restated Certificate
of Incorporation with the Secretary of State, the Company's name will be
ScreamingMedia Inc.
6. Effective upon the filing of this Restated and Amended Certificate
of Incorporation with the Secretary of State, each share of Common Stock
outstanding shall be reclassified on a basis of 1.7 shares of Common Stock for
each share of Common Stock outstanding and, accordingly, each share of Common
Stock outstanding shall, without further action by the Corporation or any
stockholder, be deemed to represent 1.7 shares of Common Stock, provided that
all fractional shares resulting therefrom shall be eliminated and each holder
thereof shall be entitled to receive a cash payment equal to the holder's
fraction of a share of Common Stock multiplied by the per share fair market
value, as determined by the Board of Directors.
7. The text of the Amended and Restated Certificate of Incorporation of
the Corporation is hereby amended and restated to read in its entirety as
follows:
FIRST: The name of the Corporation is ScreamingMedia Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington 19805, County of New
Castle. The name of its regis-
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tered agent at that address is The Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the "GCL").
FOURTH: (a) Authorized Capital Stock. The total number of shares of
stock which the Corporation shall have authority to issue is 105,000,000 shares
of capital stock, consisting of (i) 100,000,000 shares of common stock, par
value $0.01 per share (the "Common Stock") and (ii) 5,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock").
(b) Common Stock. The powers, preferences and rights, and the
qualifications, limitations and restrictions, of each class of the Common Stock
are as follows:
(1) No Cumulative Voting. The holders of shares of Common Stock
shall not have cumulative voting rights.
(2) Dividends; Stock Splits. Subject to the rights of the
holders of Preferred Stock, and subject to any other provisions of this Amended
and Restated Certificate of Incorporation, as it may be amended from time to
time, holders of shares of Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock or property of the Corporation
when, as and if declared thereon by the Board of Directors from time to time out
of assets or funds of the Corporation legally available therefor.
(3) Liquidation, Dissolution, etc. In the event of any
liquidation, dissolution or winding up (either voluntary or involuntary) of the
Corporation, the holders of shares of Common Stock shall be entitled to receive
the assets and funds of the Corporation available for distribution after
payments to creditors and to the holders of any Preferred Stock of the
Corporation that may at the time be outstanding, in proportion to the number of
shares held by them, respectively.
(4) Merger, etc. In the event of a merger or consolidation of
the Corporation with or into another entity (whether or not the Corporation is
the surviving entity), the holders of each share of Common Stock shall be
entitled to receive the same per share consideration on a per share basis.
(5) No Preemptive or Subscription Rights. No holder of shares of
Common Stock shall be entitled to preemptive or subscription rights.
(c) Preferred Stock. The Board of Directors is hereby expressly
authorized to provide for the issuance of all or any shares of the Preferred
Stock in one or more classes or series, and to fix for each such class or series
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
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expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in preference to,
or in such relation to, the dividends payable on any other class or classes or
any other series; (iii) entitled to such rights upon the dissolution of, or upon
any distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock, of the Corporation at
such price or prices or at such rates of exchange and with such adjustments; all
as may be stated in such resolution or resolutions.
(d) Power to Sell and Purchase Shares. Subject to the
requirements of applicable law, the Corporation shall have the power to issue
and sell all or any part of any shares of any class of stock herein or hereafter
authorized to such persons, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or not
greater consideration could be received upon the issue or sale of the same
number of shares of another class, and as otherwise permitted by law. Subject to
the requirements of applicable law, the Corporation shall have the power to
purchase any shares of any class of stock herein or hereafter authorized from
such persons, and for such consideration, as the Board of Directors shall from
time to time, in its discretion, determine, whether or not less consideration
could be paid upon the purchase of the same number of shares of another class,
and as otherwise permitted by law
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(b) The number of directors of the Corporation shall be as from time
to time fixed by the Board of Directors, and such number shall never be less
than three nor more than thirteen. Election of directors need not be by written
ballot unless the By-Laws so provide.
(c) The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors. The initial division of the Board of Directors into classes
shall be made by the decision of the affirmative vote of a majority of the
entire Board of Directors. The term of the initial Class I directors shall
terminate on the date of the 2001 annual meeting; the term of the initial Class
II directors shall terminate on the date of the 2002 annual meeting; and the
term of the initial Class III directors shall terminate on the date of the 2003
annual meeting. At each succeeding annual meeting of stockholders beginning in
2001, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be appor-
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<PAGE> 4
tioned among the classes so as to maintain the number of directors in each class
as nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director.
(d) A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
(e) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of the
Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors of such class shall hold
office for a term that shall coincide with the remaining term of that class. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his predecessor.
Subject to the rights, if any, of the holders of shares of Preferred Stock then
outstanding, any or all of the directors of the Corporation may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least a majority of the voting power of the Corporation's then
outstanding capital stock entitled to vote generally in the election of
directors. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Amended and Restated Certificate of Incorporation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Article FIFTH unless expressly provided by such terms.
(f) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of the GCL,
this Amended and Restated Certificate of Incorporation, and any By-Laws adopted
by the stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
SIXTH: No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL as the same exists or may hereafter be
amended. If the GCL is amended hereafter to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent authorized
by the GCL, as so amended. Any repeal or
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<PAGE> 5
modification of this Article SIXTH by the stockholders of the Corporation shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
SEVENTH: The Corporation shall indemnify its directors and officers to
the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives;
provided, however, that, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors. The right to indemnification conferred by this
Article SEVENTH shall include the right to be paid by the Corporation the
expenses incurred in defending or otherwise participating in any proceeding in
advance of its final disposition.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, provide rights to indemnification and to the advancement
of expenses to employees and agents of the Corporation similar to those
conferred in this Article SEVENTH to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses
conferred in this Article SEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under this Amended and Restated
Certificate of Incorporation, the By-Laws of the Corporation, any statute,
agreement, vote of stockholders or disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any rights to
indemnification and to the advancement of expenses of a director or officer of
the Corporation existing at the time of such repeal or modification with respect
to any acts or omissions occurring prior to such repeal or modification.
EIGHTH: (a) In addition to any affirmative vote required by law or this
Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, and except as otherwise expressly provided in Section (b) of this
Article EIGHTH, a Business Combination (as hereinafter defined) shall require
the affirmative vote of not less than eighty percent (80%) of the votes entitled
to be cast by the holders of all the then outstanding shares of Voting Stock (as
hereinafter defined), voting together as a single-class, excluding Voting Stock
beneficially owned by any Interested Stockholder (as hereinafter defined). Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage or separate class vote may be specified,
by law or in any agreement with any national securities exchange or otherwise.
(b) The provisions of Section (a) of this Article EIGHTH shall not
be applicable to
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any particular Business Combination, and such Business Combination shall require
only such affirmative vote, if any, as is required by law or by any other
provision of this Amended and Restated Certificate of Incorporation or the
By-Laws of the Corporation, or any agreement with any national securities
exchange, if all of the conditions specified in either of the following
Paragraphs (1) or (2) are met or, in the case of a Business Combination not
involving the payment of consideration to the holders of the Corporation's
outstanding Capital Stock (as hereinafter defined), if the condition specified
in the following Paragraph (1) is met:
(1) The Business Combination shall have been approved by a
majority (whether such approval is made prior to or subsequent to the
acquisition of beneficial ownership of the Voting Stock that caused the
Interested Stockholder to become an Interested Stockholder) of the Continuing
Directors (as hereinafter defined).
(2) All of the following conditions shall have been met:
(A) The aggregate amount of cash and the Fair Market Value
(as hereinafter defined), as of the date of the consummation of the Business
Combinations, of consideration other than cash to be received per share by
holders of Common Stock in such Business Combination shall be at least equal to
the highest amount determined under clauses (i), (ii), (iii) and (iv) below:
(i)(if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any share of Common
Stock in connection with the acquisition by the Interested Stockholder of
beneficial ownership of shares of Common Stock (x) within the two-year period
immediately prior to the first public announcement of the proposed Business
Combination (the "Announcement Date") or (y) in the transaction in which it
became an Interested Stockholder, whichever is higher, in either case as
adjusted for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to Common Stock;
(ii) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested Stockholder became
an Interested Stockholder (the "Determination Date"), whichever is higher, as
adjusted for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to Common Stock;
(iii) (if applicable) the price per share equal to the
Fair Market Value per share of Common Stock determined pursuant to the
immediately preceding clause (ii), multiplied by the ratio of (x) the highest
per share price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for
any share of Common Stock in connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of Common Stock within the
two-year period immediately prior to the Announcement Date, as adjusted for any
subsequent stock split, stock dividend, subdivision or reclassification with
respect to Common Stock to (y) the Fair Market Value per share of Common Stock
on the first day in such two-year period on which the Interested
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Stockholder acquired beneficial ownership of any share of Common Stock, as
adjusted for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to Common Stock; and
(iv) the Corporation's net income per share of Common
Stock for the four full consecutive fiscal quarters immediately preceding the
Announcement Date, multiplied by the higher of the then price/earnings multiple
(if any) of such Interested Stockholder or the highest price/earnings multiple
of the Corporation within the two-year period immediately preceding the
Announcement Date (such price/earnings multiples being determined as customarily
computed and reported in the financial community).
(B) The aggregate amount of cash and the Fair Market Value,
as of the date of the consummation of the Business Combination, of consideration
other than cash to be received per share by holders of shares of any class or
series of outstanding Capital Stock, other than Common Stock, shall be at least
equal to the highest amount determined under clauses (i), (ii), (iii) and (iv)
below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any share of such
class or series of Capital Stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of shares of such class or series
of Capital Stock (x) within the two-year period immediately prior to the
Announcement Date or (y) in the transaction in which it became an Interested
Stockholder, whichever is higher, in either case as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with respect to
such class or series of Capital Stock;
(ii) the Fair Market Value per share of such class or
series of Capital Stock on the Announcement Date or on the Determination Date,
whichever is higher, as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to such class or series of Capital
Stock;
(iii) (if applicable) the price per share equal to the
Fair Market Value per share of such class or series of Capital Stock determined
pursuant to the immediately preceding clause (ii), multiplied by the ratio of
(x) the highest per share price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by or on behalf of the Interested
Stockholder for any share of such class or series of Capital Stock in connection
with the acquisition by the Interested Stockholder of beneficial ownership of
shares of such class or series of Capital Stock within the two-year period
immediately prior to the Announcement Date, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with respect to such
class or series of Capital Stock to (y) the Fair Market Value per share of such
class or series of Capital Stock on the first day in such two-year period on
which the Interested Stockholder acquired beneficial ownership of any share of
such class or series of Capital Stock, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with respect to such
class or series of Capital Stock; and
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(iv) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series of Capital Stock
would be entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation regardless of
whether the Business Combination to be consummated constitutes such an event.
The provisions of this Paragraph (2) shall be required to be met
with respect to every class or series of outstanding Capital Stock, whether or
not the Interested Stockholder has previously acquired beneficial ownership of
any shares of a particular class or series of Capital Stock.
(C) The consideration to be received by holders of a
particular class or series of outstanding Capital Stock shall be in cash or in
the same form as previously has been paid by or on behalf of the Interested
Stockholder in connection with its direct or indirect acquisition of beneficial
ownership of shares of such class or series of Capital Stock. If the
consideration so paid for shares of any class or series of Capital Stock varied
as to form, the form of consideration for such class or series of Capital Stock
shall be either cash or the form used to acquire beneficial ownership of the
largest number of shares of such class or series of Capital Stock previously
acquired by the Interested Stockholder.
(D) After the Determination Date and prior to the
consummation of such Business Combination: (i) except as approved by a majority
of the Continuing Directors, there shall have been no failure to declare and pay
at the regular date therefor any full quarterly dividends (whether or not
cumulative) payable in accordance with the terms of any outstanding Capital
Stock; (ii) there shall have been no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any stock split, stock
dividend or subdivision of the Common Stock), except as approved by a majority
of the Continuing Directors; (iii) there shall have been an increase in the
annual rate of dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of reducing the
number of outstanding shares of Common Stock, unless the failure so to increase
such annual rate is approved by a majority of the Continuing Directors; and (iv)
such Interested Stockholder shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the transaction that
results in such Interested Stockholder becoming an Interested Stockholder and
except in a transaction that, after giving effect thereto, would not result in
any increase in the Interested Stockholder's percentage beneficial ownership of
any class or series of Capital Stock.
(E) After the Determination Date, such Interested
Stockholder shall not have received the benefit, directly or indirectly (except
proportionately as a stockholder of the Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(F) A proxy or information statement describing the proposed
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Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the "Act") (or
any subsequent provisions replacing such Act, rules or regulations) shall be
mailed to all stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions). The proxy or information statement shall contain on the
first page thereof, in a prominent place, any statement as to the advisability
(or inadvisability) of the Business Combination that the Continuing Directors,
or any of them, may choose to make and, if deemed advisable by a majority of the
Continuing Directors, the opinion of an investment banking firm selected by a
majority of the Continuing Directors as to the fairness (or not) of the terms of
the Business Combination from a financial point of view to the holders of the
outstanding shares of Capital Stock other than the Interested Stockholder and
its Affiliates or Associates (as hereinafter defined), such investment banking
firm to be paid a reasonable fee for its services by the Corporation.
(G) Such Interested Stockholder shall not have made any
major change in the Corporation's business or equity capital structure without
the approval of a majority of the Continuing Directors.
(c) The following definitions shall apply with respect to this
Article EIGHTH:
(1) The term "Business Combination" shall mean:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii)
any other company (whether or not itself an Interested Stockholder) which is or
after such merger or consolidation would be an Affiliate or Associate of an
Interested Stockholder; or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition or security arrangement, investment, loan, advance, guarantee,
agreement to purchase, agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a series of
transactions) with or for the benefit of any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder involving any assets,
securities or commitments of the Corporation, any Subsidiary or any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder having
an aggregate Fair Market Value and/or involving aggregate commitments of
$10,000,000 or more or constituting more than 5 percent of the book value of the
total assets (in the case of transactions involving assets or commitments other
than capital stock) or 5 percent of the stockholders' equity (in the case of
transactions in capital stock) of the entity in question (the "Substantial
Part"), as reflected in the most recent fiscal year-end consolidated balance
sheet of such entity existing at the time the stockholders of the Corporation
would be required to approve or authorize the Business Combination involving the
assets, securities and/or commitments constituting any Substantial Part; or
(C) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation which is voted for or consented to by any
Interested Stockholder; or
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(D) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving an Interested
Stockholder) that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of any Subsidiary, that
is beneficially owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or
(E) any agreement, contract or other arrangement providing
for any one or more of the actions specified in the foregoing clauses (A) to
(D).
(2) The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article FOURTH of
this Amended and Restated Certificate of Incorporation, and the term "Voting
Stock" shall mean all Capital Stock which by its terms may be voted on all
matters submitted to stockholders of the Corporation generally.
(3) The term "person" shall mean any individual, firm, company
or other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such person
has any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Capital Stock.
(4) The term "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee benefit plan of the Corporation or
any Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity) who (A) is the beneficial owner of Voting Stock
representing ten percent (10%) or more of the votes entitled to be cast by the
holders of all then outstanding shares of Voting Stock; or (B) is an Affiliate
or Associate of the Corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner of Voting
Stock representing ten percent (10%) or more of the votes entitled to be cast by
the holders of all then outstanding shares of Voting Stock.
(5) A person shall be a "beneficial owner" of any Capital Stock
(A) which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (B) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or understanding; or
(C) which are beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Capital Stock. For the purposes of determining
whether a person is an
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Interested Stockholder pursuant to Paragraph 4 of this Section (c), the number
of shares of Capital Stock deemed to be outstanding shall include shares deemed
beneficially owned by such person through application of this Paragraph 5 of
Section (c), but shall not include any other shares of Capital Stock that may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(6) The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 under the Act as in
effect on the date that this Article EIGHTH is approved by the Board (the term
"registrant" in said Rule 12b-2 meaning in this case the Corporation).
(7) The term "Subsidiary" means any company of which a majority
of any class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section (c), the term "Subsidiary"
shall mean only a company of which a majority of each class of equity security
is beneficially owned by the Corporation.
(8) The term "Continuing Director" means any member of the Board
of Directors of the Corporation (the "Board of Directors"), while such person is
a member of the Board of Directors, who is not an Affiliate or Associate or
representative of the Interested Stockholder and was a member of the Board of
Directors prior to the time that the Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing Director while such successor is
a member of the Board of Directors, who is not an Affiliate or Associate or
representative of the Interested Stockholder and is recommended or elected to
succeed the Continuing Director by a majority of Continuing Directors.
(9) The term "Fair Market Value" means (A) in the case of cash,
the amount of such cash; (B) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange-Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Act on which
such stock is listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any similar system then
in use, or if no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by a majority of the
Continuing Directors in good faith; and (C) in the case of property other than
cash or stock, the fair market value of such property on the date in question as
determined in good faith by a majority of the Continuing Directors.
(10) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in Paragraphs 2(A) and 2(B) of Section (b) of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of any other class or
series of Capital Stock retained by the holders of such shares.
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(d) A majority of the Continuing Directors shall have the power and
duty to determine for the purposes of this Article EIGHTH, on the basis of
information known to them after reasonable inquiry, (1) whether a person is an
Interested Stockholder, (2) the number of shares of Capital Stock or other
securities beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether the assets that are the subject
of any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any Subsidiary in any
Business Combination has, an aggregate Fair Market Value of $10,000,000 or more,
and (5) whether the assets or securities that are the subject of any Business
Combination constitute a Substantial Part. Any such determination made in good
faith shall be binding and conclusive on all parties.
(e) Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
(f) The fact that any Business Combination complies with the
provisions of Section (b) of this Article EIGHTH shall not be construed to
impose any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof, to approve such Business Combination or
recommend its adoption or approval to the shareholders of the Corporation, nor
shall such compliance limit, prohibit or otherwise restrict in any manner the
Board of Directors, or any member thereof, with respect to evaluations of or
actions and responses taken with respect to such Business Combination.
(g) Notwithstanding any other provisions of this Amended and
Restated Certificate of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage or separate class vote may be
specified by law, this Amended and Restated Certificate of Incorporation or the
By-Laws of the Corporation), the affirmative vote of the holders of not less
than eighty percent (80%) of the votes entitled to be cast by the holders of all
the then outstanding shares of Voting Stock, voting together as a single class,
excluding Voting Stock beneficially owned by any Interested Stockholder, shall
be required to amend or repeal, or adopt any provisions inconsistent with, this
Article EIGHTH; provided, however, that this Section G shall not apply to, and
such eighty percent (80%) vote shall not be required for, any amendment, repeal
or adoption unanimously recommended by the Board of Directors if all of such
directors are persons who would be eligible to serve as Continuing Directors
within the meaning of Section (c), Paragraph 8 of this Article EIGHTH.
NINTH: Unless otherwise required by law, special meetings of
stockholders, for any purpose or purposes may be called by either (i) the
Chairman of the Board of Directors, if there be one, (ii) the Chief Executive
Officer, or (iii) the Board of Directors. The ability of the stockholders to
call a special meeting is hereby specifically denied.
TENTH: Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation, and the ability of the stockholders to
consent in writing to the taking of any action is
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hereby specifically denied.
ELEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
TWELFTH: In furtherance and not in limitation of the powers conferred
upon it by the laws of the State of Delaware, the Board of Directors shall have
the power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of at least a majority of the entire Board of Directors shall
be required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of the shares entitled to vote at an election of directors.
THIRTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed in this Amended and
Restated Certificate of Incorporation, the Corporation's By-Laws or the GCL, and
all rights herein conferred upon stockholders are granted subject to such
reservation; provided, however, that, notwithstanding any other provision of
this Amended and Restated Certificate of Incorporation (and in addition to any
other vote that may be required by law), the affirmative vote of the holders of
at least eighty percent (80%) of the voting power of the shares entitled to vote
at an election of directors shall be required to amend, alter, change or repeal,
or to adopt any provision as part of this Amended and Restated Certificate of
Incorporation inconsistent with the purpose and intent of Articles FIFTH,
EIGHTH, NINTH, TENTH and TWELFTH of this Amended and Restated Certificate of
Incorporation or this Article THIRTEENTH.
* * * * * * *
13
<PAGE> 14
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed as of this __ day of March,
2000 in its name and on its behalf by its Chief Executive Officer, pursuant to
Section 103 of the General Corporation Law of the State of Delaware.
SCREAMINGMEDIA INC.
By: /s/ Kevin C. Clark
---------------------------
Name: Kevin C. Clark
Title: Chief Executive Officer
<PAGE> 1
Exhibit 3.2
FORM OF
AMENDED AND RESTATED
BY-LAWS
of
SCREAMINGMEDIA INC.
A Delaware Corporation
Effective _______ ___, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
OFFICES ...................................................................................... 1
Section 1. Registered Office .............................................. 1
Section 2. Other Offices .................................................. 1
ARTICLE II
MEETINGS OF STOCKHOLDERS ..................................................................... 1
Section 1. Place of Meetings .............................................. 1
Section 2. Annual Meetings ................................................ 2
Section 3. Special Meetings ............................................... 2
Section 5. Quorum ......................................................... 3
Section 7. Proxies ........................................................ 4
Section 8. Voting ......................................................... 6
Section 9. Nature of Business at Annual
Meetings of Stockholders ..................................... 6
Section 10. List of Stockholders Entitled
to Vote ..................................................... 9
Section 11. Stock Ledger .................................................. 10
Section 12. Inspectors of Election ........................................ 10
Section 13. Conduct of Meetings .......................................... 11
ARTICLE III
DIRECTORS .................................................................................... 12
Section 1. Number and Election of
Directors .................................................... 12
Section 2. Nomination of Directors ........................................ 13
Section 3. Vacancies ...................................................... 16
Section 4. Duties and Powers .............................................. 17
Section 5. Organization ................................................... 17
Section 6. Resignations and Removals of
Directors .................................................... 18
Section 7. Meetings ....................................................... 19
Section 8. Quorum ......................................................... 19
Section 9. Actions of Board by Written
Consent ...................................................... 20
Section 10. Meetings by Means of
Conference Telephone ........................................ 20
Section 11. Committees .................................................... 21
Section 12. Compensation .................................................. 22
Section 13. Interested Directors .......................................... 22
Section 14. Ex Officio Members of the
Board of Directors .......................................... 24
ARTICLE IV
OFFICERS ..................................................................................... 24
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1. General ........................................................ 24
Section 2. Election ....................................................... 25
Section 3. Voting Securities Owned by the
Corporation .................................................. 26
Section 4. Chairman of the Board of
Directors .................................................... 26
Section 5. Vice Chairman .................................................. 27
Section 6. Chief Executive Officer ....................................... 28
Section 7. President ..................................................... 29
Section 8. Vice Presidents ................................................ 29
Section 9. Secretary ...................................................... 30
Section 10. Treasurer ..................................................... 31
Section 11. Assistant Secretaries ......................................... 32
Section 12. Assistant Treasurers .......................................... 32
Section 13. Other Officers ................................................ 33
ARTICLE V
STOCK ........................................................................................ 33
Section 1. Form of Certificates ........................................... 33
Section 2. Signatures ..................................................... 34
Section 3. Lost, Destroyed, Stolen or
Mutilated Certificates ....................................... 34
Section 4. Transfers ...................................................... 35
Section 5. Transfer and Registry Agents ................................... 36
Section 6. Beneficial Owners .............................................. 36
ARTICLE VI
NOTICES ...................................................................................... 36
Section 1. Notices ........................................................ 36
Section 2. Waivers of Notice .............................................. 37
ARTICLE VII
GENERAL PROVISIONS ........................................................................... 38
Section 1. Dividends ...................................................... 38
Section 2. Disbursements .................................................. 39
Section 3. Fiscal Year .................................................... 39
Section 4. Corporate Seal ................................................. 39
Section 5. Record Date .................................................... 39
ARTICLE VIII
INDEMNIFICATION .............................................................................. 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1. Power to Indemnify in Actions,
Suits or Proceedings Other than Those by or in
the Right of the Corporation ................................. 42
Section 2. Power to Indemnify in Actions,
Suits or Proceedings by or in the Right of the
Corporation .................................................. 43
Section 3. Authorization of
Indemnification .............................................. 44
Section 4. Good Faith Defined ............................................. 45
Section 5. Indemnification by a Court ..................................... 47
Section 6. Expenses Payable in Advance .................................... 48
Section 7. Nonexclusivity of
Indemnification and Advancement of Expenses .................. 48
Section 8. Insurance ...................................................... 49
Section 9. Certain Definitions ............................................ 49
Section 10. Survival of Indemnification
and Advancement of Expenses .................................. 51
Section 11. Limitation on Indemnification .................................. 51
Section 12. Indemnification of Employees
and Agents ................................................................. 52
ARTICLE IX
AMENDMENTS ................................................................................... 52
Section 1. Amendments ..................................................... 52
Section 2. Entire Board of Directors ...................................... 52
</TABLE>
iii
<PAGE> 5
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
SCREAMINGMEDIA INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall
<PAGE> 6
be designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meetings of stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect directors, and transact such other
business as may properly be brought before the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or by
the certificate of incorporation of the Corporation, as amended and restated
from time to time (the "Certificate of Incorporation"), special meetings of
stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii)
the Board of Directors. Such request shall state the purpose or purposes of the
proposed meeting. At a special meeting of the stockholders, only such business
shall be conducted as shall be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors.
2
<PAGE> 7
Section 4. Notice. The Corporation shall give each stockholder written
notice of any meeting of stockholders. The notice shall state the place, date
and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Unless otherwise required by law, the
written notice of any meeting shall be given not less than ten nor more than
sixty days before the date of the meeting to each stockholder entitled to vote
at such meeting.
Section 5. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time
in the manner provided in Section 6, until a quorum is present or represented.
3
<PAGE> 8
Section 6. Adjournment. Any meeting of the stockholders may be
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting not less than ten nor more
than sixty days before the date of the meeting.
Section 7. Proxies. Any stockholder entitled to vote may do so in
person or by his or her proxy appointed by an instrument in writing subscribed
by such stockholder or by his or her attorney thereunto authorized, delivered to
the Secretary of the meeting; provided, however, that no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or persons to act for him or her as proxy, either of the
4
<PAGE> 9
following shall constitute a valid means by which a stockholder may grant such
authority:
(i) A stockholder may execute a writing authorizing another person
or persons to act for him or her as proxy. Execution may be accomplished by the
stockholder or his or her authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to such
writing by any reasonable means, including, but not limited to, by facsimile
signature.
(ii) A stockholder may authorize another person or persons to act
for him or her as proxy by transmitting or authorizing the transmission of a
telegram or other means of electronic transmission to the person who will be the
holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram or
other means of electronic transmission must either set forth or be submitted
with information from which it can be determined that the telegram or other
electronic transmission was authorized by the stockholder.
5
<PAGE> 10
Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission authorizing another person or persons to act as proxy
for a stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Section 8. Voting. At all meetings of the stockholders at which a
quorum is present, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present in person or
represented by proxy and entitled to vote on such question, voting as a single
class. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his or her discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
Section 9. Nature of Business at Annual Meetings of Stockholders. No
business may be transacted at
6
<PAGE> 11
an annual meeting of stockholders, other than business that is either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before the annual meeting by any stockholder
of the Company (i) who is a stockholder of record on the date of the giving of
the notice provided for in this Section 9 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 9.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Company.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Company not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding
7
<PAGE> 12
annual meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Company which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stock-
8
<PAGE> 13
holder intends to appear in person or by proxy at the annual meeting to bring
such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 9, provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 9 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 10. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such
9
<PAGE> 14
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
Section 11. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 8 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 12. Inspectors of Election. In advance of any meeting of
stockholders, the Board by resolution or the Chairman or the Chief Executive
Officer shall appoint one or more inspectors of election to act at the meeting
and make a written report thereof. One or more other persons may be designated
as alternate inspectors to replace any inspector who fails to act. If no
10
<PAGE> 15
inspector or alternate is present, ready and willing to act at a meeting of
stockholders, the Chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Unless otherwise required by law, inspectors may be
officers, employees or agents of the Corporation. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector shall have the duties
prescribed by law and shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote taken and of such
other facts as may be required by law.
Section 13. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the
11
<PAGE> 16
meeting. Such rules, regulations or procedures, whether adopted by the Board of
Directors or prescribed by the chairman of the meeting, may include, without
limitation, the following: (i) the establishment of an agenda or order of
business for the meeting; (ii) the determination of when the polls shall open
and close for any given matter to be voted on at the meeting; (iii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iv) limitations on attendance at or participation in the meeting to
stockholders of record of the corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors
shall consist of not less than [__________] nor more than [_________] members,
the exact number of which shall be determined from time to time by resolution
adopted by the Board of Directors. Except as
12
<PAGE> 17
provided in Section 3 of this Article III, directors shall be elected by the
stockholders at the annual meetings of stockholders, and each director so
elected shall hold office until such director's successor is duly elected and
qualified, or until such director's death, or until such director's earlier
resignation or removal. Directors need not be stockholders.
Section 2. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Company, except as may be otherwise provided in the Certificate
of Incorporation with respect to the right of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors may
be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Company (i) who is a stockholder of record on
the date of the giving of the notice provided for in this Section 2 and on the
record date for the determination of stockholders entitled to vote at such
meeting
13
<PAGE> 18
and (ii) who complies with the notice procedures set forth in this Section 2.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Company (a)
in the case of an annual meeting, not less than sixty (60) days nor more than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth (10th) day following the day on which
14
<PAGE> 19
notice of the date of the special meeting was mailed or public disclosure of the
date of the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Company which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Company which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
15
<PAGE> 20
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Company unless nominated in accordance with the procedures set forth in this
Section 2. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 3. Vacancies. Subject to the terms of any one or more classes
or series of preferred stock, any
16
<PAGE> 21
vacancy on the Board of Directors that results from an increase in the number of
directors may be filled by a majority of the directors then in office, provided
that a quorum is present, and any other vacancy occurring on the Board of
Directors may be filled by a majority of the Board of Directors then in office,
even if less than a quorum, or by a sole remaining director. Notwithstanding the
foregoing, whenever the holders of any one or more class or classes or series of
preferred stock of the Corporation shall have the right, voting separately as a
class, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the Certificate of Incorporation.
Section 4. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
required to be exercised or done by the stockholders.
Section 5. Organization. At each meeting of the Board of Directors, the
Chairman of the Board of Directors, or, in his or her absence, a director chosen
17
<PAGE> 22
by a majority of the directors present, shall act as Chairman. The Secretary of
the Corporation shall act as Secretary at each meeting of the Board of
Directors. In case the Secretary shall be absent from any meeting of the Board
of Directors, an Assistant Secretary shall perform the duties of Secretary at
such meeting; and in the absence from any such meeting of the Secretary and all
the Assistant Secretaries, the Chairman of the meeting may appoint any person to
act as Secretary of the meeting.
Section 6. Resignations and Removals of Directors. Any director of the
Corporation may resign at any time, by giving written notice to the Chairman of
the Board of Directors, the Chief Executive Officer or the Secretary of the
Corporation. Such resignation shall take effect at the time therein specified
or, if no time is specified, immediately; and, unless otherwise specified in
such notice, the acceptance of such resignation shall not be necessary to make
it effective. Except as otherwise required by law and subject to the rights, if
any, of the holders of shares of preferred stock then outstanding, any director
or the entire Board of Directors may be removed from office at any time, but
only for cause, and only by the affirmative vote of the holders of
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<PAGE> 23
at least a majority in voting power of the issued and outstanding capital stock
of the Corporation entitled to vote in the election of directors.
Section 7. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice. Special meetings of the Board of Directors may be called by the Chairman
of the Board of Directors, the Vice Chairman, if there be one, or a majority of
the directors then in office. Notice thereof stating the place, date and hour of
the meeting shall be given to each director either by mail not less than
forty-eight (48) hours before the date of the meeting, by telephone, facsimile,
telegram or electronic transmission on twenty-four (24) hours' notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
Section 8. Quorum. Except as may be otherwise required by law, the
Certificate of Incorporation or these By-Laws, at all meetings of the Board of
Directors,
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a majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 9. Actions of Board by Written Consent. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 10. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee desig-
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nated by the Board of Directors, may participate in a meeting of the Board of
Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 10 shall constitute presence in person at such meeting.
Section 11. Committees. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any absent or disqualified member. Any committee, to the extent
permitted by law and provided in the resolution establishing such commit-
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tee, shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation. Each
committee shall keep regular minutes and report to the Board of Directors when
required.
Section 12. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary, or such other emoluments as the Board of Directors shall from time to
time determine. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 13. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is
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present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because such
person's or their votes are counted for such purpose if (i) the material facts
as to such person's or their relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to such person's or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
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Section 14. Ex Officio Members of the Board of Directors. The Board of
Directors, in its discretion, may appoint one or more persons as ex officio
members of the Board of Directors, who shall serve at the pleasure of the Board
of Directors. Ex officio members of the Board of Directors shall be permitted to
attend meetings of the Board of Directors but shall not be entitled to vote on
any matter before the Board of Directors and shall not be considered to be
directors of the Corporation for any other purpose, including without
limitation, for establishing a quorum, acting by written consent or providing
notice of meetings. Notwithstanding the foregoing, the Board of Directors may
hold meetings that do not include ex officio members of the Board of Directors.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be, a Chief Executive Officer, a Secretary and
a Treasurer. The Board of Directors, in its discretion, may also choose a
Chairman of the Board of Directors (who must be a director of the Company), a
Vice Chairman of the Board of Directors (who must be a director of the
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Company), a President, one or more Vice Presidents, Assistant Secretaries,
Assistant Treasurers and other officers. Any number of offices may be held by
the same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman and the
Vice Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
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Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the Chief Executive Officer, the
President or any Vice President and any such officer may, in the name of and on
behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the signature of
the Chief Executive Officer is required, the Chairman of the Board of Directors
shall possess the same power as the Chief Executive Officer to sign all
con-
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tracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
Chief Executive Officer, the Chairman of the Board of Directors shall exercise
all the powers and discharge all the duties of the Chief Executive Officer. The
Chairman of the Board of Directors shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him or her by
these By-Laws or by the Board of Directors.
Section 5. Vice Chairman. In the absence of the Chairman, the
Vice Chairman, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the signature of
the Chief Executive Officer is required, the Vice Chairman shall possess the
same power as the Chief Executive Officer to sign all contracts, certificates
and other instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the Chairman, the Vice Chairman
shall exercise all powers and discharge all the duties of the Chairman. The Vice
Chairman shall also perform such other duties and may exercise such other powers
as may from time to time
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be assigned by these By-Laws or by the Board of Directors.
Section 6. Chief Executive Officer. The Chief Executive
Officer shall, subject to the control of the Board of Directors and, if there be
one, the Chairman of the Board of Directors, have general supervision of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. The Chief Executive Officer shall
execute all bonds, mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except that the other
officers of the Corporation may sign and execute documents when so authorized by
these By-Laws, the Board of Directors or the Chief Executive Officer. In the
absence or disability of the Chairman of the Board of Directors, or if there be
none, the Chief Executive Officer shall preside at all meetings of the
stockholders and the Board of Directors. The Chief Executive Officer shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him or her by these By-Laws or by the Board of
Directors.
Section 7. President. At the request of the Chief Executive
Officer or in the Chief Executive Offi-
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cer's absence or in the event of the Chief Executive Officer's inability or
refusal to act (and if there be no Chairman or Vice Chairman), the President
shall perform the duties of the Chief Executive Officer, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. The President shall perform such other duties and have
such other powers as the Board of Directors from time to time may prescribe.
Section 8. Vice Presidents. At the request of the Chief
Executive Officer or in his or her absence or in the event of his or her
inability or refusal to act (and if there be no Chairman, Vice Chairman or
President), the Vice President or the Vice Presidents if there is more than one
(in the order designated by the Board of Directors) shall perform the duties of
the Chief Executive Officer, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the Chief Executive Officer. Each
Vice President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman,
Vice Chairman, President and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the
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Chief Executive Officer or in the event of the inability or refusal of the Chief
Executive Officer to act, shall perform the duties of the Chief Executive
Officer, and when so acting, shall have all the powers of and be subject to all
the restrictions upon the Chief Executive Officer.
Section 9. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors,
Chairman, Vice Chairman or Chief Executive Officer, under whose supervision the
Secretary shall be. If the Secretary shall be unable or shall refuse to cause to
be given notice of all meetings of the stockholders and special meetings of the
Board of Directors, and if there be no Assistant Secretary, then either the
Board of Directors or the Chief Executive Officer may choose another officer to
cause such notice to be given. The Secretary shall have cus-
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tody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his or her signature. The
Secretary shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly kept or
filed, as the case may be.
Section 10. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board of
Directors, at its regular meetings, or when the Board of
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Directors so requires, an account of all transactions as Treasurer and of the
financial condition of the Corporation.
Section 11. Assistant Secretaries. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the Chief Executive Officer, the President, if there be
one, any Vice President, if there be one, or the Secretary, and in the absence
of the Secretary or in the event of his or her disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
Section 12. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the Chief Executive
Officer, the President, if there be one, any Vice President, if there be one, or
the Treasurer, and in the absence of the Treasurer or in the event of the
Treasurer's disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have
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all the powers of and be subject to all the restrictions upon the Treasurer.
Section 13. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation, (i) by the Chairman or Vice Chairman of the Board of Directors, the
Chief Executive Officer, the President or a Vice President and (ii) by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by such holder of
stock in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed
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or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or such person's legal representative, to
advertise the same in such manner as the Board of Directors shall require and/or
to give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
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Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, properly endorsed for transfer
and payment of all necessary transfer taxes; provided, however, that such
surrender and endorsement or payment of taxes shall not be required in any case
in which the officers of the Corporation shall determine to waive such
requirement. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled," with the date of cancellation, by the
Secretary or Assistant Secretary of the Corporation or the transfer agent
thereof. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.
Section 5. Transfer and Registry Agents. The Corporation may
from time to time maintain one or more transfer offices or agencies and registry
offices or agencies at such place or places as may be determined from time to
time by the Board of Directors.
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Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, facsimile, telex or cable.
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Section 2. Waivers of Notice.
(a) Whenever any notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting, present by person or represented by proxy, shall constitute a waiver
of notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
(b) Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver of
notice unless so required by law, the Certificate of Incorporation or these
By-Laws.
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ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Subject to the requirements of the GCL
and the provisions of the Certificate of Incorporation, dividends upon the
capital stock of the Corporation may be declared by the Board of Directors at
any regular or special meeting of the Board of Directors, and may be paid in
cash, in property, or in shares of the Corporation's capital stock. Before
payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for purchasing any of the shares of capital
stock, warrants, rights, options, bonds, debentures, notes, scrip or other
securities or evidences of indebtedness of the Corporation, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for any other proper purpose, and the Board of Directors may modify or abolish
any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be
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signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 5. Record Date
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of stock-
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holders shall be at the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; providing, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than ten days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be
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taken is delivered to the Corporation by delivery to its registered office in
this State, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolutions taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action.
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If no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or
Proceedings Other than Those by or in the Right of the Corporation. Subject to
Section 3 of this Article VIII, the Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with
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such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that such person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a
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director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination
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that indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, without
the necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or pro-
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ceeding, to have had no reasonable cause to believe his or her conduct was
unlawful, if such person's action is based on the records or books of account of
the Corporation or another enterprise, or on information supplied to such person
by the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Section 1 or 2 of this Article VIII,
as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific
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case under Section 3 of this Article VIII, and notwithstanding the absence of
any determination thereunder, any director or officer may apply to the Court of
Chancery of the State of Delaware or any other court of competent jurisdiction
in the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VIII. The basis of such indemnification
by a court shall be a determination by such court that indemnification of the
director or officer is proper in the circumstances because such person has met
the applicable standards of conduct set forth in Section 1 or 2 of this Article
VIII, as the case may be. Neither a contrary determination in the specific case
under Section 3 of this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or create a presumption that
the director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to
this Section 5 shall be given to the Corporation promptly upon the filing of
such application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
47
<PAGE> 52
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation or any By-Law, agreement,
contract, vote of stockholders or disinterested directors or pursuant to the
direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or 2 of this
48
<PAGE> 53
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the GCL, or otherwise.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power or
the obligation to indemnify such person against such liability under the
provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
49
<PAGE> 54
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the
50
<PAGE> 55
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer (or his or her heirs, executors or personal or legal representatives) or
advance expenses in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Corporation.
51
<PAGE> 56
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted by the Board of
Directors or by the stockholders as provided in the Certificate of
Incorporation.
Section 2. Entire Board of Directors. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
52
<PAGE> 1
Exhibit 4.1
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[SCREAMINGMEDIA LOGO]
SCREAMINGMEDIA INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 810883 10 8
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE
COMMON STOCK PAR VALUE OF $.01 EACH, OF
SCREAMINGMEDIA INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney on surrender of this certificate, properly endorsed.
This certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
[SCREAMINGMEDIA INC. CORPORATE
SEAL]
/s/ Alan S. Ellman /s/ William P. Kelly
- ---------------------------------- --------------------
PRESIDENT, CHIEF OPERATING OFFICER TREASURER, SECRETARY
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants in
common
UNIF GIFT MIN ACT - _____________________ Custodian___________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Class A Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________________
NOTICE: _____________________________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERNATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
AMERICAN BANK NOTE COMPANY
55TH STREET AT SANSOM STREET
PHILADELPHIA, PA 19139
(215) 764-8600
SALES: J. NAPOLITANO: 212-593-5700
/NET/BANKNOTE/HOME 15/SCREAMING/H65680
PRODUCTION COORDINATOR: MARY TARTAGLIA: 215-764-8621
PROOF OF MARCH 14,2000
SCREAMING MEDIA
H 65680 FACE
OPERATOR eg
NEW
<PAGE> 1
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of April , 2000 (the "Agreement"),
between ScreamingMedia Inc., a Delaware corporation (the "Company"), and
[ ], a banking corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on [ ], 2000 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as hereinafter defined) for each share of common
stock, par value $0.01 per share, of the Company (the "Common Stock")
outstanding at the close of business on the date of the consummation of the
initial public offering of the Common Stock of the Company (the "Record Date"),
and has authorized the issuance of one Right (as such number may hereinafter be
adjusted pursuant to the provisions of Section 11(p) hereof) for each share of
Common Stock of the Company issued between the Record Date (whether originally
issued or delivered from the Company's treasury) and the Distribution Date (as
hereinafter defined) each Right initially representing the right to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock of the
Company (the "Preferred Stock") having the rights, powers and preferences set
forth in the form of Certificate of Designation,
<PAGE> 2
Preferences and Rights attached hereto as Exhibit A, upon the terms and subject
to the conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, shall be,
following the consummation of the initial public offering, the Beneficial Owner
of 15% or more of the shares of Common Stock then outstanding, but shall not
include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee
benefit plan of the Company, or of any Subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company for or pursuant to
the terms of any such plan, (iv) any Person who becomes the Beneficial Owner of
fifteen percent (15%) or more of the shares of Common Stock then outstanding as
a result of a reduction in the number of shares of Common Stock outstanding due
to the repurchase of shares of Common Stock by the Company unless and until such
Person, after becoming aware that such Person has become the Beneficial Owner of
fifteen percent (15%) or more of the then outstanding shares of Common Stock,
acquires beneficial ownership of additional shares of Common Stock representing
one percent (1%) or more of
2
<PAGE> 3
the shares of Common Stock then outstanding, (v) any Person who owns 15% or more
of the then outstanding shares of Common Stock upon the consummation of the
initial public offering of the Common Stock of the Company, unless and until
such Person shall purchase or otherwise become the Beneficial Owner of
additional shares of Common Stock constituting 5% or more of the shares of
Common Stock then outstanding, or (vi) any such Person who has reported or is
required to report such ownership (but less than 20%) on Schedule 13G under the
Securities and Exchange Act of 1934, as amended and in effect on the date of the
Agreement (the "Exchange Act") (or any comparable or successor report) or on
Schedule 13D under the Exchange Act (or any comparable or successor report)
which Schedule 13D does not state any intention to or reserve the right to
control or influence the management or policies of the Company or engage in any
of the actions specified in Item 4 of such schedule (other than the disposition
of the Common Stock) and, within 10 Business Days of being requested by the
Company to advise it regarding the same, certifies to the Company that such
Person acquired shares of Common Stock in excess of 14.9% inadvertently or
without knowledge of the terms of the Rights and who, together with all
Affiliates and Associates, thereafter does not acquire additional shares of
Common Stock while the Beneficial Owner of 15% or more of the shares of Common
Stock then outstanding; provided, however, that if the Person
3
<PAGE> 4
requested to so certify fails to do so within 10 Business Days, then such Person
shall become an Acquiring Person immediately after such 10-Business-Day period.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act.
(d) A Person shall be deemed the "Beneficial Owner"
of, and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right to
acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," (A) securities
tendered pursuant to a tender or exchange offer made by such Person or
any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, (B) securities
issuable upon exercise of Rights at any time prior to the occurrence
of a Triggering
4
<PAGE> 5
Event (as hereinafter defined), or (C) securities issuable upon
exercise of Rights from and after the occurrence of a Triggering Event
which Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date (as hereinafter
defined) or pursuant to Section 3(a) or Section 22 hereof (the
"Original Rights") or pursuant to Section 11(i) hereof in connection
with an adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right to
vote or dispose of or has "beneficial ownership" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act), including pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (ii) as a
result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding: (A) arises
solely from a revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under the
Exchange
5
<PAGE> 6
Act, (B) is not reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report) and (C) does not
constitute a trust, proxy, power of attorney or other device with the
purpose or effect of allowing two or more persons, acting in concert,
to avoid being deemed "beneficial owners" of such security or otherwise
avoid the status of "Acquiring Person" under the terms of this
Agreement or as part of a plan or scheme to evade the reporting
requirements under Schedule 13D or Section 13(d) or 13(g) of the
Exchange Act; or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof)
with which such Person (or any of such Person's Affiliates or
Associates) has any agreement, arrangement or understanding (whether or
not in writing), for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in the proviso to
subparagraph (ii) of this paragraph (d)) or disposing of any voting
securities of the Company; provided, however, that nothing in this
paragraph (d) shall cause a Person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to
"beneficially own," any securities acquired through such Person's
participation in good faith in
6
<PAGE> 7
a firm commitment underwriting until the expiration of forty days after
the date of such acquisition, and then only if such securities continue
to be owned by such Person at such expiration of forty days and
provided further, however, that any stockholder of the Company, with
affiliate(s), associate(s) or other person(s) who may be deemed
representatives of it serving as director(s) of the Company, shall not
be deemed to beneficially own securities held by other Persons as a
result of (i) persons affiliated or otherwise associated with such
stockholder serving as directors or taking any action in connection
therewith, (ii) discussing the status of its shares with the Company or
other stockholders of the Company similarly situated or (iii) voting or
acting in a manner similar to other stockholders similarly situated,
absent a specific finding by the Board of Directors of an express
agreement among such stockholders to act in concert with one another as
stockholders so as to cause, in the good faith judgment of the Board of
Directors, each such stockholder to be the Beneficial Owner of the
shares held by the other stockholder(s).
(e) "Business Day" shall mean any day other than
a Saturday, Sunday or a day on which banking institutions in the State
of New York are authorized or obligated by law or executive order to
close.
7
<PAGE> 8
(f) "Close of business" on any given date shall
mean 5:00 P.M., New York City time, on such date; provided, however,
that if such date is not a Business Day, it shall mean 5:00 P.M., New
York City time, on the next succeeding Business Day.
(g) "Common Stock" shall mean the common stock,
par value $0.01 per share, of the Company, except that "Common Stock"
when used with reference to any Person other than the Company shall
mean the capital stock of such Person with the greatest voting power,
or the equity securities or other equity interest having power to
control or direct the management, of such Person.
(h) "Common Stock Equivalents" shall have the
meaning set forth in Section 11(a)(iii) hereof.
(i) "Current Market Price" shall have the meaning
set forth in Section 11(d)(i) hereof.
(j) "Current Value" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(k) "Distribution Date" shall have the meaning
set forth in Section 3(a) hereof.
(l) "Equivalent Preferred Stock" shall have the
meaning set forth in Section 11(b) hereof.
8
<PAGE> 9
(m) "Exchange Act" shall mean the Securities and
Exchange Act of 1934.
(n) "Exchange Ratio" shall have the meaning set
forth in Section 24 hereof.
(o) "Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(p) "Final Expiration Date" shall have the
meaning set forth in Section 7(a) hereof.
(q) "Person" shall mean any individual, firm,
corporation, partnership or other entity.
(r) "Preferred Stock" shall mean shares of Series
A Junior Participating Preferred Stock, par value $0.01 per share, of
the Company, and, to the extent that there are not a sufficient number
of shares of Series A Junior Participating Preferred Stock authorized
to permit the full exercise of the Rights, any other series of
preferred stock of the Company designated for such purpose containing
terms substantially similar to the terms of the Series A Junior
Participating Preferred Stock.
(s) "Principal Party" shall have the meaning set
forth in Section 13(b) hereof.
(t) "Purchase Price" shall have the meaning set
forth in Section 4(a) hereof.
9
<PAGE> 10
(u) "Qualified Offer" shall have the meaning set
forth in Section 11(a)(ii) hereof.
(v) "Record Date" shall have the meaning set
forth in the WHEREAS clause at the beginning of this Agreement.
(w) "Rights" shall have the meaning set forth in
the WHEREAS clause at the beginning of this Agreement.
(x) "Rights Agent" shall have the meaning set
forth in the parties clause at the beginning of this Agreement.
(y) "Rights Certificate" shall have the meaning
set forth in Section 3(a) hereof.
(z) "Rights Dividend Declaration Date" shall have
the meaning set forth in the WHEREAS clause at the beginning of this
Agreement.
(aa) "Section 11(a)(ii) Event" shall mean any
event described in Section 11(a)(ii) hereof.
(ab) "Section 13 Event" shall mean any event
described in clauses (x), (y) or (z) of Section 13(a) hereof.
(ac) "Spread" shall have the meaning set forth in
Section 11(a)(ii- i) hereof.
(ad) "Stock Acquisition Date" shall mean the
first date of public announcement (which, for purposes of this
definition, shall include, without
10
<PAGE> 11
limitation, a report filed or amended pursuant to Section 13(d) under
the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such other than pursuant to a Qualified
Offer.
(ae) "Subsidiary" shall mean, with reference to
any Person, any corporation of which an amount of voting securities
sufficient to elect at least a majority of the directors of such
corporation is beneficially owned, directly or indirectly, by such
Person, or otherwise controlled by such Person.
(af) "Substitution Period" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(ag) "Summary of Rights" shall have the meaning
set forth in Section 3(b) hereof.
(ah) "Trading Day" shall have the meaning set
forth in Section 11(d)(i) hereof.
(ai) "Triggering Event" shall mean any Section
11(a)(ii) Event or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company
11
<PAGE> 12
may from time to time appoint such co-rights agents as it may deem necessary or
desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of (i) the close of
business on the tenth Business Day after the Stock Acquisition Date
(or, if the tenth Business Day after the Stock Acquisition Date occurs
before the Record Date, the close of business on the Record Date), or
(ii) the close of business on the tenth Business Day (or such later
date as the Board shall determine) after the date that a tender or
exchange offer by any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed
or established by the Company for or pursuant to the terms of any such
plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act,
if upon consummation thereof, such Person would become an Acquiring
Person, in either instance other than pursuant to a Qualified Offer
(the earlier of (i) and (ii) being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for
the Common Stock registered in the names of the holders of the Common
Stock (which certificates for Common Stock shall be deemed also to be
certificates for Rights) and not by separate certificates, and (y) the
Rights will be transferable only in connection
12
<PAGE> 13
with the transfer of the underlying shares of Common Stock (including a
transfer to the Company). As soon as practicable after the Distribution
Date, the Rights Agent will send by first-class, insured,
postage-prepaid mail, to each record holder of the Common Stock as of
the close of business on the Distribution Date, at the address of such
holder shown on the records of the Company, one or more right
certificates, in substantially the form of Exhibit B hereto (the
"Rights Certificates"), evidencing one Right for each share of Common
Stock so held, subject to adjustment as provided herein. In the event
that an adjustment in the number of Rights per share of Common Stock
has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Rights Certificates, the Company shall make the
necessary and appropriate rounding adjustments (in accordance with
Section 14(a) hereof) so that Rights Certificates representing only
whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights
will be evidenced solely by such Rights Certificates.
(b) The Company will make available, as promptly
as practicable following the Record Date, a copy of a Summary of
Rights, in substantially the form attached hereto as Exhibit C (the
"Summary of Rights") to any holder Rights who may so request from time
to time prior to the Expiration Date (as such term is defined in
Section 7(a) hereof). With respect to certificates for the Common Stock
outstanding as of the Record Date, until the Distribution Date, the
Rights will
13
<PAGE> 14
be evidenced by such certificates for the Common Stock and the
registered holders of the Common Stock shall also be the registered
holders of the associated Rights. Until the earlier of the Distribution
Date or the Expiration Date, the transfer of any certificates
representing shares of Common Stock in respect of which Rights have
been issued shall also constitute the transfer of the Rights associated
with such shares of Common Stock.
(c) Rights shall be issued in respect of all
shares of Common Stock which are issued (whether originally issued or
from the Company's treasury) after the Record Date but prior to the
earlier of the Distribution Date or the Expiration Date. Certificates
representing such shares of Common Stock shall also be deemed to be
certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the
holder hereof to certain Rights as set forth in the Rights
Agreement between SCREAMINGMEDIA INC. (the "Company") and
the Rights Agent thereunder (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal offices of the
Company. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on
the date of mailing, without charge, promptly after receipt of
a written request therefor. Under certain circumstances set
forth in the Rights Agreement, Rights issued to, or held by,
any Person who is, was or becomes an Acquiring Person or any
Affiliate or Associate thereof (as such terms are defined in
the Rights Agreement), whether currently held by or on behalf
of such Person or by any subsequent holder, may become null
and void.
14
<PAGE> 15
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of
election to purchase and of assignment to be printed on the reverse
thereof) shall each be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and
such legends, summaries or endorsements printed thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any applicable law
or with any rule or regulation made pursuant thereto or with any rule
or regulation of any stock exchange on which the Rights may from time
to time be listed, or to conform to usage. Subject to the provisions of
Section 11 and Section 22 hereof, the Rights Certificates, whenever
distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one
one-hundredths of a share of Preferred Stock as shall be set forth
therein at the price equal
15
<PAGE> 16
to the product of four times the average closing price of the Common
Stock for the first five days of trading subsequent to the consummation
of the initial public offering of the Common Stock, per one
one-hundredth of a share (the "Purchase Price"), but the amount and
type of securities purchasable upon the exercise of each Right and the
Purchase Price thereof shall be subject to adjustment as provided
herein.
(b) Any Rights Certificate issued pursuant to
Section 3(a), Section 11(i) or Section 22 hereof that represents Rights
beneficially owned by: (i) an Acquiring Person or any Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee
after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring Person or to any Person with whom
such Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which
the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect
avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or
16
<PAGE> 17
Section 11 hereof upon transfer, exchange, replacement or adjustment of
any other Rights Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Rights Certificate and the Rights represented hereby may
become null and void in the circumstances specified in Section
7(e) of the Rights Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on
behalf of the Company by its Chairman of the Board, its Chief Executive
Officer, its President or any Vice President, either manually or by
facsimile signature, and shall have affixed thereto the Company's seal
or a facsimile thereof which shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be countersigned by the Rights
Agent, either manually or by facsimile signature, and shall not be
valid for any purpose unless so countersigned. In case any officer of
the Company who shall have signed any of the Rights Certificates shall
cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights
Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and
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<PAGE> 18
effect as though the person who signed such Rights Certificates had not
ceased to be such officer of the Company; and any Rights Certificates
may be signed on behalf of the Company by any person who, at the actual
date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not
such an officer.
(b) Following the Distribution Date, the Rights
Agent will keep, or cause to be kept, at its principal office or
offices designated as the appropriate place for surrender of Rights
Certificates upon exercise or transfer, books for registration and
transfer of the Rights Certificates issued hereunder. Such books shall
show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the
Rights Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b),
Section 7(e) and Section 14 hereof, at any time after the close of
business on the Distribution Date, and at or prior to the close of
business on the Expiration Date, any Rights Certificate or Certificates
(other than Rights Certificates representing Rights that may have been
exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or
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<PAGE> 19
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a
share of Preferred Stock (or, following a Triggering Event, Common
Stock, other securities, cash or other assets, as the case may be) as
the Rights Certificate or Certificates surrendered then entitles such
holder (or former holder in the case of a transfer) to purchase. Any
registered holder desiring to transfer, split up, combine or exchange
any Rights Certificate or Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or
exchanged at the principal office or offices of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the
registered holder shall have completed and signed the certificate
contained in the form of assignment on the reverse side of such Rights
Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably
request. Thereupon the Rights Agent shall, subject to Section 4(b),
Section 7(e), Section 14 hereof and Section 24 hereof, countersign and
deliver to the Person entitled thereto a Rights Certificate or Rights
Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental
charge that may be
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<PAGE> 20
imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights
Agent of evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Rights Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender
to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered owner in lieu of the Rights Certificate so
lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.
(a) Subject to Section 7(e) hereof, at any time
after the Distribution Date the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the
restrictions on exercisability set forth in Section 9(c), Section
11(a)(iii) and Section 23(a) hereof) in whole or in part upon surrender
of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the
Rights Agent at the principal office or offices of
20
<PAGE> 21
the Rights Agent designated for such purpose, together with payment of
the aggregate Purchase Price with respect to the total number of one
one-hundredths of a share (or other securities, cash or other assets,
as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) 5:00 P.M., New York City
time, on the tenth anniversary of the date of the consummation of the
initial public offering of the Common Stock of the Company, or such
later date as may be established by the Board of Directors prior to the
expiration of the Rights (such date, as it may be extended by the
Board, the ("Final Expiration Date"), or (ii) the time at which the
Rights are redeemed or exchanged as provided in Section 23 and Section
24 hereof (the earlier of (i) and (ii) being herein referred to as the
"Expiration Date").
(b) The Purchase Price for each one one-hundredth
of a share of Preferred Stock pursuant to the exercise of a Right shall
initially be the amount equal to the product of four times the average
daily closing price of the Common Stock for the first five days of
trading subsequent to the consummation of the initial public offering
of the Common Stock, and shall be subject to adjustment from time to
time as provided in Section 11 and Section 13(a) hereof and shall be
payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate
representing exercisable Rights, with the form of election to purchase
and the certificate duly
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<PAGE> 22
executed, accompanied by payment, with respect to each Right so
exercised, of the Purchase Price per one one-hundredth of a share of
Preferred Stock (or other shares, securities, cash or other assets, as
the case may be) to be purchased as set forth below and an amount equal
to any applicable transfer tax, the Rights Agent shall, subject to
Section 20(k) hereof, thereupon promptly (i) (A) requisition from any
transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates
for the total number of one one-hundredths of a share of Preferred
Stock to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) if the Company
shall have elected to deposit the total number of shares of Preferred
Stock issuable upon exercise of the Rights hereunder with a depositary
agent, requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a share of Preferred
Stock as are to be purchased (in which case certificates for the shares
of Preferred Stock represented by such receipts shall be deposited by
the transfer agent with the depositary agent) and the Company will
direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in
lieu of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the
same to be delivered to or, upon the order of the registered holder of
such Rights Certificate, registered in such name or names as may be
designated by such holder, and (iv) after
22
<PAGE> 23
receipt thereof, deliver such cash, if any, to or upon the order of the
registered holder of such Rights Certificate. The payment of the
Purchase Price (as such amount may be reduced pursuant to Section
11(a)(iii) hereof) shall be made in cash or by certified bank check or
bank draft payable to the order of the Company or shares of Common
Stock (having a value determined pursuant to Section 11(a)(iii)
hereof). In the event that the Company is obligated to issue other
securities (including Common Stock) of the Company, pay cash and/or
distribute other property pursuant to Section 11(a) hereof, the Company
will make all arrangements necessary so that such other securities,
cash and/or other property are available for distribution by the Rights
Agent, if and when appropriate. The Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon any
exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby,
a new Rights Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent and delivered
to, or upon the order of, the registered holder of such Rights
Certificate, registered in such name or names as may be designated by
such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to
the contrary, from and after the first occurrence of a Section
11(a)(ii) Event, any Rights
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<PAGE> 24
beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee
after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which
the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect
the avoidance of this Section 7(e), shall become null and void without
any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of
this Agreement or otherwise. The Company shall use all reasonable
efforts to insure that the provisions of this Section 7(e) and Section
4(b) hereof are complied with, but shall have no liability to any
holder of Rights Certificates or any other Person as a result of its
failure to make any determinations with respect to an Acquiring Person
or its Affiliates, Associates or transferees hereunder.
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<PAGE> 25
(f) Notwithstanding anything in this Agreement to
the contrary, neither the Rights Agent nor the Company shall be
obligated to undertake any action with respect to a registered holder
upon the occurrence of any purported exercise as set forth in this
Section 7 unless such registered holder shall have (i) completed and
signed the certificate contained in the form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably
request.
Section 8. Cancellation and Destruction of Rights
Certificates. All Rights Certificates surrendered for the purpose of exercise,
transfer, split-up, combination or exchange shall, if surrendered to the Company
or any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificate purchased
or acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certifi-
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<PAGE> 26
cates to the Company, or shall, at the written request of the Company, destroy
such cancelled Rights Certificates, and in such case shall deliver a certificate
of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will
cause to be reserved and kept available out of its authorized and
unissued shares of Preferred Stock (and, following the occurrence of a
Triggering Event, out of its authorized and unissued shares of Common
Stock and/or other securities or out of its authorized and issued
shares held in its treasury), the number of shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock
and/or other securities) that, as provided in this Agreement including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in
full of all outstanding Rights.
(b) So long as the shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock
and/or other securities) issuable and deliverable upon the exercise of
the Rights may be listed on any national securities exchange, the
Company shall use its best efforts to cause, from and after such time
as the Rights become exercisable, all shares reserved for such issuance
to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i)
file, as soon as practicable following the earliest date after the
first occurrence of a Section
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<PAGE> 27
11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance
with Section 11(a)(iii) hereof, a registration statement under the Act,
with respect to the securities purchasable upon exercise of the Rights
on an appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing, and (iii)
cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the date of the expiration of
the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or
"blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for
a period of time not to exceed ninety (90) days after the date set
forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension has been
rescinded. In addition, if the Company shall determine that a
registration statement is required following the Distribution Date, the
Company may temporarily suspend the exercisability of the Rights until
such time as a registration statement has been
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<PAGE> 28
declared effective. Notwithstanding any provision of this Agreement to
the contrary, the Rights shall not be exercisable in any jurisdiction
if the requisite qualification in such jurisdiction shall not have been
obtained, the exercise thereof shall not be permitted under applicable
law, or a registration statement shall not have been declared
effective.
(d) The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all one
one-hundredths of a share of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that
it will pay when due and payable any and all federal and state transfer
taxes and charges which may be payable in respect of the issuance or
delivery of the Rights Certificates and of any certificates for a
number of one one-hundredths of a share of Preferred Stock (or Common
Stock and/or other securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer
tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery
of a number of one one-hundredths of a share of Preferred Stock (or
Common Stock and/or other securities, as the case
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<PAGE> 29
may be) in respect of a name other than that of the registered holder
of the Rights Certificates evidencing Rights surrendered for exercise
or to issue or deliver any certificates for a number of one
one-hundredths of a share of Preferred Stock (or Common Stock and/or
other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall
have been paid (any such tax being payable by the holder of such Rights
Certificate at the time of surrender) or until it has been established
to the Company's satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose
name any certificate for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of such fractional shares of Preferred Stock (or Common Stock
and/or other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and
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<PAGE> 30
such certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a stockholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time
after the date of this Agreement (A) declare a dividend on the
Preferred Stock payable in shares of Preferred Stock, (B) subdivide the
outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares, or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
30
<PAGE> 31
except as otherwise provided in this Section 11(a) and Section 7(e)
hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination
or reclassification, and the number and kind of shares of Preferred
Stock or capital stock, as the case may be, issuable on such date,
shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of
the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which,
if such Right had been exercised immediately prior to such date and at
a time when the Preferred Stock transfer books of the Company were
open, such holder would have owned upon such exercise and been entitled
to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment
under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the
adjustment provided for in this Section 11(a)(i) shall be in addition
to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
(ii) In the event any Person shall, at any time
after the Rights Dividend Declaration Date, become an Acquiring
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<PAGE> 32
Person, unless the event causing such Person to become an Acquiring
Person is a transaction set forth in Section 13(a) hereof, or is an
acquisition of shares of Common Stock pursuant to a tender offer or an
exchange offer for all outstanding shares of Common Stock at a price
and on terms determined by at least a majority of the members of the
Board of Directors who are not officers of the Company and who are not
representatives, nominees, Affiliates or Associates of an Acquiring
Person, after receiving advice from one or more investment banking
firms, to be (a) at a price which is fair to stockholders and not
inadequate (taking into account all factors which such members of the
Board deem relevant, including, without limitation, prices which could
reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (b) otherwise in
the best interests of the Company and its stockholders (a "Qualified
Offer"), then, promptly following the occurrence of such event, proper
provision shall be made so that each holder of a Right (except as
provided below and in Section 7(e) hereof) shall thereafter have the
right to receive, upon exercise thereof at the then current Purchase
Price in accordance with the terms of this Agreement, in lieu of a
number of one one-hundredths of a share of Preferred Stock, such
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<PAGE> 33
number of shares of Common Stock of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by
the then number of one one-hundredths of a share of Preferred Stock for
which a Right was exercisable immediately prior to the first occurrence
of a Section 11(a)(ii) Event, and (y) dividing that product (which,
following such first occurrence, shall thereafter be referred to as the
"Purchase Price" for each Right and for all purposes of this Agreement)
by 50% of the Current Market Price (determined pursuant to Section
11(d) hereof) per share of Common Stock on the date of such first
occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of
Common Stock which are authorized by the Company's Amended and Restated
Certificate of Incorporation, but which are not outstanding or reserved
for issuance for purposes other than upon exercise of the Rights, are
not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section 11(a),
the Company shall (A) determine the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value"), and (B)
with respect to each Right (subject to Section 7(e) hereof), make
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<PAGE> 34
adequate provision to substitute for the Adjustment Shares, upon the
exercise of a Right and payment of the applicable Purchase Price, (1)
cash, (2) a reduction in the Purchase Price, (3) Common Stock or other
equity securities of the Company (including, without limitation,
shares, or units of shares, of preferred stock, such as the Preferred
Stock, which the Board has deemed to have essentially the same value or
economic rights as shares of Common Stock (such shares of preferred
stock being referred to as "Common Stock Equivalents")), (4) debt
securities of the Company, (5) other assets, or (6) any combination of
the foregoing, having an aggregate value equal to the Current Value
(less the amount of any reduction in the Purchase Price), where such
aggregate value has been determined by the Board based upon the advice
of a nationally recognized investment banking firm selected by the
Board; provided, however, that if the Company shall not have made
adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first occurrence of a
Section 11(a)(ii) Event and (y) the date on which the Company's right
of redemption pursuant to Section 23(a) expires (the later of (x) and
(y) being referred to herein as the "Section 11(a)(ii) Trigger Date"),
then the Company shall be obligated to deliver, upon
34
<PAGE> 35
the surrender for exercise of a Right and without requiring payment of
the Purchase Price, shares of Common Stock (to the extent available)
and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. For purposes of the preceding
sentence, the term "Spread" shall mean the excess of (i) the Current
Value over (ii) the Purchase Price. If the Board determines in good
faith that it is likely that sufficient additional shares of Common
Stock could be authorized for issuance upon exercise in full of the
Rights, the thirty (30) day period set forth above may be extended to
the extent necessary, but not more than ninety (90) days after the
Section 11(a)(ii) Trigger Date, in order that the Company may seek
shareholder approval for the authorization of such additional shares
(such thirty (30) day period, as it may be extended, is herein called
the "Substitution Period"). To the extent that action is to be taken
pursuant to the first and/or third sentences of this Section
11(a)(iii), the Company (1) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding
Rights, and (2) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek such shareholder
approval for such authorization of additional shares and/or to decide
the appropri-
35
<PAGE> 36
ate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension,
the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value of each
Adjustment Share shall be the current market price per share of the
Common Stock on the Section 11(a)(ii) Trigger Date and the per share or
per unit value of any Common Stock Equivalent shall be deemed to equal
the current market price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date
for the issuance of rights, options or warrants to all holders of
Preferred Stock entitling them to subscribe for or purchase (for a
period expiring within forty-five (45) calendar days after such record
date) Preferred Stock (or shares having the same rights, privileges and
preferences as the shares of Preferred Stock ("Equivalent Preferred
Stock")) or securities convertible into Preferred Stock or Equivalent
Preferred Stock at a price per share of Preferred Stock or per share of
Equivalent Preferred Stock (or having a conversion price per share, if
a security convertible into Preferred Stock or Equivalent Preferred
Stock) less than the Current Market Price (as determined
36
<PAGE> 37
pursuant to Section 11(d) hereof) per share of Preferred Stock on such
record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of Preferred Stock outstanding on
such record date, plus the number of shares of Preferred Stock which
the aggregate offering price of the total number of shares of Preferred
Stock and/or Equivalent Preferred Stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to
be offered) would purchase at such Current Market Price, and the
denominator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of additional shares
of Preferred Stock and/or Equivalent Preferred Stock to be offered for
subscription or purchase (or into which the convertible securities so
to be offered are initially convertible). In case such subscription
price may be paid by delivery of consideration, part or all of which
may be in a form other than cash, the value of such consideration shall
be as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights. Shares of Preferred Stock owned by or held for
the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event
that
37
<PAGE> 38
such rights or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date
for a distribution to all holders of Preferred Stock (including any
such distribution made in connection with a consolidation or merger in
which the Company is the continuing corporation) of cash (other than a
regular quarterly cash dividend out of the earnings or retained
earnings of the Company), assets (other than a dividend payable in
Preferred Stock, but including any dividend payable in stock other than
Preferred Stock) or evidences of indebtedness, or of subscription
rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of
which shall be the Current Market Price (as determined pursuant to
Section 11(d) hereof) per
38
<PAGE> 39
share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed
with the Rights Agent) of the portion of the cash, assets or evidences
of indebtedness so to be distributed or of such subscription rights or
warrants applicable to a share of Preferred Stock, and the denominator
of which shall be such Current Market Price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock. Such adjustments
shall be made successively whenever such a record date is fixed, and in
the event that such distribution is not so made, the Purchase Price
shall be adjusted to be the Purchase Price which would have been in
effect if such record date had not been fixed.
(d)(i) For the purpose of any computation
hereunder, other than computations made pursuant to Section
11(a)(iii) hereof, the Current Market Price per share of Common Stock
on any date shall be deemed to be the average of the daily closing
prices per share of such Common Stock for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iii) hereof, the Current
Market Price per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices per share of such Common
Stock for the ten (10) consecutive Trading Days immediately following
such date; provided, however, that in the event that the Current Market
Price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a
dividend or distribution on such Common Stock payable in shares of such
Common Stock or securities convertible into shares of such Common Stock
(other than the
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<PAGE> 40
Rights), or (B) any subdivision, combination or reclassification of
such Common Stock, and the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification shall not have occurred prior to the commencement of
the requisite thirty (30) Trading Day or ten (10) Trading Day period,
as set forth above, then, and in each such case, the Current Market
Price shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the shares of Common Stock are not
listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to
trading or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the last quoted price or,
if not so quoted, the average of the high bid and low asked prices in
the over-
40
<PAGE> 41
the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or such other
system then in use, or, if on any such date the shares of Common Stock
are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a
market in the Common Stock selected by the Board. If on any such date
no market maker is making a market in the Common Stock, the fair value
of such shares on such date as determined in good faith by the Board
shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading is open for the transaction of
business or, if the shares of Common Stock are not listed or admitted
to trading on any national securities exchange, a Business Day. If the
Common Stock is not publicly held or not so listed or traded, Current
Market Price per share shall mean the fair value per share as
determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation
hereunder, the Current Market Price per share of Preferred Stock shall
be
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<PAGE> 42
determined in the same manner as set forth above for the Common Stock
in clause (i) of this Section 11(d) (other than the last sentence
thereof). If the Current Market Price per share of Preferred Stock
cannot be determined in the manner provided above or if the Preferred
Stock is not publicly held or listed or traded in a manner described in
clause (i) of this Section 11(d), the Current Market Price per share of
Preferred Stock shall be conclusively deemed to be an amount equal to
100 (as such number may be appropriately adjusted for such events as
stock splits, stock dividends and recapitalizations with respect to the
Common Stock occurring after the date of this Agreement) multiplied by
the Current Market Price per share of the Common Stock. If neither the
Common Stock nor the Preferred Stock is publicly held or so listed or
traded, Current Market Price per share of the Preferred Stock shall
mean the fair value per share as determined in good faith by the Board,
whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes. For all purposes
of this Agreement, the Current Market Price of a Unit shall be equal to
the Current Market Price of one share of Preferred Stock divided by
100.
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<PAGE> 43
(e) Anything herein to the contrary
notwithstanding, no adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at
least one percent (1%) in the Purchase Price; provided, however, that
any adjustments which by reason of this Section 11(e) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be
made to the nearest cent or to the nearest ten-thousandth of a share of
Common Stock or other share or one-millionth of a share of Preferred
Stock, as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made
no later than the earlier of (i) three (3) years from the date of the
transaction which mandates such adjustment, or (ii) the Expiration
Date.
(f) If as a result of an adjustment made pursuant
to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right
thereafter exercised shall become entitled to receive any shares of
capital stock other than Preferred Stock, thereafter the number of such
other shares so receivable upon exercise of any Right and the Purchase
Price thereof shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections
11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the
Preferred Stock shall apply on like terms to any such other shares.
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<PAGE> 44
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase Price, the
number of one one-hundredths of a share of Preferred Stock purchasable
from time to time hereunder upon exercise of the Rights, all subject to
further adjustment as provided herein.
(h) Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of the
Purchase Price as a result of the calculations made in Sections 11(b)
and (c), each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-hundredths of a share
of Preferred Stock (calculated to the nearest one-millionth) obtained
by (i) multiplying (x) the number of one one-hundredths of a share
covered by a Right immediately prior to this adjustment, by (y) the
Purchase Price in effect immediately prior to such adjustment of the
Purchase Price, and (ii) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of
any adjustment of the Purchase Price to adjust the number of Rights, in
lieu of any adjustment in the number of one one-hundredths of a share
of Preferred Stock purchasable upon the exercise of a Right. Each of
the Rights outstanding after the
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<PAGE> 45
adjustment in the number of Rights shall be exercisable for the number
of one one-hundredths of a share of Preferred Stock for which a Right
was exercisable immediately prior to such adjustment. Each Right held
of record prior to such adjustment of the number of Rights shall become
that number of Rights (calculated to the nearest one-ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at
the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Rights Certificates have been issued, shall be
at least ten (10) days later than the date of the public announcement.
If Rights Certificates have been issued, upon each adjustment of the
number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record
of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such
holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights
Certificates evidencing all
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<PAGE> 46
the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Purchase Price) and
shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in
the Purchase Price or the number of one one-hundredths of a share of
Preferred Stock issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express
the Purchase Price per one one-hundredth of a share and the number of
one one-hundredth of a share which were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then stated value, if
any, of the number of one one-hundredths of a share of Preferred Stock
issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable such number of one one-hundredths of a share of Preferred
Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as
of a record date for a
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<PAGE> 47
specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such
record date the number of one one-hundredths of a share of Preferred
Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the number of one
one-hundredths of a share of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares (fractional or otherwise) or securities
upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions
in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that in their good
faith judgment the Board of Directors of the Company shall determine to
be advisable in order that any (i) consolidation or subdivision of the
Preferred Stock, (ii) issuance wholly for cash of any shares of
Preferred Stock at less than the Current Market Price, (iii) issuance
wholly for cash of shares of Preferred Stock or securities which by
their terms are convertible into or exchangeable for shares of
Preferred Stock, (iv) stock dividends or (v) issuance of rights,
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<PAGE> 48
options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to
such stockholders.
(n) The Company covenants and agrees that it
shall not, at any time after the Distribution Date, (i) consolidate
with any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), (ii) merge with
or into any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), or (iii) sell or
transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets, cash flow or
earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other
Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with
Section 11(o) hereof), if (x) at the time of or immediately after such
consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which
would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously
with or immediately after such consolidation, merger or sale, the
shareholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have
received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates.
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<PAGE> 49
(o) The Company covenants and agrees that, after
the Distribution Date, it will not, except as permitted by Section 23
or Section 26 hereof, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably foreseeable
that such action will diminish substantially or otherwise eliminate the
benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after
the Rights Dividend Declaration Date and prior to the Distribution Date
(i) declare a dividend on the outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, the number of Rights
associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter
associated with each share of Common Stock following any such event
shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such
event by a fraction the numerator which shall be the total number of
shares of Common Stock outstanding immediately prior to the occurrence
of the event and the denominator of which shall be the total number of
shares of Common Stock outstanding immediately following the occurrence
of such event.
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<PAGE> 50
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 and Section
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent, and with each
transfer agent for the Preferred Stock and the Common Stock, a copy of such
certificate and (c) if a Distribution Date has occurred, mail a brief summary
thereof to each holder of a Rights Certificate in accordance with Section 27
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be obligated
or responsible for calculating any adjustment nor shall it be deemed to have
knowledge of any such adjustment unless and until it shall have received such a
certificate.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets, Cash Flow or Earning Power.
(a) In the event that, following the Stock
Acquisition Date, directly or indirectly, (x) the Company shall
consolidate with, or merge with and into, any other Person (other than
a Subsidiary of the Company in a transaction which complies with
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<PAGE> 51
Section 11(o) hereof), and the Company shall not be the continuing or
surviving corporation of such consolidation or merger, (y) any Person
(other than a Subsidiary of the Company in a transaction which complies
with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with
such consolidation or merger, all or part of the outstanding shares of
Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (z)
the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one transaction or a
series of related transactions, assets, cash flow or earning power
aggregating more than 50% of the assets, cash flow or earning power of
the Company and its Subsidiaries (taken as a whole) to any Person or
Persons (other than the Company or any Subsidiary of the Company in one
or more transactions each of which complies with Section 11(o) hereof),
then, and in each such case (except as may be contemplated by Section
13(d) hereof), proper provision shall be made so that: (i) each holder
of a Right, except as provided in Section 7(e) hereof, shall thereafter
have the right to receive, upon the exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement,
such number of validly authorized and issued, fully paid,
non-assessable and freely tradeable shares of Common Stock of the
Principal Party (as such term is hereinafter defined), not subject to
any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (1) multiplying the
then current Purchase Price by the number of one one-hundredths of a
share of Preferred Stock for which a
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<PAGE> 52
Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior
to the first occurrence of a Section 13 Event, multiplying the number
of such one one-hundredths of a share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event
by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "Purchase
Price" for each Right and for all purposes of this Agreement) by (2)
50% of the Current Market Price (determined pursuant to Section
11(d)(i) hereof) per share of the Common Stock of such Principal Party
on the date of consummation of such Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof shall
apply only to such Principal Party following the first occurrence of a
Section 13 Event; (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number
of shares of its Common Stock) in connection with the consummation of
any such transaction as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably may be,
in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (v) the
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<PAGE> 53
provisions of Section 11(a)(ii) hereof shall be of no effect following
the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described
in clause (x) or (y) of the first sentence of Section
13(a), the Person that is the issuer of any
securities into which shares of Common Stock of the
Company are converted in such merger or
consolidation, and if no securities are so issued,
the Person that is the other party to such merger or
consolidation; and
(ii) in the case of any transaction
described in clause (z) of the first sentence of
Section 13(a), the Person that is the party receiving
the greatest portion of the assets, cash flow or
earning power transferred pursuant to such
transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of
such Person is not at such time and has not been continuously over the
preceding twelve (12) month period registered under Section 12 of the
Exchange Act, and such Person is a direct or indirect Subsidiary of
another Person the Common Stock of which is and has been so registered,
"Principal Party" shall refer to such other Person; and (2) in case
such Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party"
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<PAGE> 54
shall refer to whichever of such Persons is the issuer of the Common
Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such
consolidation, merger, sale or transfer unless the Principal Party
shall have a sufficient number of authorized shares of its Common Stock
which have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13 and
unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the
date of any consolidation, merger or sale of assets mentioned in
paragraph (a) of this Section 13, the Principal Party will
(i) prepare and file a registration
statement under the Act, with respect to the Rights
and the securities purchasable upon exercise of the
Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A)
become effective as soon as practicable after such
filing and (B) remain effective (with a prospectus at
all times meeting the requirements of the Act) until
the Expiration Date; and
(ii) take such all such other action as may
be necessary to enable the Principal Party to issue
the securities purchas-
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able upon exercise of the Rights, including but not
limited to the registration or qualification of such
securities under all requisite securities laws of
jurisdictions of the various states and the listing
of such securities on such exchanges and trading
markets as may be necessary or appropriate; and
(iii) will deliver to holders of the Rights
historical financial statements for the Principal
Party and each of its Affiliates which comply in all
respects with the requirements for registration on
Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. In the event
that a Section 13 Event shall occur at any time after the occurrence of
a Section 11(a)(ii) Event, the Rights which have not theretofore been
exercised shall thereafter become exercisable in the manner described
in Section 13(a).
(d) Notwithstanding anything in this Agreement to
the contrary, Section 13 shall not be applicable to a transaction
described in subparagraphs (x) and (y) of Section 13(a) if (i) such
transaction is consummated with a Person or Persons who acquired shares
of Common Stock pursuant to a tender offer or exchange offer for all
outstanding shares of Common Stock which is a Qualified Offer as such
term is defined in Section 11(a)(ii) hereof (or a wholly owned
subsid-
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iary of any such Person or Persons), (ii) the price per share of Common
Stock offered in such transaction is not less than the price per share
of Common Stock paid to all holders of shares of Common Stock whose
shares were purchased pursuant to such tender offer or exchange offer
and (iii) the form of consideration being offered to the remaining
holders of shares of Common Stock pursuant to such transaction is the
same as the form of consideration paid pursuant to such tender offer or
exchange offer. Upon consummation of any such transaction contemplated
by this Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue
fractions of Rights, except prior to the Distribution Date as provided
in Section 11(p) hereof, or to distribute Rights Certificates which
evidence fractional Rights. In lieu of such fractional Rights, the
Company shall pay to the registered holders of the Rights Certificates
with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current
market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price
of the Rights for any day shall be the last sale price, regular way,
or, in case no such sale takes place on such day, the average of the
closing bid and asked
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<PAGE> 57
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or admitted
to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-
the-counter market, as reported by NASDAQ or such other system then in
use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights,
selected by the Board of Directors of the Company. If on any such date
no such market maker is making a market in the Rights, the fair value
of the Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of
one one-hundredth of a share of Preferred Stock) upon exercise of the
Rights or to distribute certificates which evidence fractional shares
of Preferred Stock (other than fractions which are integral multiples
of one one-hundredth of a share of Preferred
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<PAGE> 58
Stock). In lieu of fractional shares of Preferred Stock that are not
integral multiples of one one-hundredth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at
the time such Rights are exercised as herein provided an amount in cash
equal to the same fraction of the current market value of one
one-hundredth of a share of Preferred Stock. For purposes of this
Section 14(b), the current market value of one one-hundredth of a share
of Preferred Stock shall be one one-hundredth of the closing price of a
share of Preferred Stock (as determined pursuant to Section 11(d)(ii)
hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) Following the occurrence of a Triggering
Event, the Company shall not be required to issue fractions of shares
of Common Stock upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Common Stock. In lieu
of fractional shares of Common Stock, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one (1) share of Common Stock.
For purposes of this Section 14(c), the current market value of one
share of Common Stock shall be the closing price of one share of Common
Stock (as determined pursuant to Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of such exercise.
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<PAGE> 59
(d) The holder of a Right by the acceptance of
the Rights expressly waives his right to receive any fractional Rights
or any fractional shares upon exercise of a Right, except as permitted
by this Section 14.
Section 15. Rights of Action. All rights of action in respect
of this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
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Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
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(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Rights Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the number of one one-hundredths of a
share of Preferred Stock or any other securities of the Company which may at any
time be issuable on the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions
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affecting stockholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent, its directors,
officers, employees and agents for, and to hold each of them harmless against,
any loss, liability, or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent or any other indemnified party in connection with the
acceptance and administration of this Agreement or the performance of the Rights
Agent's duties hereunder, including the costs and expenses of defending against
any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement or the performance of the Rights
Agent's
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duties hereunder in reliance upon any Rights Certificate or certificate for
Common Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.
(c) The indemnity provided in this Section 18 shall survive the
expiration of the Rights and the termination of the Agreement.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust, stock transfer or other shareholder services business of
the Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto; but only if such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency
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created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the advice or opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such advice
or opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of Current Market Price) be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by the
Chairman of the Board, if there be one, the Chief Executive Officer, the
President, the Treasurer, the Secretary or any Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
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(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11, Section 13 or Section 24 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after actual notice of any
such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common Stock or Preferred Stock to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any shares of Common Stock or Preferred
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Stock will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, if there be one, the Chief Executive Officer, the
President, the Treasurer, the Secretary or any Assistant Secretary of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such officer
or for any delay in acting while awaiting instructions. Any application by the
Rights Agent for written instructions from the Company may, at the option of the
Rights Agent, set forth in writing any action proposed to be taken or omitted by
the Rights Agent under this Agreement and the date on or after which such action
shall be taken or such omission shall be effective. The Rights Agent shall not
be liable for any action taken by, or omission of, the Rights Agent in
accordance with a proposal included in any such application on or after the date
specified in such application (which date shall not be less than
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five Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct; provided, however, reasonable care was exercised in the
selection and continued employment thereof.
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(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
(l) The Rights Agent undertakes only the express duties and
obligations imposed on it by this Agreement and no implied duties or obligations
shall be read into this Agreement against the Rights Agent.
(m) Anything in this Agreement to the contrary notwithstanding, in
no event shall the Rights Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits).
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Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and, if such resignation occurs after the Distribution Date, to
the registered holders of the Rights Certificates by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and
Preferred Stock, by registered or certified mail, and, if such removal occurs
after the Distribution Date, to the holders of the Rights Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who shall,
with such notice, submit his Rights Certificate for inspection by the Company),
then any registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
legal
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business entity organized and doing business under the laws of the United States
or of the State of New York or of any other state of the United States, in good
standing, having an office in the State of New York, which is authorized under
such laws to exercise corporate trust or stock transfer or shareholder services
powers and which has at the time of its appointment as Rights Agent a combined
capital and surplus of at least $50,000,000 or (b) an affiliate of a legal
business entity described in clause (a) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred Stock, and, if
such appointment occurs after the Distribution Date, mail a notice thereof in
writing to the registered holders of the Rights Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
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Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by the Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of Rights
in connection with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate
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shall be issued if, and to the extent that, appropriate adjustment shall
otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the tenth Business Day
following the Stock Acquisition Date (or, if the Stock Acquisition Date shall
have occurred prior to the Record Date, the close of business on the tenth
Business Day following the Record Date), or (ii) the Final Expiration Date,
redeem all but not less than all of the then outstanding Rights at a redemption
price of $.01 per Right, as such amount may be appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). Notwithstanding anything contained in this Agreement to the contrary,
the Rights shall not be exercisable after the first occurrence of a Section
11(a)(ii) Event until such time as the Company's right of redemption hereunder
has expired. The Company may, at its option, pay the Redemption Price in cash,
shares of Common Stock (based on the Current Market Price, as defined in Section
11(d)(i) hereof, of the Common Stock at the time of redemption) or any other
form of consideration deemed appropriate by the Board of Directors.
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(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Stock. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(e) hereof) for Common
Stock at an exchange ratio of one share of Common Stock per Right, appropri-
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ately adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors of the Company shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Stock for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein
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provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the exchange of the
Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 7(e) hereof) held
by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Stock (or Equivalent Preferred Stock, as such
term is defined in paragraph (b) of Section 11 hereof) for Common Stock
exchangeable for Rights, at the initial rate of one one-hundredth of a share of
Preferred Stock (or Equivalent Preferred Stock) for each share of Common Stock,
as appropriately adjusted to reflect stock splits, stock dividends and other
similar transactions after the date hereof.
(d) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
shares of Company shall take all such action as may be necessary to authorize
additional shares of Common Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates which evidence fractional
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shares of Common Stock. In lieu of such fractional shares of Common Stock, there
shall be paid to the registered holders of the Rights Certificates with regard
to which such fractional shares of Common Stock would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
share of Common Stock. For the purposes of this subsection (e), the current
market value of a whole share of Common Stock shall be the closing price of a
share of Common Stock (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a
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Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or to effect any sale or other transfer (or to permit one or more of
its Subsidiaries to effect any sale or other transfer), in one transaction or a
series of related transactions, of more than 50% of the assets, cash flow or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company and/or any of its Subsidiaries
in one or more transactions each of which complies with Section 11(o) hereof),
or (v) to effect the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the date
on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the shares of Preferred Stock
whichever shall be the earlier.
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(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing by
the Rights Agent with the Company) as follows:
ScreamingMedia Inc.
601 West 26th Street, 13th Floor
New York, NY 10001
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by
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first-class mail, postage prepaid, addressed (until another address is
filed in writing by the Rights Agent with the Company) as follows:
[ ]
[ ]
[ ]
[ ]
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date,
and subject to the last sentence of this Section 27, the Company and the Rights
Agent shall, if the Company so directs, supplement or amend any provision of
this Agreement without the approval of any holders of certificates representing
shares of Common Stock. From and after the Distribution Date, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which
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may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder, or (iv) to change or supplement
the provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Rights Certificates (other than an Acquiring Person or an Affiliate or Associate
of an Acquiring Person); provided, this Agreement may not be supplemented or
amended to lengthen any time period hereunder, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable, or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Agreement to the contrary, no supplement or amendment
to this Agreement that changes the rights or duties of the Rights Agent in a
manner adverse to the Rights Agent shall be effective without the consent of the
Rights Agent. Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Common
Stock. Notwithstanding anything herein to the contrary, this Agreement may not
be amended at a time when the Rights are not redeemable.
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Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc. For
all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company shall have the
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board or to the Company, or as may
be necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights
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and all other parties, and (y) not subject the Board, or any of the directors on
the Board to any liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Rights Certificates (and, prior to the Distribution Date,
registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set
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forth in Section 23 hereof shall be reinstated and shall not expire until the
close of business on the tenth Business Day following the date of such
determination by the Board of Directors. Without limiting the foregoing, if any
provision requiring a specific group of Directors of the Company to act is held
to by any court of competent jurisdiction or other authority to be invalid, void
or unenforceable, such determination shall then be made by the Board of
Directors of the Company in accordance with applicable law and the Company's
Amended and Restated Certificate of Incorporation and By-laws.
Section 32. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SCREAMINGMEDIA INC.
By:
Name: Kevin C. Clark
Title: Chief Executive Officer
[ ]
By:
Name:
Title:
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Exhibit A
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK
of
SCREAMINGMEDIA INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Kevin C. Clark, Chief Executive Officer, and William P. Kelly,
General Counsel and Secretary, of ScreamingMedia Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, as amended, of the Corporation, the Board
of Directors on [ ] 2000, adopted the following resolution creating, effective
upon the filing of the Company's Amended and Restated Certificate of
Incorporation, a series of 1,000,000 shares of Preferred Stock designated as
Series A Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Amended
and Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
<PAGE> 87
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and the number
of shares constituting such series shall be 1,000,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the fifteenth day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $10.00 or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock, par value $0.01 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. In the event the Corporation shall at any
time after April __, 2000 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in Paragraph (A) above
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immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on
the Series A Junior Participating Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Participating Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series A Junior Participating Preferred Stock
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<PAGE> 89
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default period")
which shall extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the current quarterly
dividend period on all shares of Series A Junior Participating Preferred
Stock then outstanding shall have been declared and paid or set apart for
payment. During each default period, all holders of Preferred Stock
(including holders of the Series A Junior Participating Preferred Stock)
with dividends in arrears in an amount equal to six (6) quarterly
dividends thereon, voting as a class, irrespective of series, shall have
the right to elect two (2) directors.
(ii) During any default period, such voting right of the holders of
Series A Junior Participating Preferred Stock may be exercised initially
at a special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that neither such voting right nor the
right of the holders of any other series of Preferred Stock, if any, to
increase, in certain cases, the authorized number of directors shall be
exercised unless the holders of ten percent (10%) in number of shares of
Preferred Stock outstanding shall be present in person or by proxy. The
absence of a quorum of the holders of Common Stock shall not affect the
exercise by the holders of Preferred Stock of such voting right. At any
meeting at which the holders of Preferred Stock shall exercise such voting
right initially during an existing default period, they shall have the
right,
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<PAGE> 90
voting as a class, to elect directors to fill such vacancies, if any, in
the Board of Directors as may then exist up to two (2) directors or, if
such right is exercised at an annual meeting, to elect two (2) directors.
If the number which may be so elected at any special meeting does not
amount to the required number, the holders of the Preferred Stock shall
have the right to make such increase in the number of directors as shall
be necessary to permit the election by them of the required number. After
the holders of the Preferred Stock shall have exercised their right to
elect directors in any default period and during the continuance of such
period, the number of directors shall not be increased or decreased except
by vote of the holders of Preferred Stock as herein provided or pursuant
to the rights of any equity securities ranking senior to or pari passu
with the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of a special meeting of the holders of
Preferred Stock, which meeting shall thereupon be called by the Chief
Executive Officer, the President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this Paragraph
(C)(iii) shall be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be called for
a time not earlier than 20 days and not later than 60 days after such
order or request or in default of the calling of such meeting within 60
days after such order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this Paragraph (C)(iii), no
such special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
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(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of directors until the holders of
Preferred Stock shall have exercised their right to elect two (2)
directors voting as a class, after the exercise of which right (x) the
directors so elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in Paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining directors
theretofore elected by the holders of the class of stock which elected the
director whose office shall have become vacant. References in this
Paragraph (C) to directors elected by the holders of a particular class of
stock shall include directors elected by such directors to fill vacancies
as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect directors
shall cease, (y) the term of any directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of
directors shall be such number as may be provided for in the certificate
of incorporation or by-laws irrespective of any increase made pursuant to
the provisions of Paragraph (C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law or in
the certificate of incorporation or by-laws). Any vacancies in the Board
of Directors effected by the provisions of clauses (y) and (z) in the
preceding sentence may be filled by a majority of the remaining directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
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<PAGE> 92
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
A Junior Participating Preferred Stock, except dividends paid ratably on
the Series A Junior Participating Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
A Junior Participating Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective
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<PAGE> 93
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to $100 per share of Series A Participating
Preferred Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of the full amount of
the Series A Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall have received
an amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately
adjusted as set forth in subparagraph (C) below to reflect such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock)
(such number in clause (ii), the "Adjustment Number"). Following the payment of
the full amount of the Series A Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment
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<PAGE> 94
Number to 1 with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstand-
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<PAGE> 95
ing immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred
Stock shall rank junior to all other series of the Corporation's Preferred Stock
as to the payment of dividends and the distribution of assets, unless the terms
of any such series shall provide otherwise.
Section 10. Amendment. At any time when any shares of Series A
Junior Participating Preferred Stock are outstanding, neither the Amended and
Restated Certificate of Incorporation of the Corporation nor this Certificate of
Designation shall be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Junior Participating Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred Stock.
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<PAGE> 96
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this day of
[ ], 2000.
By:
Name: Kevin C. Clark
Title: Chief Executive Officer
By:
Name: William P. Kelly
Title: General Counsel and Company Secretary
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<PAGE> 97
Exhibit B
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER _________ __, 2010 (THE TENTH ANNIVERSARY OF THE
DATE OF THE CONSUMMATION OF THE INITIAL PUBLIC OFFERING OF THE COMMON
STOCK OF THE COMPANY), UNLESS EXTENDED PRIOR THERETO BY THE BOARD OF
DIRECTORS, OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS
SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER
OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY
THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO
WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(E)
OF THE RIGHTS AGREEMENT.]
Rights Certificate
SCREAMINGMEDIA INC.
<PAGE> 98
This certifies that ________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of ________ __, 2000 (the "Rights Agreement"), between
ScreamingMedia Inc., a Delaware corporation (the "Company"), and
________________________, a banking corporation (the "Rights Agent"), to
purchase from the Company at any time prior to 5:00 P.M. (New York City time) on
_______, __, 2010 (the tenth anniversary of the date of the consummation of the
initial public offering of the Common Stock) (unless such date is extended prior
thereto by the Board of Directors) at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one
one-hundredth of a fully paid, non-assessable share of Series A Junior
Participating Preferred Stock (the "Preferred Stock") of the Company, at a
purchase price of $_____ (the amount equal to the product of four times the
average closing price of the Common Stock for the first five days of trading
subsequent to the consummation of the initial public offering of the Common
Stock) per one one-hundredth of a share (the "Purchase Price"), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate duly executed. The number of Rights
evidenced by this Rights Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the Purchase Price per
share set
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<PAGE> 99
forth above, are the number and Purchase Price as of _________ __, 2000 (the
close of business on the fifth day of trading subsequent to the consummation of
the initial public offering of the Common Stock), based on the Preferred Stock
as constituted at such date. The Company reserves the right to require prior to
the occurrence of a Triggering Event (as such term is defined in the Rights
Agreement) that a number of Rights be exercised so that only whole shares of
Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are
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<PAGE> 100
subject to modification and adjustment upon the happening of certain events,
including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-hundredths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part,
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<PAGE> 101
the holder shall be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right at any time prior to the earlier of the close
of business on (i) the tenth Business Day following the Stock Acquisition Date
(as such time period may be extended pursuant to the Rights Agreement), and (ii)
the Final Expiration Date. In addition, under certain circumstances following
the Stock Acquisition Date, the Rights may be exchanged, in whole or in part,
for shares of the Common Stock, or shares of preferred stock of the Company
having essentially the same value or economic rights as such shares. Immediately
upon the action of the Board of Directors of the Company authorizing any such
exchange, and without any further action or any notice, the Rights (other than
Rights which are not subject to such exchange) will terminate and the Rights
will only enable holders to receive the shares issuable upon such exchange.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement. The Company, at
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<PAGE> 102
its election, may require that a number of Rights be exercised so that only
whole shares of Preferred Stock would be issued.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give consent to or withhold consent from any corporate
action, or, to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
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<PAGE> 103
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of _________ __, ____
SCREAMINGMEDIA INC.
By:_______________________________
Name: Kevin C. Clark
Title: Chief Executive Officer
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<PAGE> 104
Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ________________________________________________
hereby sells, assigns and transfers unto_______________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________ Attorney,
to transfer the within Rights Certificate on the books of the within named
Company, with full power of substitution.
Dated: __________________, _____
_______________________________
Signature
Signature Guaranteed:
Certificate
<PAGE> 105
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: _______________, _____ _______________________________
Signature
Signature Guaranteed:
<PAGE> 106
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 107
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Rights Certificate.)
To: SCREAMINGMEDIA INC.:
The undersigned hereby irrevocably elects to exercise __________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
<PAGE> 108
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: _______________, _____
____________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
<PAGE> 109
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: ______________, _____ _______________________________
Signature
Signature Guaranteed:
<PAGE> 110
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 111
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On [ ], 2000 the Board of Directors of ScreamingMedia Inc. (the
"Company") declared a dividend distribution of one Right for each outstanding
share of the Company's Common Stock to stockholders of record at the close of
business on April , 2000 (the date of the consummation of the initial public
offering of the Common Stock) (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred
Stock, par value $0.01 per share (the "Series A Preferred Stock") at a Purchase
Price of $ per Unit (the amount equal to the product of four times the average
closing price of the Common Stock for the first five days of trading subsequent
to the consummation of the initial public offering of the Common Stock), subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and , as Rights
Agent.
<PAGE> 112
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. Subject to certain exceptions specified in the
Rights Agreement, the Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 business days following
a public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the "Stock Acquisition Date"), other than
persons who acquire 15% beneficial ownership of the Company as a result of
repurchases of stock by the Company or certain inadvertent actions by certain
other stockholders, who upon consummation of the initial public offering are
beneficial owners of 15% or more of the Company, unless such persons acquire
additional shares constituting 5% or more of the Company, or (ii) 10 business
days (or such later date as the Board shall determine) following the
commencement of a tender offer or exchange offer that would result in a person
or group becoming an Acquiring Person. Until the Distribution Date, (i) the
Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates, (ii) new Common
Stock certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. Pursuant to the Rights Agreement, the
2
<PAGE> 113
Company reserves the right to require prior to the occurrence of a Triggering
Event (as defined below) that, upon any exercise of Rights, a number of Rights
be exercised so that only whole shares of Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will
expire at 5:00 P.M. (New York City time) on , 2010 (the tenth
anniversary of the date of the consummation of the initial public offering of
the Common Stock), unless such date is extended or the Rights are earlier
redeemed or exchanged by the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that a Person becomes an Acquiring Person, except
pursuant to an offer for all outstanding shares of Common Stock which the
independent directors determine to be fair and not inadequate to and to
otherwise be in the best interests of the Company and its stockholders, after
receiving advice from one or more investment
3
<PAGE> 114
banking firms (a "Qualified Offer"), each holder of a Right will thereafter have
the right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to two
times the exercise price of the Right. Notwithstanding any of the foregoing,
following the occurrence of the event set forth in this paragraph, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person will be null and void. However,
Rights are not exercisable following the occurrence of the event set forth above
until such time as the Rights are no longer redeemable by the Company as set
forth below.
For example, at an exercise price of $200.00 per Right, each Right
not owned by an Acquiring Person (or by certain related parties) following an
event set forth in the preceding paragraph would entitle its holder to purchase
$400.00 worth of Common Stock (or other consideration, as noted above) for
$200.00. Assuming that the Common Stock had a per share value of $20.00 at such
time, the holder of each valid Right would be entitled to purchase 20 shares of
Common Stock for $200.00.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company engages in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than with an entity
which acquired the
4
<PAGE> 115
shares pursuant to a Qualified Offer), (ii) the Company engages in a merger or
other business combination transaction in which the Company is the surviving
corporation and the Common Stock of the Company is changed or exchanged, or
(iii) 50% or more of the Company's assets, cash flow or earning power is sold or
transferred, each holder of a Right (except Rights which have previously 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 events set forth in this paragraph
and in the second preceding paragraph are referred to as the "Triggering
Events."
At any time after a person becomes an Acquiring Person and prior to
the acquisition by such person or group of fifty percent (50%) or more of the
outstanding Common Stock, the Board may exchange the Rights (other than Rights
owned by such person or group which have become void), in whole or in part, at
an exchange ratio of one share of Common Stock, or one one-hundredth of a share
of Preferred Stock (or of a share of a class or series of the Company's
preferred stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
At any time until ten business days following the Stock Acquisition
Date, the Company may redeem the Rights in whole, but not in part, at a price of
$.01 per Right
5
<PAGE> 116
(payable in cash, Common Stock or other consideration deemed appropriate by the
Board of Directors). Immediately upon the action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the $.01 redemption price.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights will
not be taxable to stockholders or to the Company, stockholders may, depending
upon the circumstances, recognize taxable income in the event that the Rights
become exercisable for Common Stock (or other consideration) of the Company or
for common stock of the acquiring company or in the event of the redemption of
the Rights as set forth above.
Any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights, or to shorten or lengthen any time
period under the Rights Agreement. The foregoing notwithstanding, no amendment
may be made at such time as the Rights are not redeemable.
6
<PAGE> 117
A form of the Rights Agreement has been filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form S-1
dated , 2000. A copy of the Rights Agreement is available free of
charge from the Rights Agent. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by reference.
7
<PAGE> 1
Exhibit 10.2
[CISCO SYSTEMS CAPITAL CORPORATION LOGO]
Master Lease No. 2430
MASTER AGREEMENT TO LEASE EQUIPMENT
THIS MASTER AGREEMENT TO LEASE EQUIPMENT (this "Agreement") is entered
into as of June 25, 1999 by and between CISCO SYSTEMS CAPITAL CORPORATION
("LESSOR"), having its principal place of business at 170 West Tasman Drive, San
Jose, California 95134 and SCREAMING MEDIA.NET, INC., a Delaware Corporation
("LESSEE"), having a principal place of business at 55 Broad Street, New York,
NY 10004.
I. THE LEASE
1.1 LEASE OF EQUIPMENT. In accordance with the terms and conditions of
this Agreement, Lessor shall lease to Lessee, and Lessee shall lease from
Lessor, the personal property, including all substitutions, replacements,
repairs, parts and attachments, improvements and accessions thereto and therein
(the "EQUIPMENT"), described in the lease schedule (s) (each, a "LEASE") to be
entered into from time to time into which this Agreement is incorporated. Each
Lease shall constitute a separate, distinct, and independent lease and
contractual obligation of Lessee. Lessor or its assignee shall at all times
retain the full legal title to the Equipment, it being expressly agreed by both
parties that each Lease is an agreement of lease only.
1.2 TERM OF LEASE. The original term (the "ORIGINAL TERM") of the
Equipment shall commence on the Commencement Date and, subject to Sections 3.3
and 3.5 below, shall terminate on the date specified in the Lease.
Notwithstanding the foregoing, the Original Term for the Equipment shall
automatically extend for successive 30-day periods after its expiration (each,
an "EXTENDED TERM") unless either party gives the other party written notice, at
least thirty (30) days prior to the expiration of the Original Term or any
Extended Term, as the case may be, of its intent not to so extend the applicable
Lease. Except as specifically provided in this Section 1.2, no Lease may be
terminated by Lessor or Lessee, for any reason whatsoever, prior to the end of
the Original Term or any Extended Term (collectively, the "LEASE TERM").
Notwithstanding any provision to the contrary contained in this Agreement,
Lessee shall be deemed to accept the Equipment on the Commencement Date (as
specified in each Lease).
1.3 RENTAL PAYMENTS. Lessee shall pay Lessor rent ("RENT") for the
Equipment in the amounts and at the times specified in the Lease. All Rent and
other amounts payable by Lessee to Lessor hereunder shall be paid to Lessor at
the address specified above, or at such other place as Lessor may designate in
writing to Lessee from time to time.
1.
<PAGE> 2
1.4 RETURN OF EQUIPMENT. Upon expiration of the Lease Term of the
Equipment, Lessee shall immediately return the Equipment to Lessor as provided
in Section 3.3 below. If Lessee fails to return any of the Equipment upon demand
therefor by Lessor, Lessee shall pay Lessor, as the measure of Lessor's damages,
the Casualty Value (as defined in the applicable Lease) of such Equipment.
II. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY
2.1 DISCLAIMERS; WARRANTIES. Lessee represents and acknowledges that
the Equipment is of a size, design, capacity and manufacture selected by it, and
that it is satisfied that the Equipment is suitable for its purposes. LESSOR
LEASES THE EQUIPMENT AS IS, AND, NOT BEING THE MANUFACTURER OF THE EQUIPMENT,
THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS
FOR ANY PARTICULAR PURPOSE, DESIGN OR CONDITION OF THE EQUIPMENT. LESSOR SHALL
NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE RESULTING FROM THE INSTALLATION,
OPERATION OR OTHER USE, OR DEINSTALLATION OF THE EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, ANY DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR LOSS.
Lessee shall look solely to the manufacturer or the supplier of the Equipment
for correction of any problems that may arise with respect thereto, and,
provided no Event of Default (as defined in Section 4.1) has occurred and is
continuing, all warranties made by the manufacturer or such supplier are, to the
degree possible, hereby assigned to Lessee for the Lease Term. To the extent any
such warranty requires performance of any kind by the beneficiary of the
warranty, Lessee shall perform in accordance therewith.
2.2 INTELLECTUAL PROPERTY. Except as otherwise expressly provided in
each Lease, LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER WITH
RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS, INCLUDING, WITHOUT LIMITATION, ANY
PATENT, COPYRIGHT AND TRADEMARK RIGHTS, OF ANY THIRD PARTY WITH RESPECT TO THE
EQUIPMENT, WHETHER RELATING TO INFRINGEMENT OR OTHERWISE. Lessor shall, when
requested in writing and at Lessee's cost and expense, exercise rights of
indemnification, if any, for patent, copyright or other intellectual property
infringement obtained from the manufacturer under any agreement for purchase of
the Equipment. If notified promptly in writing of any action brought against
Lessee based on a claim that the Equipment infringes a United States patent,
copyright or other intellectual property right, Lessor shall promptly notify the
manufacturer thereof for purposes of exercising, for the benefit of Lessee,
Lessor's rights with respect to such claim under any such agreement.
2.
<PAGE> 3
III. COVENANTS OF LESSEE
3.1 PAYMENTS UNCONDITIONAL; TAX BENEFITS; ACCEPTANCE. EACH LEASE SHALL
BE A NET LEASE, AND LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS
THEREUNDER, AND THE RIGHTS OF LESSOR IN AND TO SUCH PAYMENTS, SHALL BE ABSOLUTE
AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT, REDUCTION, SETOFF,
DEFENSE, COUNTER CLAIM, INTERRUPTION, DEFERMENT OR RECOUPMENT, FOR ANY REASON
WHATSOEVER. It is the intent of lessor, and an inducement to Lessor, to enter
into each Lease, to claim all available tax benefits of ownership with respect
to the Equipment subject thereto. Lessee's acceptance of the Equipment subject
to a Lease shall be conclusively and irrevocably evidenced by Lessee executing
an Acceptance Certificate with respect to such Equipment, and upon acceptance,
such Lease shall be noncancellable for the Lease Term unless otherwise agreed to
in writing by Lessor. Any nonpayment of Rent or other amounts payable under any
Lease shall result in Lessee's obligation to promptly pay Lessor as additional
Rent on such overdue payment, for the period of time during which it is overdue
(without regard to any grace period), interest at a rate equal to the lesser of
(a) fourteen percent (14%) per annum, or (b) the maximum rate of interest
permitted by law.
3.2 USE OF EQUIPMENT. Lessee shall use the Equipment solely in the
conduct of its business, in a manner and for the use contemplated by the
manufacturer thereof, and in compliance with all laws, rules and regulations of
every governmental authority having jurisdiction over the Equipment or Lessee
and with the provisions of all policies of insurance carried by Lessee pursuant
to Section 3.6 below. Lessee shall pay all costs, expenses, fees and charges
incurred in connection with the use and operation of the Equipment.
3.3 DELIVERY; INSTALLATION; RETURN; MAINTENANCE AND REPAIR; INSPECTION.
Lessee shall be solely responsible, at its own expense, for (a) the delivery of
the Equipment to Lessee, (b) the packing, rigging and delivery of the Equipment
back to Lessor, upon expiration or termination of the Lease Term, in good
repair, condition and working order, ordinary wear and tear excepted, at the
location(s) within the continental United States specified by Lessor, and (c)
the installation, deinstallation, maintenance and repair of the Equipment.
During the Lease Term, Lessee shall ensure that the Equipment is covered by a
maintenance agreement, to the extent available, with the manufacturer of the
Equipment or such other party, reasonably acceptable to Lessor. Lessee shall, at
its expense, keep the equipment in good repair, condition and working order,
ordinary wear and tear excepted, and, at the expiration or termination of the
Lease Term, or any renewal term, with respect to any of the Equipment, have such
Equipment inspected and certified acceptable for maintenance service by the
manufacturer. In the event any of the Equipment, upon its return to Lessor, is
not in good repair, condition and working order, ordinary wear and tear
excepted, Lessee shall be obligated to pay Lessor for the out-of-pocket expenses
Lessor incurs in bringing such Equipment up to such status, but not in excess of
the Casualty Value (as defined in the applicable Lease) for such Equipment,
promptly after its receipt of an invoice for such expenses. Lessor shall be
entitled to inspect the Equipment at Lessee's location at reasonable times.
3.
<PAGE> 4
3.4 TAXES. Lessee shall be obligated to pay, and hereby indemnifies
Lessor and its successor and assigns against, and holds each of them harmless
from, all license fees, assessments, and sales, use, property, excise and other
taxes and charges, other than those measured by Lessor's net income, now and
hereafter imposed by any governmental body or agency upon or with respect to any
of the Equipment, or the possession, ownership, use or operation thereof, or any
Lease or the consummation of the transactions contemplated in any Lease or this
Agreement. Notwithstanding the foregoing, Lessor shall file all required
personal property tax returns, and shall pay all personal property taxes payable
with respect to the Equipment, Lessee shall pay to Lessor, as additional Rent,
the amount of all such personal property taxes within fifteen (15) days of its
receipt of an invoice for such taxes.
3.5 LOSS OF EQUIPMENT. Lessee shall bear the entire risk of the
Equipment being lost, destroyed or otherwise permanently unfit or unavailable
for use from any cause whatsoever (an "EVENT OF LOSS") after it has been
delivered to common carrier for shipment to Lessee. If an Event of Loss shall
occur with respect to any item of Equipment, Lessee shall promptly notify Lessor
thereof in writing. On the rental payment date following Lessor's receipt of
such notice, Lessee shall pay to Lessor an amount equal to the rental payment or
payments due and payable with respect to such item of Equipment on or prior to
such date, plus a sum equal to the Casualty Value of such item of Equipment as
of the date of such payment as set forth in such Lease. Upon the making of such
payment by Lessee regarding any item of Equipment, the Rent for such item of
Equipment shall cease to accrue, the term of this Lease to such item of
Equipment shall terminate and (except in the case of loss, theft or complete
destruction) Lessor shall be entitled to recover possession of such item of
Equipment in accordance with the provisions of Section 3.3 above. Provided that
Lessor has received the Casualty Value of any item of Equipment, Lessee shall be
entitled to the proceeds of any recovery in respect of such item of Equipment
from insurance or otherwise.
3.6 INSURANCE. Lessee shall obtain and maintain for the Lease Term at
its own expense, property damage and liability insurance and insurance against
loss or damage to the Equipment (including so-called extended coverage), as a
result of theft and such other risks of loss as are normally maintained on
equipment of the type leased hereunder by company's carrying on the business in
which Lessee is engaged, in such amounts, in such form and with such insurers as
shall be satisfactory to Lessor. Each insurance policy will name Lessee as
insured and Lessor as an additional insured and loss payee thereof as lessor's
interests may appear, and shall provide that it may not be canceled or altered
without at least thirty (30) days prior written notice thereof being given to
Lessor or its successor and assigns.
4.
<PAGE> 5
3.7 INDEMNITY. Except with respect to the gross negligence or willful
misconduct of Lessor, Lessee hereby indemnifies, protects, defends and holds
harmless Lessor and its successors and assigns, from and against any and all
claims, liabilities (including negligence, tort and strict liabilities),
demands, actions, suits, and proceedings, losses, costs, expenses and damages,
including without limitation, reasonable attorneys' fees and costs
(collectively, "CLAIMS"), arising out of, connected with, or resulting from this
Agreement, any Lease or any of the Equipment, including, without limitation, the
manufacture, selection, purchase, delivery, possession, condition, use,
operation, or return of the Equipment. Each of the parties shall give the other
prompt written notice of any Claim of which it becomes aware. The provisions of
this Section 3.7 shall survive the expiration or termination of this Agreement
or any Lease.
3.8 PROHIBITIONS RELATED TO LEASE AND EQUIPMENT. Without the prior
written consent of Lessor, which consent as it pertains to subsections (b) and
(d) below shall not be unreasonably withheld, Lessee shall not: (a) assign,
transfer, pledge, encumber, hypothecate or otherwise dispose of this Lease or
any rights or obligations thereunder; (b) sublease any of the Equipment; (c)
create or incur, or permit to exist, any lien or encumbrance with respect to any
of the Equipment, or any part thereof; (d) move any of the Equipment from the
location at which it is first installed; or (e) permit any of the Equipment to
be moved outside the continental limits of the United States.
3.9 IDENTIFICATION. Lessee shall place and maintain permanent markings
provided by Lessor on the Equipment evidencing ownership, security and other
interests therein, as specified from time to time by Lessor.
3.10 ALTERATIONS AND MODIFICATIONS. Lessee shall not make any
additions, attachments, alterations or improvements to the Equipment without the
prior written consent of lessor. Any addition, attachment, alteration or
improvement to any item of Equipment shall belong to and become the property of
Lessor unless, at the request of Lessor, it is removed prior to the return of
such item of Equipment by Lessee. Lessee shall be responsible for all costs
relating to such removal and shall restore such item of Equipment to its
operating condition that existed at the time it became subject to the applicable
Lease.
3.11 EQUIPMENT TO BE PERSONAL PROPERTY. Lessee acknowledges and
represents that the Equipment shall be and remain personal property,
notwithstanding the manner in which it may be attached or affixed to realty, and
Lessee shall do all acts and enter into all agreements necessary to ensure that
the Equipment remains personal property.
3.12 FINANCIAL STATEMENTS. Lessee shall promptly furnish to Lessor such
financial or other statements respecting the condition and operations of Lessee,
and information respecting the Equipment, as Lessor may from time to time
reasonably request.
5.
<PAGE> 6
3.13 LESSEE REPRESENTATIONS. Lessee hereby represents that, with
respect to this Agreement and each Lease: (a) the execution, delivery and
performance thereof by Lessee have been duly authorized by all necessary
corporate action; and (b) the individual executing such document is duly
authorized to do so; (c) such document constitutes a legal, valid and binding
obligations of Lessee, enforceable in accordance with its terms.
IV. DEFAULT AND REMEDIES
4.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" hereunder: (a) Lessee shall fail to pay any
Rent or other payment due hereunder within five (5) days after it becomes due
and payable; (b) any representation or warranty of Lessee made in this
Agreement, any Lease, or in any document furnished pursuant to the provisions of
this Agreement or otherwise, shall prove to have been false or misleading in any
material respect as of the date when it was made; (c) Lessee shall fail to
perform any covenant, condition or agreement made by it under any Lease, and
such failure shall continue for twenty (20) days after its receipt of notice
thereof; (d) bankruptcy, receivership, insolvency, reorganization, dissolution,
liquidation or other similar proceedings shall be instituted by or against
Lessee or all or any part of its property under the Federal Bankruptcy Code or
other law of the United States or of any other competent jurisdiction, and, if
such proceeding is brought against Lessee, it shall consent thereto or shall
fail to cause the same to be discharged within thirty (30) days after it is
filed; (e) Lessee shall default under any agreement with respect to the purchase
or installation of any of the Equipment; or (f) Lessee or any guarantor of
Lessee's obligations under any Lease shall default under any other agreement
with lessor or Cisco Systems, Inc.
4.2 REMEDIES. If an Event of Default hereunder shall occur and be
continuing, Lessor may exercise any one or more of the following remedies: (a)
terminate any or all of the Leases and Lessee's rights thereunder; (b) proceed,
by appropriate court action or actions, to enforce performance by Lessee of the
applicable covenants of any or all of the Leases or to recover damages for the
breach thereof; (c) recover from Lessee an amount equal to the sum of (i) all
accrued and unpaid Rent and other amounts due under any or all of the Leases
(ii) as liquidated damages for loss of a bargain and not as a penalty, the
present value of (A) the balance of all Rent and other amounts under any or all
of the Leases discounted at a rate of five percent (5%) per annum, and (B)
Lessor's estimated fair market value of the Equipment at the expiration of the
Original Term; (d) personally, or by its agents, take immediate possession of
any or all of the Equipment from Lessee and, for such purpose, enter upon
Lessee's premises where any of the Equipment is located with or without notice
or process of law and free from all claims by Lessee; and 9e) require the Lessee
to assemble the Equipment and deliver the Equipment to Lessor at a location
which is reasonably convenient to Lessor and Lessee. The exercise of any of the
foregoing remedies by Lessor shall not constitute a termination of any Lease or
this Agreement unless Lessor so notifies Lessee in writing.
6.
<PAGE> 7
4.3 DISPOSITION OF EQUIPMENT. In the event, upon the occurrence of an
Event of Default, Lessor repossesses any of the Equipment, Lessor may sell or
lease any or all of such Equipment, at one or more public or private sales. The
proceeds of (i) any rental of the Equipment for the balance of the Original Term
(discounted to present value at the rate of five percent (5%) per annum) or (ii)
any sale of the Equipment shall be applied to the payment of (A) all costs and
expenses (including, without limitation, reasonable attorneys' fees) incurred by
Lessor in retaking possession of, and removing, storing, repairing, refurbishing
and selling or leasing such Equipment and (B) the obligations of Lessee to
Lessor pursuant to this Agreement. Lessee shall remain liable to Lessor for any
deficiency.
V. MISCELLANEOUS
5.1 PERFORMANCE OF LESSEE'S OBLIGATIONS. Upon Lessee's failure to pay
rent (or any other sum due hereunder) or perform any obligation hereunder when
due, Lessor shall have the right, but shall not be obligated, to pay such sum or
perform such obligation, whereupon such sum or cost of such performance shall
immediately become due and payable hereunder as additional Rent, with interest
thereon at the highest legal rate from the date such payment or performance was
made.
5.2 QUIET ENJOYMENT. So long as no Event of Default shall have occurred
and be continuing, neither Lessor not its assignee shall interfere with Lessee's
right of quiet enjoyment and use of the Equipment.
5.3 FURTHER ASSURANCES. Lessee shall, upon the request of Lessor, from
time to time, execute and deliver such further document and do such further acts
as Lessor may reasonably request in order fully to effect the purpose of any
Lease and Lessor's rights thereunder. Lessor is authorized to file a financing
statement, signed only by Lessor in accordance with the Uniform Commercial Code
or signed by Lessor as Lessee's attorney in fact, with respect to any of the
Equipment.
5.4 RIGHT AND REMEDIES. Each and every right and remedy granted to
Lessor under any Lease shall be cumulative and in addition to any other right or
remedy therein specifically granted to nor or hereafter existing in equity, at
law, by virtue of statute or otherwise, and may be exercised by Lessor from time
to time concurrently or independently and as often as Lessor may deem expedient.
Any failure or delay on the part of Lessor in exercising any such right or
remedy, or abandonment or discontinuance of steps to enforce the same, shall not
operate as a waiver thereof or affect Lessor's right thereafter to exercising
the same. Waiver of any right or remedy on one occasion shall not be deemed to
be a waiver of any other right or remedy or of the same right or remedy on any
other occasion.
7.
<PAGE> 8
5.5 NOTICES. Any notice, request, demand, consent, approval or other
communication provided for or permitted hereunder shall be in writing and shall
be conclusively deemed to have been received by a party hereto on the day it is
delivered to such party at its address as set forth above (or at such other
addresses such party shall specify to the other party in writing), or if sent by
registered or certified mail, return receipt requested, on the fifth day after
the day on which it is mailed, postage prepaid, addressed to such party.
5.6 SECTION HEADINGS; COUNTERPARTS. Section headings are inserted for
convenience of reference only and shall not affect any construction or
interpretation of this Agreement. This Agreement and each Lease may be executed
in counterparts, and when so executed each counterpart shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument.
5.7 ENTIRE LEASE. This Agreement and each Lease constitute the entire
agreement between Lessor and Lessee with respect to the lease of the Equipment.
No amendment of, or any consent with respect to, any provision of this
Agreement or any Lease shall bind either party unless set forth in a writing,
specifying such waiver, consent, or amendment, signed by both parties. TO THE
EXTENT PERMITTED BY APPLICABLE LAW AND NOT OTHERWISE SPECIFICALLY PROVIDED TO
LESSEE IN THIS AGREEMENT, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS OR REMEDIES
CONFERRED UPON A LESSEE UNDER THE CALIFORNIA COMMERCIAL CODE, AND ANY OTHER
APPLICABLE SIMILAR CODE OR STATUTES OF ANOTHER JURISDICTION, WITH RESPECT TO A
DEFAULT BY LESSOR UNDER THIS AGREEMENT OR ANY LEASE.
5.8 SEVERABILITY. Should any provision of this Agreement or any Lease
be or become invalid, illegal, or unenforceable under applicable law, the other
provisions of this Agreement and such Lease shall not be affected and shall
remain in full force and effect.
5.9 ATTORNEYS' FEES. Should either party institute any action or
proceeding to enforce this Agreement or any Lease, the prevailing party shall be
entitled to receive from the other party all reasonable out-of-pocket costs and
expenses, including, without limitation, attorneys' fees.
5.10 GOVERNING LAW AND JURISDICTION. THIS LEASE SHALL BE GOVERNED IN
ALL RESPECTS BY THE LAWS OF THE STATE OF CALIFORNIA WITH RESPECT TO AGREEMENTS
ENTERED INTO, AND TO BE PERFORMED, ENTIRELY IN CALIFORNIA. LESSOR AND LESSEE
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING FROM THIS AGREEMENT
OR ANY LEASE. LESSEE CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
COURTS OF CALIFORNIA, AND THE FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA,
FOR THE RESOLUTION OF ANY DISPUTES HEREUNDER.
8.
<PAGE> 9
5.11 SURVIVAL. All obligations of Lessee to make payments to Lessor
under any Lease or to indemnify Lessor, pursuant to Section 3.4 or 3.7 above,
with respect to a Lease, and all rights of Lessor hereunder with respect to a
Lease, shall survive the termination of such Lease.
LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES
THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS
AND CONDITIONS.
LESSOR: LESSEE:
CISCO SYSTEMS CAPITAL SCREAMING MEDIA.NET, INC.
CORPORATION
By: /s/ Brian P. Fukahara By: /s/ Roy Boling
---------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
Brian P. Fukahara
Chief Credit Officer Screaming Media Net, Inc.
- ------------------------------- -------------------------------
(Name/Title) (Legal Name/Title)
7/3/99 7/2/99
- ------------------------------- -------------------------------
(Date) (Date)
9.
<PAGE> 1
Exhibit 10.3
[DELL FINANCIAL SERVICES LOGO]
NO. 7345913
EFFECTIVE DATE:
-------
MASTER LEASE AGREEMENT
<TABLE>
<CAPTION>
LESSOR: DELL FINANCIAL SERVICES L.P. LESSEE: SCREAMING MEDIA.NET, INC.
-------------------------
<S> <C> <C>
Mailing Address: Payment Address: Address:
- --------------- --------------- -------
PO Box 811550 PO Box 99355 55 Broad Street
---------------
Chicago, Illinois Chicago, Illinois New York, New York
------------------
60681-1550 60693 10004
-----
Fax: Fax: Fax: 212-809-0077
---------------------- ---------------------- -----------------
Attention: Attention: Attention: Roy Boling
---------------- ---------------- -----------
</TABLE>
This Master Lease Agreement (this "Agreement"), dated to be effective as of the
Effective Date set forth above, is between the Lessor and Lessee named above.
1. LEASE.
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the Products
described in any lease schedule subject to this Agreement (each a "Schedule")
executed by Lessee and Lessor from time to time in the form attached to this
Agreement as Exhibit A. The provisions hereof shall govern each Schedule and
each Schedule shall constitute a separate lease of Products (a "Lease"). Except
as may be specifically provided otherwise in this Agreement, in the event of any
conflict between the terms of any Schedule and the terms of this Agreement, the
terms of the Schedule shall prevail. All rights to the Products not specifically
granted to Lessee in this Agreement or in a Schedule are reserved by Lessor.
2. ACCEPTANCE; COMMENCEMENT DATE AND TERM
(a) Subject to any right of return provided by any Seller or Licensor of the
Products, all Products shall be deemed to have been irrevocably accepted by
Lessee ("Acceptance") upon the expiration of the 10th day following the date the
Products are shipped (the "Acceptance Date") unless Lessee rejects such Products
by written notice to Lessor before the expiration of such period. For Products
with Acceptance Dates from the 16th day of a calendar month through the 15th day
of the next calendar month, Lessor shall send to Lessee one or more Schedules
specifying the terms of the lease of such Products. On or before the later of
(a) the relevant Acceptance Date of the Product or (b) the 5th day after
Lessee's receipt of such Schedules, Lessee agrees to review such Schedules and,
with respect thereto, (i) sign and promptly return them to Lessor within 5 days
of receipt or (ii) provide to Lessor a bona fide written objection regarding
such Schedules. If the Lessee fails to comply with the prior sentence, Lessor
may require the Lessee to purchase the Products at the Total Product Acquisition
Cost set forth on the Schedules, plus any shipping charges, Taxes or Duties and
interest at the Overdue Rate accruing from the date the Products are shipped
through the date of payment. (b) Each Lease shall have a primary term (the
"Primary Term") for the number of months set forth in the Schedule. The Primary
Term for each Lease shall begin on the date set forth on the Schedule as the
Commencement Date (the "Commencement Date"). The period beginning on the
Acceptance Date and ending on the last day of the Primary Term, together with
any renewals or extensions thereof, is defined as the "Lease Term". Each Lease
of Products shall become effective as of the applicable Acceptance Date and
shall continue for the Lease Term and shall be non-cancelable by Lessee.
3. RENT; PAYMENT OBLIGATION.
(a) The amount of the rental payments ("Rent"), and the payment thereof, with
respect to the Lease of any Product hereunder, shall be as provided in the
applicable Schedule, Rent shall be due and payable as stated in the relevant
Schedule starting on the Commencement Date; provided, however, that added to the
first payment of Rent shall be a prorated portion of Rent calculated based on a
30-day month, 90-day quarter or 360-day year (as appropriate) for the period
from the Acceptance Date to the Commencement Date. All Rent and other amounts
due and payable under this Agreement or any Schedule shall be paid to Lessor in
lawful funds of the United States of America at the payment address for Lessor
set forth above or at such other address as Lessor may designate from time to
time. Whenever Rent and other amounts payable under this Agreement are not paid
when due, Lessee shall pay interest on such amounts at the Overdue Rate (or the
maximum interest rate legally permissible whichever is less). Rent shall be due
and payable whether or not Lessee has received any notice that such Rent is due.
(b) EACH LEASE SHALL BE A NET LEASE, and any Rent or other amounts set forth in
this Agreement or any Schedule shall not include insurance, handling costs,
shipping or other transportation costs (except as may be specifically provided
in any Schedule); or sales, use, excise, purchase, property, added value or
other taxes, fees, levies or assessments, or (to the extent Lessor may consent
to Lessee's transfer of any Products to Per sons outside the United States)
customs duties or surcharges on imports or exports (collectively, "Taxes or
Duties"), with respect to the Products, this Agreement or any Lease, all of
which shall be paid directly by or charged to the account of Lessee. If Lessee
claims eligibility for exemption from any tax, it shall provide Lessor with a
tax exemption certificate acceptable to the relevant taxing authority prior to
Lessor's payment of such tax. Any such Tax or Duty Lessor may be required to
collect or pay (other than taxes based on the income of Lessor) shall be paid by
Lessee and, if not specifically set forth in this Agreement or the applicable
Schedule as payable concurrently with the payment of Rent, shall be due and
payable to Lessor on demand.
(c) LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER AMOUNTS WHEN DUE AND TO
OTHERWISE PERFORM AS REQUIRED UNDER THIS AGREEMENT OR ANY SCHEDULE SHALL BE
ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT,
REDUCTION, SET-OFF, DEFENSE, COUNTER CLAIM, INTERRUPTION, DEFERMENT OR
RECOUPMENT FOR ANY REASON WHATSOEVER WHETHER ARISING OUT OF ANY CLAIMS BY LESSEE
AGAINST LESSOR, THE SUPPLIER OR MANUFACTURER OF THE PRODUCTS, TOTAL OR PARTIAL
LOSS OF THE PRODUCTS OR THEIR USE OR POSSESSION, OR OTHERWISE. If any Product is
unsatisfactory for any reason, Lessee shall make its claim solely against the
Seller or Licensor of such Product and shall, nevertheless, pay Lessor or its
assignee all amounts due and payable under the Lease.
4. LICENSED MATERIALS
This Agreement or any Schedule does not grant any right, title or interest in or
to that portion of any Products constituting or containing Software or
Documentation (collectively, "Licensed Materials"). Any rights that Lessee may
have with respect to Licensed Materials shall arise only pursuant to license
agreements between Lessee and the licensor(s) of such Licensed Materials
(collectively, the licensors") which license agreements (the "Licenses") may be
concerned within the packaging associated with the Products. All title to and
ownership of the Licensed Materials (together with all rights in patents,
copyrights, trade secrets and other intellectual property rights applicable
thereto) are and shall remain with the Licensors during and after the term of
this Agreement. Any use of the terms "sell," "purchase," "license," "lease," and
the like in this Agreement or any Schedule with respect to Licensed Materials
shall be interpreted in accordance with this Section 4.
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5. PERFORMANCE BY LESSOR.
Lessor shall have the right to accept or reject in Lessor's sole discretion any
request by Lessee for the leasing of Products under this Agreement. Each
Schedule shall be binding upon Lessor and Lessee from the date it is accepted
and executed by Lessee and accepted by Lessor in its sole discretion. Lessor
shall have no obligations with regard to any Schedule unless Lessor receives
clear and unencumbered title to the Products (excluding Licensed Materials)
either through an assignment of Lessee's rights and interests in the Products,
or otherwise. In the event Lessor has not received such title prior to the
Commencement Date of the applicable Schedule, Lessor may terminate its
obligations hereunder, and reassign all rights and obligations with respect to
the Products to Lessee without recourse or warranty. Lessee shall thereafter
promptly reimburse Lessor for all expenses and other amounts incurred by Lessor
with respect to such Products and transaction, plus interest from the date such
amounts were disbursed by Lessor through the date such amounts are reimbursed by
Lessee at the Overdue Rate.
6. USE; LOCATION; INSPECTION.
Lessee shall be solely responsible for unpacking and installing the Products.
Lessee agrees to comply with all terms and conditions of any Licenses and shall
possess and operate the Products only (i) in accordance with the Documentation
and Applicable Laws (including intellectual property laws): and (ii) for the
internal business purposes of Lessee and not for any other use or disposition.
Lessee agrees not to move Products from the locations set forth in the related
Schedule without providing Lessor with at least 30 days prior written notice,
and then only to a location within the United States; provided, however, Lessee
may temporarily move from such location any such Products which are designated
"mobile equipment" on the applicable Schedule without notice to Lessor to a
location within or outside the United States so long as, while they are outside
the United States, they are used in compliance with the United States Export
Control Administration Act of 1979 and the Export Administration Act of 1985,
as those Acts are amended from time to time (or any successor or similar
legislation). Lessee shall be responsible for all costs and expenses in
connection with such relocation, including those incurred by Lessor in the
protection of its interests in the Products. Provided Lessor complies with
Lessee's reasonable security requirements, Lessee shall allow lessor to inspect
the premises where the Products are located from time to time during reasonable
hours after reasonable notice in order to confirm Lessee's compliance with its
obligations under this Agreement and shall correct any deficiencies promptly
upon notice from Lessor.
7. RETURN.
At the expiration of the Lease Term for any Product or earlier termination of
each Lease, Lessee agrees (i) unless otherwise provided by the applicable
License(s), to terminate its use of all Licensed Materials provided to Lessee
under the Lease or assign to Lessor all of Lessee's rights under the applicable
License(s): and (ii) to terminate its use of, and return to Lessor at a place
within the contiguous United States designated by Lessor, all Products leased to
Lessee under the Lease. Lessee agrees to package the Products for return in a
manner which will protect them from damage and pay for the cost of transporting
the Products 500 miles from the original shipment location. If Products are not
returned in the condition required by this Section, Lessee shall promptly
reimburse Lessor for all costs and expenses of refurbishing Products. If Lessee
fails to return all of the Products at the expiration of any applicable Term,
Lessee shall promptly pay the estimated in-place fair market value for such
Products as determined by Lessor.
8. RISK OF LOSS; MAINTENANCE.
Lessee assumes all risk of loss or damage to Products from the time such
Products are either (i) delivered to a carrier for shipment to Lessee if Lessee
or a third party arranges for their shipment or (ii) delivered to Lessee (if
shipment is arranged by Lessor, Dell Computer Corporation or their Affiliates)
until their return to Lessor. Lessee agrees to maintain the Products in good
operating condition and appearance (ordinary wear and tear excepted), in
compliance with requirements necessary to enforce all Product warranty rights
and agrees to promptly repair any repairable damage. During the Lease Term,
Lessee shall ensure that each Product is covered by a maintenance agreement (if
available) from the manufacturer of such Product or another Person that is
reasonably acceptable to Lessor or, upon Lessor's prior written approval, Lessee
may self-maintain the Products in accordance with the standards set forth in
this section. If the Products are lost, stolen, destroyed, damaged beyond repair
or in the event of any condemnation, confiscation, seizure or expropriation of
such Products ("Casually Products"), Lessee shall promptly (i) notify Lessor of
the same and (ii) pay to Lessor the Stipulated Loss Value for the Casualty
Products.
9. ALTERATIONS.
Lessee shall, at its expense, make such alterations to Products during the Lease
Term as legally required or made available to Lessee by the Seller. Lessee may
make other alterations, additions or improvements to Products provided they do
not violate any License or decrease the value or utility of Products and are
readily removable. Lessee may at its own expense, remove any such alteration,
addition or improvement at the expiration of the relevant Lease Term provided
Lessee shall restore the Products to their original configuration and repair any
resulting damage to Products. Any alteration, addition or improvement that is
not removed by Lessee as provided above shall become the property of Lessor upon
the Products' return, free and clear of all liens and encumbrances.
10. INSURANCE.
Lessee shall obtain and maintain at its own expense, from the date risk of loss
passes to Lessee hereunder until all of Lessee's obligations under the related
Lease have been performed in full, (a) insurance against loss, theft,
destruction of, or damage to the Products in an amount not less than the full
replacement value thereof, with Lessor named as a loss payee thereunder, and (b)
such public liability and property damage insurance as is customarily
maintained by prudent operators of similar businesses, with Lessor named as an
additional insured thereunder. Lessee shall, at Lessor's request, deliver
certificate(s) of such insurance to Lessor, and shall require that the
carrier(s) of all such insurance give Lessor not less than ten (10) days prior
written notice of any change to or cancellation of the related policies. If the
proceeds received by Lessor from such insurance are less than the Stipulated
Loss Value for Casualty Products, Lessee shall pay to Lessor the amount of such
deficiency. Notwithstanding anything to the contrary contained herein, Lessee
may, upon Lessor's prior written approval, self-insure in accordance with the
standards set forth above.
11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
Lessee represents, warrants and covenants to lessor at the time lessee enters
into this Agreement and each Schedule that
(a) Lessee is an entity duly organized and validly existing in good standing
under the laws of the jurisdiction of its organization and in all jurisdictions
with respect to which its ownership or its conduct of business or leasing of
property requires it to be so qualified; has full power and authority to
execute, deliver, and perform under this Agreement and each Schedule;
(b) The execution and delivery by Lessee of the Documents have been duly
authorized by all necessary corporate or other action on the part of Lessee, and
have been duly executed and delivered on Lessee's behalf by Persons duly
authorized in that regard, and constitute the legal, valid and binding
agreements of Lessee, enforceable against Lessee in accordance with their
respective terms (subject to applicable bankruptcy and other similar laws);
(c) The execution and delivery of and performance under any of the Documents to
which Lessee is a party do not and shall not result in a breach of, constitute a
default under, contravene any provision of, or result in the creation of any
lien on or in any property or assets of Lessee pursuant to any documents
pursuant to which Lessee is organized or operates, or any agreement, indenture
or other instrument to which Lessee is a party or by which Lessee or any of its
property or assets may be bound or affected;
(d) There is no action, suit or proceeding pending or, to the knowledge of
Lessee, threatened in any court or tribunal or before any competent authority
against Lessee or any of its property or assets which challenges any Documents
or any of the transactions contemplated hereunder or which may have a material
adverse effect on the financial condition or business of Lessee; and
(e) The financial statements and other information furnished and to be furnished
to Lessor by Lessee are and shall be true and correct in all material respects.
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If any Person guarantees payment or performance by Lessee of any liabilities or
obligations of Lessee under this Agreement or any Schedule (a "Guarantor"), the
preceding representations, warranties and covenants shall be deemed to be made
by Lessee on behalf of such Guarantor as well as Lessee as if such Guarantor
was named in addition to Lessee therein.
12. WARRANTY ASSIGNMENT; EXCLUSION OF WARRANTIES; LIMITATIONS ON LIABILITY;
FINANCE LEASE.
(a) Provided no Event of Default has occurred and is continuing hereunder,
Lessor assigns to Lessee the benefit of any warranty or right of return provided
by any Seller until such time as the Lease of such Product to Lessee has
terminated or expired.
(b) LESSEE ACKNOWLEDGES THAT LESSOR DID NOT SELECT, MANUFACTURE, SUPPLY OR
LICENSE ANY PRODUCT AND THAT LESSEE HAS MADE THE SELECTION OF PRODUCTS BASED
UPON ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE ON STATEMENTS MADE BY
LESSOR OR ITS AGENTS. LESSEE FURTHER ACKNOWLEDGES THAT NEITHER THE SELLER NOR
LICENSOR OF THE PRODUCTS (INCLUDING THE SALESPERSONS OF ANY OF THEM) IS AN
AGENT OF LESSOR (EVEN IF AFFILIATED WITH LESSOR). NOR ARE THEY AUTHORIZED TO
WAIVE OR ALTER ANY TERMS OF THIS AGREEMENT NOR ANY LEASE. LESSOR LEASES THE
PRODUCTS AS IS AND MAKES NO WARRANTY, EXPRESS, IMPLIED, OR OTHERWISE, INCLUDING
ANY WARRANTIES OF DESIGN, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE,
ANY WARRANTIES OF TITLE OR AGAINST INFRINGEMENT, OR ANY WARRANTIES ARISING FROM
A COURSE OF DEALING, USAGE OR TRADE PRACTICE, ALL OF WHICH ARE SPECIFICALLY
DISCLAIMED BY LESSOR. LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED
ON STRICT OR ABSOLUTE LIABILITY IN TORT) IT MIGHT HAVE AGAINST LESSOR OR ITS
ASSIGNEE FOR ANY LOSS, DAMAGE OR EXPENSE CAUSED BY OR WITH RESPECT TO ANY
PRODUCTS.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY SCHEDULE
OR THE SALE, LEASE OR USE OF ANY PRODUCTS INCLUDING INTERRUPTION OF SERVICE,
LOSS OF DATA, LOSS OF REVENUE OR PROFIT, LOSS OF TIME OR BUSINESS, OR ANY
SIMILAR LOSS, EVEN IF LESSOR IS ADVISED IN ADVANCE OF THE POSSIBILITY OR
CERTAINTY OF SUCH DAMAGES AND EVEN IF LESSEE ASSERTS OR ESTABLISHES A FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED IN THIS AGREEMENT.
(d) Lessee agrees that it is the intent of both parties that each Lease qualify
as a statutory finance lease under Article 2A of the Uniform Commercial Code.
Lessee acknowledges either (i) that Lessee has reviewed and approved any written
supply contract covering the Products purchased from the Seller thereof for
lease to Lessee or (ii) that Lessor has informed or advised Lessee, in writing,
either previously or by this Agreement, that Lessee may have rights under the
supply contract evidencing the purchase of the Products and that Lessee should
contact the Seller for a description of any such rights. To the fullest extent
permitted by applicable law, Lessee hereby waives all rights and remedies
conferred upon a Lessee by Article 2A.
13. EVENTS OF DEFAULT.
It shall be an event of default hereunder and under any Schedule ("Event of
Default") if:
(a) Lessee fails to pay any Rent or other amounts payable under this Agreement
or any Schedule within 15 days after its due date;
(b) Any representation or warranty made by Lessee or any Guarantor to Lessor
under, or in Connection with entering into this Agreement, any Schedule or any
other Document is at the time made materially untrue or incorrect;
(c) Lessee fails to comply with any other obligation or provision of this
Agreement or any Schedule and such failure shall have continued for 30 days
after notice from Lessor;
(d) Lessee or any Guarantor 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 Lessee or any Guarantor 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 Lessee or any Guarantor 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 Lessee
or any Guarantor and is not dismissed within 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 Lessee or any Guarantor and
remains unsatisfied for 60 days;
(e) Lessee or any Guarantor dissolves, liquidates or otherwise terminates its
existence as an entity, or consolidates with or merges with or into any entity,
or sells, leases or otherwise disposes of all or substantially all of its
assets, or incurs a substantial amount of indebtedness other than in the
ordinary course of its business, or engages in a leveraged buy-out or any other
form of corporate reorganization, in each case whether in a single transaction
or in a series of related transactions, UNLESS in each case and before the event
in question, either (i) Lessor, based on written confirmation from such party,
is reasonably satisfied that such party's financial condition and credit
standing shall not be impaired by the event, or (ii) such party's obligations
under this Agreement, each Schedule and any Guaranty are assumed or guaranteed
in a manner reasonably satisfactory to Lessor by an entity having in Lessor's
good faith opinion at least as good financial condition and credit standing as
those of such party immediately before the event:
(f) Lessee does or permits to occur any act which may in the reasonable opinion
of Lessor materially lessen the value of any Products or Lessor's interest
therein or increase the risk thereto; or
(g) Lessee or any Guarantor is in default under any other lease, contract,
agreement or obligation now existing or hereafter entered into with Lessor or
any Affiliate of Lessor whether Such party is bound alone or with others.
14. REMEDIES; TERMINATION.
(a) Upon an Event of Default, Lessor may:
(i) require Lessee to return any or all Products as provided in
Section 7;
(ii) without further notice, take possession of any or all Products
("Repossession") and for such purpose Lessee hereby (A) shall, if requested by
Lessor, assemble the Products and deliver them to a location designated by
Lessor and (B) grants Lessor the right to enter the premises where such Products
are located for the purpose of Repossession;
(iii) terminate this Agreement and/or any or all Schedules;
(iv) without terminating or being deemed to have terminated this
Agreement or any Schedule, sell, lease or otherwise dispose of any or all
Products (as agent and attorney-in-fact for Lessee to the extent necessary) upon
such terms and in such manner (at public or private sale) as Lessor deems
advisable in its sole discretion ("Disposition"); or
(v) declare immediately due and payable as a pre-estimate of liquidated
dam ages for loss of bargain and not as a penalty, the Stipulated Loss Value of
the Products in lieu of any further Rent, in which event Lessee Shall pay such
amount to Lessor within 10 days after the date of Lessor's demand.
(b) Upon termination of this Agreement or termination or expiration of any
Schedule, all right, title and interest of Lessee in or to the use of the
Products subject to the terminated Schedule(s) shall absolutely cease and Lessee
shall return any and all such Products In accordance with Lessor's instructions.
Termination or expiration of one or more of the Schedules shall not in and of
itself constitute termination of this Agreement.
(c) Lessee shall pay all costs arising or incurred by Lessor as a result of an
Event of Default by Lessee or any Guarantor, including reasonable legal fees
and expenses, and all Costs related to the Repossession, transportation,
refurbishing, storage and Disposition of any or all Products ("Default
Expenses"). In the event Lessor recovers proceeds (net of Default Expenses) from
its Disposition of the Products, Lessor shall credit such Proceeds against the
Stipulated Loss Value owed by Lessee under Section 14(a)(v). Lessee shall remain
liable to Lessor for any deficiency. If the proceeds of the Disposition (net of
Default Expenses) exceed the Stipulated Loss Value, or Lessee has paid the
Stipulated Loss Value, Default Expenses and any other amounts owing, Lessee
shall be entitled to such excess.
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(d) All rights of Lessor are cumulative and not alternative and may be exercised
by Lessor separately or together. In addition to the rights of Lessor
specifically set forth in this Agreement or any Schedule, Lessor shall be
entitled to any other appropriate order or remedy available by contract, at law
or in equity.
15. QUIET ENJOYMENT.
Lessor shall not interfere with Lessee's right to possession and quiet enjoyment
of Products during the relevant Lease Term, provided no Event of Default has
occurred or is continuing.
16. INDEMNIFICATION.
Lessee shall indemnify, defend and hold Lessor, its assignees, and their
respective officers, directors, employees, representatives and agents harmless
from and against, all claims, demands, damages, losses, liabilities, actions,
costs or expenses, including reasonable legal fees and expenses (collectively,
"Claims"), arising from or incurred in connection with this Agreement, any
Schedule, or the selection, manufacture, acquisition, possession, ownership,
use, maintenance, condition, return or operation of any Products (including
Claims for personal injury or death and for damage to property, Claims related
to patent, copyright or trademark infringement and Claims related to any
subsequent use or disposition by Lessor, Lessor's Affiliates or any of their
respective successors or assigns of any Products resulting from such Products
containing any data or other materials of Lessee or any third party), and
regardless of the form of action (including negligence, tort and strict
liability). This indemnity shall not extend to any loss caused solely by the
negligence or willful misconduct of Lessor. Lessee shall assume the defense of
such Claim at its expense and pay any amount in settlement and all costs and
damages awarded against or incurred by Lessor or any other Person indemnified
hereunder; provided, however, that any Person indemnified hereunder shall have
the right to participate in the defense of such Claim with counsel of its choice
and at its expense and to approve any such settlement (such approval not to be
unreasonably withheld or delayed), Lessee shall keep Lessor informed at all
times as to the status of Lessee's efforts and consult with Lessor concerning
its efforts.
17. OWNERSHIP LIENS AND ENCUMBRANCES; LABELS.
As between Lessor and Lessee, title to the Products (other than any Licensed
Materials) is and shall remain in Lessor. During the relevant Lease Term,
Products shall be and remain movable, personal property and Lessee agrees to
take all action necessary or reasonably requested by Lessor to ensure that
Products retain such status. Lessee shall, at Lessee's expense, keep Products
free and clear of liens, security interests, attachments, seizures and
encumbrances of any kind (except those arising hereunder or solely through the
acts of Lessor) and shall immediately notify Lessor if any Person attempts to
claim ownership of, a lien against, or any other interest in, or bring any legal
process with respect to, any of the Products. Lessee shall affix if Lessor so
requires plates, labels, or other markings upon Products (other than any
Licensed Materials) indicating Lessor as the owner.
18. REMEDYING DEFAULTS.
If Lessee shall fail to perform or comply with any, of Lessee's obligations
hereunder or under any Schedule, Lessor in its discretion may do all such
reasonable acts and make all such reasonable disbursements as may be necessary
to itself perform, or cause performance of or compliance with, such obligations,
without the same constituting a waiver of such obligations or certainty any
obligation or liability on the part of Lessor either to remedy any other failure
to perform or comply or to take any other action whatsoever and any
disbursements so made shall be payable by Lessee on demand, together with
interest at the Overdue Rate from the date of disbursement by Lessor to the date
of payment by Lessee,
19. NOTICES.
Except as may be specifically provided herein, all notices with respect hereto
shall be given in writing and shall be delivered (including delivery by courier,
facsimile transmittal, or similar means) or sent by mail, postage prepaid,
return receipt requested, addressed to the party for whom intended at the
address specified on the first page of this Agreement or at such other address
as the intended recipient previously shall have designated by at least 10 days
written notice to the other party. Unless otherwise provided in this Agreement,
notice shall be effective on the date that it is received or (if mailed as
described above) 4 Business Days after the date of mailing.
20. ASSIGNMENT.
(a) NEITHER THIS AGREEMENT, ANY SCHEDULE, OR ANY RIGHT OR OBLIGATION HEREUNDER
OR THERE UNDER IS ASSIGNABLE IN WHOLE OR IN PART, WHETHER BY OPERATION OF LAW OR
OTHERWISE, BY LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, NOR MAY LESSEE
ASSIGN OR SUBLET PRODUCTS WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. ANY
ATTEMPTED ASSIGNMENT OR SUB LETTING WITHOUT LESSOR'S PRIOR WRITTEN CONSENT
SHALL BE VOID AND OF NO FORCE AND EFFECT. Upon Lessor's prior written consent,
Lessee may assign or sub lease a Schedule in whole to an Affiliate subject to
the following terms: (i) Lessee shall provide to Lessor 30 days prior written
notice of the location of the Products and the identity of the subsequent lessee
thereof; and (ii) no assignment or sublease shall in any way discharge Lessee's
obligations to Lessor under this Agreement or Schedule; and (iii) the terms and
conditions of such assignment or sublease shall be subject to Lessor's reason
able approval and be expressly subject and subordinate to the terms of this
Agreement and the applicable Schedule. Lessee shall assign any of its rights
under such sublease or assignment to Lessor (or its assignee) as additional
collateral and security for performance of Lessee's obligations hereunder.
(b) Lessor may at any time without notice to Lessee, but subject to the rights
of Lessee hereunder, transfer, assign, or grant a security interest in any
Product, this Agreement, any Schedule, or any rights hereunder or thereunder
(including any Rent or other monies and benefits due or to become due
hereunder), In whole or in part. In such event the assignee will have the rights
and benefits, but not any of the obligations of Lessor, which obligations shall
be retained by Lessor, Lessee agrees that the rights of any such assignee will
not be subject to any claims, defenses or setoffs that Lessee may have against
Lessor.
(c) This Agreement shall be binding upon and inure to the benefit of Lessor and
its successors and assigns and shall be binding upon Lessee and the heirs,
executors, administrators, successors and permitted assigns and permitted
sublessees of Lessee,
21. SURVIVAL.
All of the representations, warranties, covenants and agreements of Lessee
contained in this Agreement or any Schedule shall survive the termination of
this Agreement and the expiration or earlier termination of any or all
Schedule(s) until all obligations of Lessee under this Agreement and all
Schedules have been performed in full; provided, however, that the provisions of
Sections 11, 12(b), 12(c), 12(d), and 16 shall continue in full force and effect
even after all obligations of Lessee have been performed in full.
22. GOVERNING LAW; JURISDICTION AND VENUE WAIVER OF JURY TRIAL.
THIS AGREEMENT AND EACH SCHEDULE SHALL, BE GOVERNED IN ALL RESPECTS BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, U.S.A. (EXCEPT
AS OTHERWISE PROVIDED IN SECTION 25(j) REGARDING THE DETERMINATION OF THE
MAXIMUM AMOUNT OF TIME PRICE BALANCE DIFFERENTIAL AND INTEREST), EXCLUSIVE OF
ANY PROVISIONS OF THE UNITED NATIONS CONVENTION ON THE INTERNATIONAL SALE OF
GOODS, THE UNIDROIT INTERNATIONAL CONVENTION ON FINANCIAL LEASING (OTTAWA,
1988) AND WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. LESSEE IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED IN COOK
COUNTY, ILLINOIS, AND WAIVES TO THE FULLEST EXTENT ALLOWED BY LAW ANY OBJECTION
TO VENUE IN SUCH COURT, AND FURTHER WAIVES ANY RIGHT TO A TRIAL BY JURY.
23. DEFINITIONS.
In addition to the terms defined elsewhere within this Agreement, the following
terms have the following respective meanings for purposes of this Agreement:
Acceptance. Defined in Section 2(a).
Acceptance Date. Defined in Section 2(a).
Affiliate. Any Person that directly or indirectly controls, is controlled by, or
is under
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common control with, Lessor or Lessee as the context may require.
Agreement. This Master Lease Agreement
Applicable Laws. All applicable Laws, rules, regulations and orders of any
government authority with jurisdiction over a party or over its performance in
connection with this Agreement or any Schedule (including Lessee's lease or use
of Products hereunder or thereunder).
Business Day. Any day except Saturday, Sunday or a day on which banking
institutions are required or authorized by law or other governmental action to
be closed in Illinois.
Casualty Products. Defined in Section 8.
Claims. Defined in Section 16.
Commencement Date. Defined in Section 2(b).
Default Expenses. Defined in Section 14(c).
Disposition. Defined in Section 14(a)(iv).
Documents. Defined in Section 11(a).
Documentation. All user guides, driver installation guides, listings, manuals,
illustrations, and other written materials or publications that accompany or
constitute all or a portion of any Software or other Products or that are
provided by or on behalf of any manufacturer, supplier or Licensor of Products
to Lessee relating to the installation. operation, sale, support or other use of
such Products, and all modifications, additions, supplements. translations,
derivative works and full or partial copies of any thereof, regardless of who
prepared the same.
Event of Default. Defined in Section 13.
Guarantor. Defined in Section 11.
Lease. Defined in Section 1.
Lease Term. Defined in Section 2(b).
Licensed Materials. Defined in Section 4.
Licenses. Defined in Section 4.
Licensors. Defined in Section 4.
Overdue Rate. A rate equal to the lesser of 1-1/2% per month or the highest rate
permitted by applicable law.
Person. Any individual, partnership, joint venture, corporation, limited
liability company, trust, unincorporated organization, joint stock company,
government or department or agency thereof, or other form of association or
entity.
Primary Term. Defined in Section 2(b).
Products. All of the computer hardware, software, parts, equipment,
accessories, and other products (including any Software or Documentation) that
Lessor, in its sole discretion, may from time to time lease or offer for lease
to Lessee under this Agreement.
Rent. Defined in Section 3(a).
Repossession. Defined in Section 14 (a)(ii).
Schedule. Defined in Section 1(a).
Software. All software or computer programs that accompany or constitute all or
a portion of any Products or are provided by or on behalf of any vendor or
Licensor to Lessee with respect to any Products, and all modifications,
additions, supplements, translations, derivative works, and full or partial
copies of any thereof, regardless of who prepared the same, and code with
respect thereto, whether embodied in or contained on magnetic tape, disk,
semiconductor device, or any other device or medium.
Seller. Any supplier, manufacturer, vendor or reseller of the Products.
Stipulated Loss Value. With respect to any Product, an amount equal to the sum
of (a) all Rent and other amounts then due and owing (including interest at the
Overdue Rate from the due date until payment is received) under the Lease, plus
(b) the present value of all future Rent to become due under the Lease during
the remainder of the Lease Term, plus (c) the present value of either any
end-of-term purchase Option Price for the Product specified in the relevant
Schedule or, if no such Option Price is specified in such Schedule, the
estimated in-place fair market value at the end of the Lease Term as determined
by Lessor. Each of (b) and (c) shall be calculated using the discount rate of
the Federal Reserve Bank of Chicago on the Commencement Date of the applicable
Schedule.
Taxes or Duties. Defined in Section 3(b).
24. CONSTRUCTION.
The headings used in this Agreement are for convenience only and shall have no
legal effect. This Agreement shall be interpreted fairly in accordance with its
terms and without any strict construction in favor of or against either party.
25. MISCELLANEOUS.
(a) If more than one Person executes this Agreement or any Schedule as Lessee,
their respective liabilities hereunder or thereunder shall be both joint and
several, but Lessor shall be fully discharged in respect of any obligation
hereunder upon performance of that obligation to any one of them.
(b) Failure of Lessor at any time to require Lessee's performance of any
obligation shall not affect the right to require performance of that obligation.
No term, condition or provision of this Agreement or any Schedule shall be
waived or deemed to have been waived by Lessor unless it is in writing and
signed by a duly authorized representative of Lessor. A valid waiver is limited
to the specific situation for which it was given.
(c) Lessee shall furnish such financial statements of Lessee and any Guarantor
(prepared in accordance with generally accepted accounting principles
consistently applied) and other information as Lessor may from time to time
reasonably request Lessee shall notify Lessor within 10 days after any material
adverse change in Lessee's or any Guarantor's financial condition.
(d) Whenever possible, each provision of this Agreement shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement, or the application thereof to any Person or under
any circumstances, shall be invalid or unenforceable to any extent under
applicable law, and the extent of such invalidity or unenforceablity does not
destroy the basis for the bargain between the parties as expressed herein, then
(i) such provision shall be deemed severed from this Agreement with, respect to
such party or such circumstance, without invalidating the remainder of this
Agreement or the application of such provision to other Persons or
circumstances, and (ii) a new provision shall be deemed substituted in lieu of
the provision so severed which new provision shall, to the extent possible,
accomplish the intent of the parties hereto as evidenced by the provision so
severed.
(e) All Lessee's obligations hereunder shall be performed or observed at
Lessee's expense.
(f) Lessee shall, upon Lessor's demand, promptly execute, acknowledge, deliver,
file, register and record any and all further documents and take any and all
other action reasonably requested by Lessor from time to time, for the purpose
of fully effectuating the Intent and purposes of this Agreement or any Schedule,
and to protect the interests of Lessor, its successors and assigns. The parties
intend for each lease to constitute a true lease of Products under the Uniform
Commercial Code and all Applicable Laws; if, however, any Lease is determined to
be other than a true lease, Lessee grants to Lessor a security interest in the
Products and all proceeds thereof. Lessee hereby appoints Lessor as Lessee's
agent and attorney-in-fact to execute, deliver and file in the name of Lessee
(and Lessee agrees to execute if requested) any financing statements or related
filings as Lessor may reasonably deem necessary or appropriate. In addition,
Lessor may file a copy of this Agreement or any Schedule In lieu of a financing
statement.
(g) Each Schedule may be executed in two manually numbered counterparts.
Counterpart number one when executed and delivered and which has the Lessor's
original signature or is in Lessor's possession shall constitute chattel paper
as that term is defined in the Uniform Commercial Code. To the extent a Schedule
constitutes chattel paper, no security interest in such Schedule may be
perfected except by the possession of the manually numbered and executed
counterpart of such Schedule. If Lessee transmits a Schedule by facsimile, the
facsimile copy as received by Lessor shall be binding on Lessee as if it were
manually signed, However, no facsimile or other version of a Schedule shall be
binding against Lessor until manually signed by Lessor. Lessee agrees that the
facsimile version of a Schedule manually signed by Lessor shall constitute the
original Lease for all purposes including, without limitation, (i) any hearing,
trial or proceeding with respect to such Schedule; (ii) any determination of
which version of such Schedule constitutes the single true original item of
chattel paper under the Uniform Commercial Code.
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Lessee agrees to deliver both counterparts of Schedule with Lessee's original
signature upon Lessor's request.
(h) Lessor and Lessee intend for each Lease to constitute a true lease of
products under the Uniform Commercial Code and all applicable law. If, however,
any Lease is determined to be a lease intended as security, in no event shall
Lessee, by acceleration or prepayment of the unpaid time price balance under
the related Schedule or otherwise, be obligated to pay any time price balance
differential in excess of the maximum amount permitted by applicable law (and
for purposes of this Section the applicable law shall be the law of the state
specified in Section 22 or the law of the state where the Products are located,
whichever law permits the greater amount). Any acceleration or prepayment of
the unpaid time price balance shall be subject to all applicable law, including
rebates of unearned charges. If in any event whatsoever Lessor shall receive
anything of value under a Lease deemed interest under applicable law which would
exceed the maximum amount of interest, the excess amount shall be applied to the
reduction of the unpaid time price balance or shall be refunded to Lessee. All
sums paid or agreed to be paid by Lessee to Lessor for the use, forbearance or
detention of money shall to the fullest extent permitted by applicable law be
amortized, prorated arid allocated and spread throughout the full term of the
applicable Schedule so that the amount of consideration constituting interest
is uniform throughout the term of such Schedule and does not exceed the maximum
permitted by applicable law, If any of the provisions of this paragraph conflict
with any provision(s) of any ether paragraph of this Agreement, any Schedule,
or any provision(s) in any other agreement or course of dealing between Lessor
and Lessee, the provisions of this paragraph shall control and govern the
interpretation of this Agreement, such Schedule and any such other agreement or
course of dealing.
(i) This Agreement and ___ Schedules hereto between Lessor and Lessee and set
forth all of the understandings and agreements between the parties supersede
and merge all prior written or oral communications, understandings, or
agreements between the parties relating to the subject matter contained herein.
this Agreement may be amended only in writing signed by Lessor (by a duly
authorized representative) and Lessee. Lessee agrees to be bound by the terms of
this Agreement arid, to the extent applicable, that the provision concerning a
separately signed document pursuant to Uniform Commercial Code Section 2A-208
has been complied with.
EXECUTED by the undersigned on the dates set forth below, to be effective as of
the Effective Date.
SCREAMING MEDIA.NET, INC.
"Lessee"
BY: /s/ Alan Ellman
----------------------------------------
NAME: Alan Ellman
--------------------------------------
TITLE: President
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DATE: 5/25/99
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DELL FINANCIAL SERVICES L.P.
"Lessor"
BY: /s/ Michael Watt
----------------------------------------
NAME: MICHAEL WATT
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TITLE: CHIEF OPERATING OFFICER
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DATE: 6/28/99
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Ex 10.12
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of May
14, 1999, by and between SoftCom, Inc., a Delaware corporation ("Seller") and
each purchaser executing a signature page hereto (collectively, the "Buyers",
and each individually a "Buyer").
WITNESSETH:
WHEREAS, Seller desires to sell to Buyers, and the Buyers desire to
purchase from Seller, the number of shares of Series A Convertible Preferred
Stock, par value $.001 per share (the "Preferred Stock") set forth under each
such Buyer's name on a signature page hereto (the "Shares"), subject to the
terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
1. Terms of Acquisition.
1.1 Stock Purchase. Upon the terms and subject to the conditions
of this Agreement, on the Closing Date (as hereinafter defined), each Buyer
shall purchase from Seller, and Seller shall sell, convey and deliver to each
Buyer, the Shares, free and clear of any and all charges, liens, claims,
security interests, adverse interests, pledges and encumbrances. The
certificates evidencing the Shares shall be delivered at the Closing (as
hereinafter defined) by Seller to each Buyer. Seller's agreement with each of
the Buyers is a separate agreement, and the sale of Shares to each Buyer is a
separate sale notwithstanding the fact that the terms of such sales are
contained in one agreement.
1.2 Purchase Price. As the purchase price for the Shares, each
Buyer shall pay to Seller, at the Closing, the aggregate sum set forth under
each such Buyer's name on a signature page hereto (the "Purchase Price"). Such
amount shall be payable by check, wire transfer or delivery of other
immediately available funds.
1.3 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Kirkpatrick &
Lockhart LLP, 1251 Avenue of the Americas, New York, New York 10020, on such
dates as funds for the Shares are received from each Buyer or at such other
time and place as Seller and Buyers shall mutually agree (the "Closing Date").
At each Closing, upon payment of the Purchase Price by a Buyer, Seller shall
deliver to such Buyer a certificate representing the amount of Shares purchased
by such Buyer.
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1.4 Subsequent Sale of Preferred Stock. At any time on or before May 19,
1999, Seller may sell up to an aggregate of 5,769,231 shares of Preferred Stock
(including shares sold on the date hereof) to new investors in Seller (each a
"New Investor"). In addition, the sale of up to an additional 641,026 shares of
Preferred Stock may be made after May 18, 1999 to an additional investor (also
referred to herein as a "New Investor"), subject to the limitation provided in
the second sentence of Section 7 below. All sales described herein shall be
made on the terms and conditions set forth in this Agreement, and each New
Investor shall execute and deliver a counterpart of this Agreement. All shares
of Preferred Stock sold pursuant to this Section 1.4 shall be deemed to be
"Shares" for all purposes under this Agreement, and each New Investor, upon
consummation of the purchase of such Shares, shall be deemed to be a "Buyer"
for all purposes under this Agreement.
2. Representations and Warranties.
2.1 Representations and Warranties of Seller. Seller hereby represents,
warrants, and covenants to the Buyers as follows:
(a) Organization and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all necessary power and authority to carry on its business as
now being conducted and presently proposed to be conducted.
(b) Requisite Power and Authorization. Seller has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. All corporate action of Seller required for
the execution, delivery and performance of this Agreement has been duly taken.
This Agreement constitutes the valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditor's rights in general
and (ii) as limited by general principles of equity that restrict the
availability of equitable remedies.
(c) No Conflicts. The execution, delivery and performance of this
Agreement will not (i) conflict with, result in a breach of, or constitute a
default under the Certificate of Incorporation (the "Certificate") or By-laws
of Seller, or any agreement or other obligation to which Seller is a party or
by which Seller or any of its assets are bound, or any judgment, decree, order,
writ, injunction, determination or award of any court or other governmental
agency, instrumentality or body applicable to Seller, or (ii) violate any law,
rule or regulation applicable to Seller or its property.
(d) No Consents. No consent, authorization, approval of, or order of
any governmental agency or court or any other person or entity is required in
connection with Seller's execution and delivery and performance of this
Agreement.
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(e) Qualification. Except as set forth on Schedule 2.1(e) attached
hereto, Seller is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify could have a material
adverse effect on its Condition (as defined below).
(f) Capitalization. The capital stock of Seller, as authorized by the
Certificate, will consist of: (i) 33,000,000 shares of Common Stock, 10,000,000
shares of which will be issued and outstanding and 6,615,384 shares of which
will be reserved for issuance upon conversion of the Shares and the conversion
of shares issued upon exercise of the Warrants described in Section 4 below (the
"Warrants") (the shares issued upon conversion of the Shares, upon exercise of
the Warrants or upon conversion of shares issued upon exercise of the Warrants
are sometimes hereinafter referred to, collectively, as "Conversion Shares");
and (ii) 7,000,000 shares of preferred stock, par value $0.01 per share of
Seller, of which 6,800,000 shares shall have been designated a Preferred Stock.
The rights, privileges and preferences of the Common Stock and Preferred Stock
are as stated in the Certificate and the Certificate of Designations relating to
the Preferred Stock, true and complete copies of which are attached hereto as
Exhibit A. Except as specifically set forth on Schedule 2.1(e) hereto, and
except for options to purchase up to 6,910,830 shares of Common Stock pursuant
to outstanding stock options, as of the Closing, Seller will not (i) have
outstanding any capital stock or other securities convertible into or
exchangeable for any shares of its capital stock and, except for the preemptive
rights contained in the Certificate, no person or entity will have any right to
subscribe for or to purchase (including conversion or preemptive rights), or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or other claims of any
character relating to, any capital stock or any stock or securities convertible
into or exchangeable for any capital stock of Seller; (ii) have any capital
stock, equity interests or other securities reserved for issuance for any
purpose (other than an aggregate of 6,910,832 shares of Common Stock reserved
for issuance upon exercise of options issued or issuable pursuant to the
Company's existing stock options or stock option or incentive plans); or (iii)
be subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any convertible
securities, rights or options of the type described in the immediately preceding
clause (i). No outstanding options, warrants or other security directly or
indirectly exercisable for or convertible into any class or series of Seller's
capital stock require anti-dilution adjustments by reason of the transactions
contemplated by this Agreement. All of the issued and outstanding shares of
Common Stock have been duly and validly issued, are fully paid and nonassessable
and were issued in compliance with all applicable federal and state securities
laws. All of the shares of Preferred Stock and Conversion Shares, when issued,
(i) will be duly and validly issued, fully paid and nonassessable, (ii) except
as set forth in the Shareholders Agreement in the form of Exhibit D hereto (the
"Shareholders Agreement"), and except for certain Preferred Stock subject to
irrevocable proxies, will be free of any liens or encumbrances of any kind, and
(iii) will be issued in compliance with all applicable federal and state
securities laws. To the best knowledge of Seller, there are no agreements among
Seller's stockholders with respect to the voting or transfer of Seller's capital
stock, other than the agreements regarding voting and transfer contained in the
Shareholders Agreement. Schedule 2.1(e) sets forth a complete and correct list
of the name of each holder of Seller's stock, options or other securities and
the number of shares, options or other securities (and type, class and series of
capital stock owned by such stock, option or other security holder (and exercise
price, if applicable)). In addition Seller has agreed to issue warrants to
purchase 205,128 Shares of Preferred Stock to PS Capital Ventures, LP. Prior to
consummation of the transactions contemplated hereby, Seller shall amend its
Certificate of Incorporation and Certificate of Designations related to the
Preferred Stock to increase its authorized shares of preferred stock and the
authorized Series A Preferred Stock to be 7,500,000 shares.
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<PAGE> 4
(g) Subsidiaries. Seller does not presently own or control, directly or
indirectly, any interest in any partnership, corporation or other business
entity.
(h) Financial Information. To the extent Seller has previously provided to
a Buyer its unaudited balance sheet as of December 31, 1998, and the related
unaudited statements of operations, stockholders' equity and cash flows for the
year then ended (the "Financials") such Financials are complete and correct in
all material respects; are in accordance with the books of account, ledgers and
records of Seller; have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis (subject to
ordinary year-end adjustments not individually, or in the aggregate, material to
the Condition of the Company); and present fairly the consolidated financial
position, results of operations and cash flows of Seller as of the respective
dates thereof. Except as reflected in the Financials, the Seller does not have
as of the Closing any obligation or liability, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business and consistent
with past practice since the date of the Financials, which liabilities are not,
individually or in the aggregate, material to the Condition of Seller, and (ii)
obligations and liabilities which, individually or in the aggregate, are not
material to the Condition of Seller and are not required under GAAP to be
reflected in the Financials.
(i) Certain Changes or Events. Since December 31, 1998, the business of
Seller has been operated only in the ordinary course, consistent with past
practice, and in addition to, and not in limitation of the foregoing: (i) there
has not been any significant adverse change in the business, properties,
operations, earnings, assets, liabilities, condition (financial or otherwise) or
prospects (collectively, "Condition") of Seller, except for changes in the
ordinary course of business consistent with past practice which have not been,
in the aggregate, materially adverse to Seller; (ii) there has been no change of
laws, rules or regulations applicable to Seller, or revocation or change in any
contract, permit or right to do business, and no other event or occurrence of
any character which has resulted, or could reasonably be expected to result, in
a material adverse change in the Condition of Seller; (iii) Seller has not
authorized or made any distributions, or declared or paid any dividends, upon or
with respect to any of its capital stock, or other equity interests, nor has
Seller redeemed, purchased or otherwise acquired, any of its capital stock or
other equity interests; (iv) except as set forth on Schedule 2.1(i) attached
hereto, there has been no material change in any compensation, arrangement or
agreement with any employee, director, stockholder or Affiliate (as defined
below); and (v) there has been no agreement or commitment by Seller to do or
perform any of the acts described in this Section 2.1(i). "Affiliate" of a
specified person or entity shall mean a person or entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the person or entity specified.
(j) Title to Assets. Seller has good title to all of its assets and
properties, free and clear of any liens or encumbrances of any kind, except for
such liens and encumbrances which arise in the ordinary course of business and
do not materially impair Seller's use or ownership of such assets. With respect
to any assets or properties it leases, Seller holds a valid and subsisting
leasehold interest therein, free and clear of any liens or encumbrances of any
kind, and is in compliance, in all material respects, with the terms of the
applicable lease.
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(k) Contracts. Seller is not a party to, nor is its assets
or properties bound by, or subject to, any contracts, agreements, notes,
instruments, leases, licenses, commitments, arrangements or understandings,
written or oral (collectively, "Contracts") of the following types, except for
those listed in Schedule 2.1(k) attached hereto:
any Contract pursuant to which Seller, or another
party thereto, is obligated to pay in excess of twenty-five thousand dollars
($25,000) in any twelve-month period;
any Contract pursuant to which Seller acquired
the right to use any Intellectual Property (defined below) or information that
is material to or necessary in the business of Seller, or pursuant to which
Seller has granted to others the right to use, or which otherwise relates to,
its Intellectual Property;
any Contract (other than advances of expenses to
employees in the ordinary course of business) involving loans, loan agreements,
debt securities, mortgages, deeds of trust, security agreements, suretyships or
guarantees;
any Contract between Seller, on the one hand, and
any of its officers, directors, employees or persons or entities that
beneficially own in excess of 1.0% of the outstanding equity interest of
Seller, or any Affiliate or relative, or Affiliate of a relative, of any of the
foregoing, on the other;
any deferred compensation agreements, bonus,
pension, profit sharing, stock option and incentive plans or arrangements,
hospitalization, medical and insurance plans, agreements and policies,
retirement and severance plans and other employee compensation policies and
agreements affecting employees of Seller;
any Contract with any labor union affecting
employees of Seller;
any Contract which restricts Seller from freely
engaging in business or competing anywhere; or
any Contract which otherwise is material to the
Condition of Seller.
All of such Contracts are in full force and effect and constitute
legal, valid and binding obligations of Seller and, to the best knowledge of
Seller, the other parties thereto; the Seller and, to the best knowledge of
Seller, each other party thereto, has performed in all material respects all
obligations required to be performed by it under such Contracts.
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(l) Intellectual Property. Seller has sufficient title, ownership or
other rights in all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes (the "Intellectual
Property") necessary for its business as now conducted and as proposed to be
conducted without any conflict with or infringement of the rights of others
known to Seller. Except as set forth on Schedule 2.1(l) attached hereto, there
are no outstanding option, license or agreement of any kind relating to the
foregoing, nor is Seller bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. Seller has not received any
communications alleging that Seller has violated or, by conducting its business
as proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity, nor is Seller aware of any such violations. To Seller's
knowledge, none of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of the employee's best efforts to promote the
interests of Seller or that would conflict with Seller's business as proposed to
be conducted. Neither the execution nor delivery of this Agreement and the
consummation of the transactions contemplated hereby, nor the carrying on of
Seller's business by the employees of Seller, nor the conduct of Seller's
business as proposed, will, to Seller's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. Seller does not believe it is or will be necessary to utilize any
inventions of any of its employees (or people it currently intends to hire) made
prior to their employment by Seller.
(m) Insurance. Seller has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed. Seller also has in full force and effect comprehensive
general liability insurance providing coverage in such amounts as are
customary for responsible companies engaged in the same or similar business.
(n) Litigation. There is no action, suit, proceeding, investigation
or governmental approval process pending or, to the knowledge of Seller,
threatened against Seller or affecting any of the properties or assets of
Seller which individually or in the aggregate could have a material adverse
effect on the Condition of Seller, nor is Seller aware of any basis for any
such action. Neither Seller nor any of its assets or properties, nor, to
Seller's knowledge, in connection with its business, any stockholder, director,
officer or employee of Seller, is subject to any action, order, judgment, writ,
injunction, decree, ruling or decision of any governmental authority which is
material to the Condition of Seller. There is no action or suit by Seller
currently pending or which Seller intends to initiate which is material to the
Condition of Seller.
(o) Compliance with Laws; Permits. Seller has not violated or failed
to comply with, in any material respect, any statute, law, ordinance, rule,
regulation or policy to which it or any of its properties or assets is
subject. Seller has all permits, licenses, orders, certificates, authorizations
and approvals that are material to the conduct of its business as presently
conducted and as proposed to be conducted and is not in violation thereof; all
such permits, licenses, orders, certificates, authorizations and approvals are,
and as of the Closing will be, in full force and effect.
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<PAGE> 7
(p) Taxes. Seller has timely filed all tax returns and reports as
required by law. These returns and reports are true and correct in all material
respects. Seller has paid all taxes and other assessments due. The provision for
taxes of Seller as shown in the Financials is adequate for taxes due or accrued
as of the date thereof.
(q) Registration Rights. Except as otherwise provided in this
Agreement, no person or entity has, and as of the Closing no person or entity
will have, demand, "piggy-back," or other rights to cause Seller to file any
registration statement under the Securities Act of 1933, as amended, relating to
any securities of Seller or to participate in any such registration statement.
(r) No Brokers or Finders. Except for certain options issuable to
David Mitchell to purchase up to 510,832 shares in his capacity as an advisor to
Seller, Seller has not entered into any agreement pursuant to which Seller or
any Buyer will be liable, as a result of the transactions contemplated by this
Agreement or the transactions contemplated hereby, for any claim of any person
or entity for any commission, fee or other compensation as finder or broker.
(s) Employee Confidentiality Agreements/Highly-Compensated Employees.
Each employee and officer of Seller has executed an agreement protecting
Seller's confidential and proprietary information in customary form. No employee
or officer of Seller has received compensation, or is currently compensated at a
rate, in excess of $150,000 per annum.
(t) Disclosure. In connection with the purchase of the Shares by the
Buyers as contemplated hereby, Seller has disclosed to the Buyers all material
facts and information known to Seller concerning Seller, its Condition and the
Shares, and has not in any of the representations or warranties contained in
this Agreement made any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements contained in such
representations and warranties not misleading.
(u) ERISA. Except as set forth in Schedule 2.1(u) attached hereto,
Seller does not maintain (nor has it ever maintained) nor does it have (nor has
it ever had) any obligation under any employee benefit plan, program or policy,
whether written or unwritten, including without limitation an employee benefit
plan as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended.
2.2 Representations and Warranties of the Buyers. Each Buyer hereby
severally, and not jointly, represents, warrants and covenants to Sellers as
follows, provided, that nothing contained in this Section 2.2 shall in any
respect limit or modify the representations and warranties of Seller in Section
2.1 or the right of each Buyer to rely thereon:
(a) Requisite Power and Authorization. Such Buyer has full power and
authority and/or legal capacity to enter into this Agreement and this Agreement
constitutes such Buyer's valid and
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<PAGE> 8
binding obligation, enforceable in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other laws of general application affecting enforcement of creditors' rights in
general and (ii) as limited by general principles of equity that restrict the
availability of equitable remedies.
(b) Purchase Entirely for Own Account. The Shares purchased by such
Buyer under this Agreement are being acquired for investment for such Buyer's
own account, and not with a view to the resale or distribution of any part
thereof in violation of any applicable securities laws. Such Buyer has no
present intention of selling, granting any participation in, or otherwise
distributing any of the Shares purchased by such Buyer. By executing this
Agreement, each Buyer further represents that such Buyer does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares in violation of any applicable securities laws.
(c) Disclosure of Information. Each Buyer has reviewed the
Certificate of Designation of Seller attached hereto as Exhibit A which sets
forth the rights of the Preferred Stock. Each Buyer believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Shares.
(d) Investment Experience. Each Buyer is an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Shares. If other than
an individual, the Buyer represents it has not been organized for the purpose
of acquiring the Shares.
(e) Restricted Securities. Each Buyer understands that the Shares
have not been, and will not be, registered under the Securities Act of 1933, as
amended (the "Securities Act"), by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of each
Buyer's representations as expressed herein. Each Buyer understands that the
Shares are "restricted securities" under applicable Federal and state
securities laws and that, pursuant to these laws, each Buyer must hold the
Shares indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. Each Buyer
acknowledges that, except as set forth herein, Seller has no obligation to
register or qualify the Shares for resale. Each Buyer further acknowledges that
if an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the Shares and on requirements relating
to Seller which are outside of such Buyer's control, and which Seller is under
no obligation and may not be able to satisfy. In this connection, each Buyer
represents that it is familiar with Securities and Exchange Commission Rule 144
("Rule 144"), as presently in effect, and understands the resale limitations
imposed thereby.
(f) Legends. It is understood that the certificates evidencing the
Shares may bear one or all of the following legends:
8
<PAGE> 9
(i) "These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with the
respect to the securities under such Act or an opinion of counsel satisfactory
to the Company that such registration is not required or unless sold pursuant to
Rule 144 of such Act."
(ii) "The Shares evidenced hereby are subject to a Shareholders Agreement
(a copy of which may be obtained upon written request from the Company), and by
accepting any interest in such Shares the person accepting such interest shall
be deemed to agree to and shall become bound by all the provisions of said
Shareholders Agreement."
(g) Accredited Investor. Each Buyer is an "accredited investor" as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act.
3. Conditions Precedent.
(a) Conditions to Seller's Obligation. The obligation of Seller to
complete the Closing is subject to the fulfillment on or prior to the Closing
Date of all of the following conditions, any one or more of which may be waived
by Seller in writing:
(i) Representation and Warranties. The representations and
warranties of each Buyer purchasing at the Closing contained in this Agreement
shall be true and correct on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date.
(ii) Purchase Price. Each of the Buyers purchasing at the
Closing shall have delivered to Seller such Buyer's respective portion of the
Purchase Price.
(iii) Minimum Sales. Buyers shall have purchased Shares having an
aggregate minimum purchase price of at least $1,000,000.
(iv) Shareholders Agreement. The Shareholders Agreement,
substantially in the form attached hereto as Exhibit D, shall have been executed
by Seller and each of the Buyers.
(b) Conditions to the Buyer's Obligation. The obligation of each Buyer
to complete the Closing is subject to the fulfillment on or prior to the Closing
Date of all of the following conditions, any one or more of which may be waived
by such Buyer in writing:
9
<PAGE> 10
(i) Representations and Warranties. The representations and
warranties of Seller shall be true and correct on and as of the Closing Date
with the same force and effect as though such representations and warranties
have been made on and as of the Closing Date.
(ii) Share Certificates. Each Buyer purchasing at the Closing shall
have received from Seller stock certificates evidencing the Shares purchased by
such Buyer.
(iii) Certificate of Designation. The Certificate of Designation,
substantially in the form attached hereto as Exhibit A, shall have been filed
with the Secretary of State of the State of Delaware and shall be in full force
and effect.
(iv) Stock Split. Seller shall have consummated a 100:1 split of its
currently outstanding common stock.
(v) Founder's Note. Seller and Kevin O'Brien shall have executed the
Founder's Note, substantially in the form attached hereto as Exhibit B.
(vi) Deferred Compensation Subordination Agreement. The Deferred
Compensation Subordination Agreement, substantially in the form attached hereto
as Exhibits C-1 and C-2, shall have been fully executed by all signatories
thereto.
(vii) Shareholders Agreement. The Shareholders Agreement,
substantially in the form attached hereto as Exhibit D, shall have been executed
by Seller and each of the Buyers.
(viii) Founder Non-Compete Agreement. Chris O'Brien and Kevin O'Brien
shall have each entered a Founder Non-Compete Agreement, substantially in the
form attached hereto as Exhibit E.
(ix) By-laws. Seller's By-laws shall have been amended substantially
in the form attached hereto as Exhibit F, to require a supermajority vote by
Seller's Board of Directors on certain corporate governance issues.
(x) Minimum Sales. Buyers shall have purchased Shares having an
aggregate minimum purchase price of at least $1,000,000.
(xi) Legal Opinion. Buyers shall have received a legal opinion in
form and substance satisfactory to the Buyers.
10
<PAGE> 11
4. Warrants. Seller shall issue warrants to purchase Preferred Stock
to each Buyer ("Threshold Buyer") purchasing $800,000 or more in Preferred
Stock. The number of shares which such warrants shall entitle each such Buyer
to purchase shall equal fifteen (15%) percent of the number of shares of
Preferred Stock purchased by such Buyer. Seller shall also issue warrants to
purchase Preferred Stock to each group of Buyers (other than any Threshold
Buyers) purchasing $800,000 or more in Preferred Stock. The number of shares
which such warrants shall entitle such group of buyers to purchase shall equal
five (5%) percent of the number of shares of Preferred Stock purchased by such
group. Such warrants shall otherwise contain the terms and conditions set forth
in the Preferred Stock Purchase Warrant attached hereto as Exhibit G.
5. Intentionally omitted.
6. Registration Rights. Each Buyer will have the following
registration rights with respect to Shares purchased hereunder:
(a) If during any time any Buyer owns any Shares, Seller shall
determine to register for its own account or the account of others under the
Securities Act any of its equity securities, it shall send to each Buyer
written notice of such determination and, if within twenty (20) days after
receipt of such notice, any Buyer shall so request in writing, Seller shall
include in such registration statement all of the Shares held by such Buyer,
and requested to be registered by such Buyer. Notwithstanding the foregoing, in
the event that any registration shall be in whole or in part an underwritten
offering, the number of registrable securities to be included in such an
underwriting may be reduced (pro rata among the Buyers and the holders of the
other registrable securities requested to be registered by each of them) if and
to the extent that the managing underwriter shall be of the good faith opinion
that such inclusion would reduce the number of registrable securities to be
offered by Seller. Nothing herein shall be construed so as to require Seller,
in connection with any proposed offering, to engage the services of an
underwriter, as, for example, if Seller shall file a registration statement
under Rule 415 of the Securities Act without the services or engagement of any
underwriter. This "piggy-back" registration right shall not apply to an
offering of equity securities on Forms S-4 or S-8 (or their then equivalents)
relating to securities to be issued solely in connection with an acquisition of
any entity or business or securities issuable in connection with a stock option
or other employee benefit plan. At such time of any registration each Buyer and
Seller shall enter into customary reciprocal indemnification provisions with
respect to such registration; provided, that in no event shall any Buyer be
obligated to indemnify Seller for any amount in excess of the proceeds received
by such Buyer in such offering.
(b) If and to the extent Seller grants registration rights to
any group of investors in the future that are more favorable to such investors
than the registration rights granted to Buyers hereunder, the Buyers hereunder
shall be entitled to such registration rights granted to such investors on a
pari passu basis.
7. Maximum Sales. Subject to the next succeeding sentence, Seller
shall not sell Shares having an aggressive purchase price in excess of
$2,250,000. Notwithstanding the immediately preceding sentence, Seller shall be
permitted to sell additional Shares having an aggregate purchase price
11
<PAGE> 12
of $250,000 (for a total maximum or $2,500,000) with the unanimous consent of
Seller's board of directors (as such board of directors is constituted as set
forth in the Shareholders Agreement).
8. Financial Information. Seller shall within forty-five (45) days after
the end of each financial quarter provide its members of the board of directors
with quarterly unaudited financial statements including (a) an unaudited balance
sheet as of the last day of such quarter, (b) an unaudited statement of income
for such quarter and (c) a cash flow statement for such quarter. In addition,
Seller shall provide each Buyer on a current basis copies of financial
statements or other financial information that it provides to any other of its
stockholders.
9. Miscellaneous Provisions.
(a) Amendments. This Agreement may be amended or modified but only by
a written instrument executed by all of the parties hereto.
(b) Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof.
(c) Applicable Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
internal laws of the State of New York applicable to contracts made and to be
wholly performed therein.
(d) Survival of Representations. The parties hereto agree that the
representations and warranties contained herein shall survive the execution
and delivery of this Agreement and the consummation of the transaction
contemplated hereby.
(e) Binding Effect; Benefits. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective
successors and permitted assigns.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(g) Severability. If any provision or party thereof contained in this
Agreement is declared invalid by any court of competent jurisdiction or a
government agency having jurisdiction, such declaration shall not affect the
remainder of the provision or the other provisions and each shall remain in full
force and effect.
(h) Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect or limit the meaning or
interpretation of this Agreement.
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<PAGE> 13
(i) Expenses. Each party hereto shall bear its own expenses incurred in
connection with the consummation of the transactions contemplated in this
Agreement.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Preferred Stock
Purchase Agreement as of the day and year first above written.
SELLER:
SOFTCOM, INC.
By: /s/Chris O'Brien
--------------------------
Name: Chris O'Brien
Title: Chief Executive Officer
BUYER:
SCREAMINGMEDIA NET, INC.
By: /s/ Alan Ellman
-------------------------
Name: Alan Ellman
Title: President
384,615 $.39 $150,000
Number of Shares purchased x purchase price per share = Aggregate purchase
price
<PAGE> 15
EXHIBIT A
Certificate of Designation
<PAGE> 16
EXHIBIT A
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
SOFTCOM, INC.
PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
The undersigned, being a duly elected officer of SoftCom,
Inc., a Delaware corporation (the "Corporation"), for the purpose of amending
the Certificate of Incorporation of the Corporation pursuant to Section 242 of
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
1. The name of the Corporation is SoftCom, Inc.
2. The Corporation's Certificate of Incorporation was filed
with the Secretary of State on May 11, 1994, and was previously amended on June
25, 1997.
3. The Board of Directors of the Corporation deems it
advisable to further amend such Certificate of Incorporation as permitted by
Section 242 of the General Corporation Law of the State of Delaware as set forth
below.
4. The Fourth Article of the Corporation's Certificate of
Incorporation is hereby amended by deleting such article in its entirety and
substituting in lieu thereof the following:
The aggregate number of shares which the Corporation shall
have authority to issue is 40,000,000, divided into 33,000,000 shares
of common stock, $.001 par value and 7,000,000 shares of preferred
stock, $.001 par value.
The Board of Directors shall be authorized, subject to
limitations prescribed by law and the provisions of this Fourth
Article, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware, to establish from time to time the number of
shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and
the qualifications, limitations or restrictions thereof.
<PAGE> 17
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of
shares of that series;
(h) Any other relative rights, preferences and limitations of
that series.
As of May 14, 1999 (the "Effective Time"), each share of
Common Stock issued and outstanding as of the close of business on May
13, 1999 shall automatically be changed and converted, without any
action on the part of the holder thereof, into 100 shares of Common
Stock, par value $.001 per share, for each 1 share of Common Stock, no
par value, held of record by such holder.
5. The Seventh Article of the Corporation's Certificate of
Incorporation is hereby amended by adding immediately after the words "To make,
alter or repeal the by-laws of the Corporation" the following:
; provided, that, any provision of the by-laws that requires or
provides for approval of a matter by greater than a simple majority
vote of the board of directors shall only be
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<PAGE> 18
amended, altered or repealed by a vote of the board of directors equal
to such specified super majority.
6. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware. Prompt
written notice of the adoption of the amendment herein certified has been given
to those stockholders who have not consented in writing thereto, as provided in
Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said SoftCom, Inc. has caused this
certificate to be signed, under penalties of perjury, by Chris O'Brien, its
Chief Executive Officer, this l4th day of May, 1999.
SOFTCOM, INC.
-------------------------------
Name: Chris O'Brien
Title: Chief Executive Officer
3
<PAGE> 19
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
(Par Value $.001 Per Share)
OF
SOFTCOM, INC.
-------------------
Pursuant to Section 151 of Title 8 of the
General Corporation Law of the State of
Delaware
The undersigned duly authorized officer of SoftCom, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Company"), in accordance with the provisions of Section
151 thereof, DOES HEREBY CERTIFY that the following resolution was duly adopted
by the Board of Directors of the Company, by unanimous written consent, pursuant
to Section 141(f) of the General Corporation Law of the State of Delaware on May
13, 1999:
RESOLVED that, pursuant to the authority conferred upon the
Board of Directors by the Company's Certificate of Incorporation, the Board of
Directors hereby provides for the issuance of a series of Series A Convertible
Preferred Stock, par value $.001 per share of the Company (the "Preferred
Stock"), to consist of 6,800,000 shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such Preferred Stock, in addition to those set forth in the Certificate of
Incorporation that are applicable to the Preferred Stock, as follows:
SECTION 1
DESIGNATION AND RANK
1.1 Designation. This resolution shall provide for a single
series of Preferred Stock, the designation of which shall be "Series A
Convertible Preferred Stock", par value $.001 per share (sometimes referred to
herein as the "Preferred Stock"). The number of authorized
<PAGE> 20
shares constituting the Preferred Stock is 6,800,000. The Preferred Stock will
have a liquidation preference as determined in Section 3.1 below.
1.2 Rank. With respect to the payment of dividends and other
distributions on the capital stock of the Company, including distribution of the
assets of the Company upon liquidation, the Preferred Stock shall be senior to
the common stock of the Company, no par value per share (the "Common Stock") and
to all other series and classes of stock of the Company, whether such series and
classes are now existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1 Dividends or Distributions. The holders of Preferred Stock
shall be entitled to receive dividends when, as and if declared by the Board of
Directors of the Company. No dividends or distributions, in cash, securities or
other property (except dividends of Common Stock to holders of Common Stock)
shall be declared or paid or set apart for payment on any class or series of
stock, unless such dividend or distribution is likewise declared, paid or set
apart for payment on the Preferred Stock (a) in an amount equal to the dividend
or distribution that would be payable if the Preferred Stock were converted into
Common Stock on the date of payment, declaration or distribution, if the
dividend or distribution is on Common Stock or (b) at a rate proportionate to
the relative stated values of the Preferred Stock and the recipient class or
series of stock, if the recipient class or series is other than Common Stock.
SECTION 3
LIQUIDATION RIGHTS
3.1 Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution, winding up of affairs of the Company or
other similar event, or in the event of a sale of all or substantially all of
the assets of the Company, or a merger of the Company in which the holders of
the Company's securities immediately prior to such merger transaction hold less
than fifty percent (50%) of the securities of the surviving, continuing or
purchasing entity immediately after such merger transaction (each, a "Liquidity
Event"), before any distribution is made on any other class of stock of the
Company, the holders of shares of Preferred Stock shall be entitled to be paid,
out of the assets of the Company available for distribution to its shareholders,
an amount per share (the "Liquidation Amount") equal to (a) if the Fair Market
Value of the Company is less than $7,000,000, the greater of (i) the Face Value
for such share of Preferred Stock plus the Liquidation Yield or (ii) the
proportionate amount that would be received for such shares as a result of a
conversion of such shares into Common Stock immediately prior to such Liquidity
Event or (b) if the Fair Market Value of the Company is
2
<PAGE> 21
equal to or greater than $7,000,000, the greater of (i) the Face Value of such
share or (ii) the proportionate amount that would be received for such shares as
a result of a conversion of such shares into Common Stock immediately prior to
such Liquidity Event; provided, that if the Liquidity Event is a merger in which
holders of the Company's securities receive securities in another entity, the
holders of shares of Preferred Stock shall receive securities of the other
entity equal in value to the Liquidation Amount as calculated above. For
purposes hereof, (A) "Face Value" shall mean $.39 per share, (B) "Liquidation
Yield" shall mean the amount which would be earned on a share of Preferred Stock
if such share bore interest on its Face Value plus 8% from the date of issuance
to the date of payment of such Face Value pursuant to this Section 3.1. and (C)
"Fair Market Value" shall mean (i) if such Liquidity Event results from a sale
of all or substantially all of the assets of the Company, the sum of (x) the net
proceeds received by the Company, (y) the total liabilities of the Company
assumed by the transferee of such assets and (z) the fair market value of
remaining assets of the Company, as determined, in good faith, by the Board of
Directors and (ii) in all other events, as determined, in good faith, by the
Board of Directors.
3.2 Pro Rata Distribution. If, upon distribution of the
Company's assets in liquidation, dissolution, winding-up or other similar event,
the net assets of the Company to be distributed among the holders of shares of
the Preferred Stock are insufficient to permit payment in full of the
Liquidation Amount to such holders, then the entire net assets of the
Corporation shall be distributed among the holders of shares of the Preferred
Stock ratably in proportion to the full amounts to which they would otherwise be
respectively entitled and such distributions may be made in cash or in property
taken at its fair value (as determined, in good faith, by the Board of
Directors), or both, at the election of the Board of Directors; provided, that
all available cash will first be applied to pay the Liquidation Amount.
3.3 Priority. All of the preferential amounts to be paid to
the holders of the Preferred Stock as to distributions upon liquidation shall be
paid or set apart for payment before the payment or setting apart for payment of
any amount for, or the distribution of any assets of the Company to, the holders
of the Common Stock or any other class or series of stock of the Company.
SECTION 4
CONVERSION RIGHTS
4.1 Conversion. The holders of Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Company or any transfer agent
for the Preferred Stock into such
3
<PAGE> 22
number of fully paid and non-assessable shares of Common Stock as is determined
by dividing the Face Value by the "Conversion Price" at the time in effect for
such share. The initial Conversion Price per share for shares of Preferred Stock
shall be the Face Value; provided, however, that such Conversion Price shall be
subject to adjustment as provided herein; or
(b) Automatic Conversion. Each share of Preferred Stock
automatically shall convert into shares of Common Stock at the Conversion Price
then in effect immediately upon the consummation of the Company's sale of its
Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 (or a successor form) under the Securities
Act of 1933, as amended, which results in aggregate cash proceeds to the Company
of not less than ten million dollars ($10,000,000).
4.2 Adjustments. The Conversion Price of the Preferred Stock
as described in Section 4.1 above shall be adjusted from time to time as
follows:
(a) In case the Company shall at any time or from time to
time declare or pay any dividend on its Common Stock payable in its Common Stock
(or other securities directly or indirectly exercisable for Common Stock
(hereinafter referred to as "Common Stock Equivalents")) or effect a subdivision
or split of the outstanding shares of its Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in its Common Stock), then, and in each such case, the Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
into which each share of Preferred Stock is convertible shall be adjusted so
that the holder of each share thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock determined by
multiplying (i) the number of shares of Common Stock into which such share was
convertible immediately prior to the occurrence of such event by (ii) a
fraction, the numerator of which is the sum of (A) the number of shares of
Common Stock into which such share was convertible immediately prior to the
occurrence of such event plus (B) the number of shares of Common Stock and/or
Common Stock Equivalents which such holder would have been entitled to receive
in connection with the occurrence of such event had such share been converted
immediately prior thereto, and the denominator of which is the number of shares
of Common Stock into which such share was convertible immediately prior to the
occurrence of such event. An adjustment made pursuant to this subparagraph (a)
shall become effective (1) in the case of any such dividend, immediately on the
close of business on the record date for the determination of holders of Common
Stock entitled to receive such dividend, or (2) in the case of any such stock
split or subdivision, at the time at which such corporate action becomes
effective.
(b) In case the Company at any time or from time to time
shall combine or consolidate the outstanding shares of its Common Stock into a
lesser number of shares of Common Stock, by reclassification, reverse stock
split or otherwise, then, and in each such case, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock into which
each share of Preferred Stock is convertible shall be adjusted so that the
holder of each share thereof shall be entitled to receive, upon the conversion
thereof, the
4
<PAGE> 23
number of shares of Common Stock determined by multiplying (i) the number of
shares of Common Stock into which such share was convertible immediately prior
to the occurrence of such event by (ii) a fraction, the numerator of which is
the number of shares which the holder would have owned after giving effect to
such event had such share been converted immediately prior to the occurrence of
such event and the denominator of which is the number of shares of Common Stock
into which such share was convertible immediately prior to the occurrence of
such event. An adjustment made pursuant to this subparagraph (b) shall become
effective at the time at which such corporate action becomes effective.
(c) In the event of any reclassification of the Common
Stock or recapitalization involving Common Stock (other than a change in par
value or as a result of a stock dividend, subdivision, or combination of shares
or any other event described in sections (a) or (b) above) the holders of the
Preferred Stock shall thereafter be entitled to receive, and provision shall be
made therefor in any agreement relating to the reclassification or
recapitalization, upon conversion of the Preferred Stock, the kind and number of
shares of Common Stock or other securities or property (including cash) to which
such holders of Preferred Stock would have been entitled if they had held the
number of shares of Common Stock into which the Preferred Stock was convertible
immediately prior to such reclassification or recapitalization; and in any such
case appropriate adjustment shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the Preferred Stock, to the end that the provisions set forth herein
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares, other securities, or property thereafter receivable upon conversion
of the Preferred Stock. An adjustment made pursuant to this subparagraph (c)
shall become effective at the time at which such reclassification or
recapitalization becomes effective.
(d) In the event the Company shall declare a distribution
payable in securities of other entities or persons, evidences of indebtedness
issued by the Company or other entities or persons, assets (excluding cash
dividends) or options or rights not referred to in sections (a) through (c)
above, the holders of the Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the Company into which their shares of Preferred Stock
are convertible as of the record date fixed for the determination of the holders
of shares of Common Stock of the Company entitled to receive such distribution
or if no such record date is fixed, as of the date such distribution is made.
4.3 Procedures for Conversion.
(a) The holder of any shares of Preferred Stock must, upon
conversion of such Preferred Stock in accordance with this Section 4, surrender
certificates representing the Preferred Stock to the Company, at its principal
office, and specify the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. In case
such notice shall specify a name or names other than that of such holder, such
notice shall
5
<PAGE> 24
be accompanied by payment of all transfer taxes (if transfer is to a person or
entity other than the holder thereof) payable upon the issuance of shares of
Common Stock in such name or names. As promptly as practicable, and, if
applicable, after payment of all transfer taxes (if transfer is to a person or
entity other than the holder thereof), the Company shall deliver or cause to be
delivered certificates representing the number of validly issued, fully paid and
nonassessable shares of Common Stock to which the holder of the Preferred Stock
so converted shall be entitled. Such conversion, to the extent permitted by law,
shall be deemed to have been effected as of the close of business on the date on
which certificates representing the Preferred Stock shall have been surrendered
to the Company.
(b) In connection with the conversion of any shares of
Preferred Stock, no fractions of shares of Common Stock shall be issued, but the
Company shall pay cash in respect of such fractional interest in an amount equal
to the product of the initial sales price of Preferred Stock and such fractional
interest.
(c) The Company shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares of Common
Stock of the Company issuable upon the conversion of all outstanding shares of
Preferred Stock.
4.4 Notices of Record Date. In the event that the Company
shall propose at any time: (a) to declare any dividend or distribution upon any
class or series of capital stock, whether in cash, property, stock or other
securities; (b) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or (c) to merge or
consolidate with or into any other corporation, or to sell, lease or convey all
or substantially all of its property or business, or to liquidate, dissolve or
wind up; then, in connection with each such event, the Company shall mail to
each holder of Preferred Stock:
(i) at least twenty (20) days' prior written notice of the
date on which a record shall be taken for such dividend or
distribution (and specifying the date on which the holders of
the affected class or series of capital stock shall be
entitled thereto) or for determining the rights to vote, if
any, in respect of the matters referred to in clauses (b) and
(c) in Section 4.4 above; and
(ii) in the case of the matters referred to in Section 4.4
(b) and (c) above, written notice of such impending
transaction not later than twenty (20) days prior to the
shareholders' meeting called to approve such transaction, or
twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holder in
writing of the final approval of such transaction. The first
of such notices shall describe the material terms and
conditions of the impending transaction (and specify the date
on which the holders of shares of Common Stock shall be
entitled to exchange their Common Stock for securities or
other property
6
<PAGE> 25
deliverable upon the occurrence of such event) and the Company
shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Company has given the
first notice provided for herein or sooner than ten (10) days
after the Company has given notice of any material changes
provided for herein.
SECTION 5
VOTING RIGHTS
5.1 General. In addition to the special voting rights set
forth in Section 5.2 hereof, the holders of shares of Preferred Stock shall vote
together with the holders of shares of Common Stock as a single class on all
matters to be voted on by the stockholders of the Corporation, except as
otherwise required under the General Corporation Law of the State of Delaware.
With respect to any such vote, each holder of Preferred Stock shall be entitled
to the number of votes that such holder would have if the Preferred Stock held
by such holder were converted into Common Stock in accordance with Section 4
above on the record date for determination of holders of Common Stock entitled
to participate in such vote.
5.2 Stockholder Approvals. So long as any shares of the
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Company is required by law or the
Certificate of Incorporation and in addition to any other vote required by law,
without the prior consent of the majority of the outstanding shares of Preferred
Stock, given in person or by proxy, either in writing or at a special meeting
called for that purpose, the Company will not:
(a) authorize, designate or issue equity securities (or
any equity or debt securities convertible into equity
securities) ranking senior to or on a parity with the
Preferred Stock in respect of dividends, distributions or
rights upon liquidation;
(b) authorize or effect any reclassification of any
securities (or securities convertible into other securities)
into equity securities of the Company ranking senior to or on
a parity with the Preferred Stock in respect of dividends,
distributions or right upon liquidation;
(c) amend, alter or repeal, this Certificate of
Designation, the Certificate of Incorporation or the Bylaws of
the Corporation in any manner so as to adversely affect the
respective relative rights, privileges and preferences of the
Preferred Stock, or to increase the number of authorized
shares of Preferred Stock;
7
<PAGE> 26
(d) effect any liquidation, dissolution or
recapitalization of the Company;
(e) declare or pay any dividend on (including a dividend
payable in stock of the Company), make any other distribution
with respect to, or repurchase, any stock of the Company (or
any other securities that are convertible into or exercisable
for such stock);
(f) effect any merger or consolidation of the Company with
or into any other corporation or other entity; or sell, lease,
convey, exchange or otherwise dispose of, in a single
transaction or a series of related transactions, all or
substantially all of, or any substantial part of, the assets
of the Company; or
(g) create or permit to exist any subsidiary of the
Company.
SECTION 6
PARTICIPATION RIGHTS
6.1 Participation Rights. Before issuing additional shares of
capital stock or securities directly or indirectly convertible into or
exercisable for capital stock (other than options pursuant to a stock option
plan approved by the Company's Board of Directors) (the "Proposed Issuance") the
Company shall first offer the holders of the Preferred Stock the right to
subscribe to such Proposed Issuance in the following manner:
(a) the Company shall give prompt written notice to the
holders of the Preferred Stock, stating the amount and the
terms and conditions of the Proposed Issuance;
(b) For ten (10) calendar days after the receipt of such
written notice by the holders of the Preferred Stock, the
holders of the Preferred Stock shall have the right to
subscribe to purchase such amount of the Proposed Issuance as
it requests in writing that will allow such holders of the
Preferred Stock to preserve their respective voting and
economic percentage in the Company following the Proposed
Issuance. Holders of Preferred Stock may purchase such portion
of the Proposed Issuance only on the same terms and conditions
as such additional shares of stock are sold by the Company to
other parties in the Proposed Issuance; and
(c) To the extent any holder of Preferred Stock shall not
purchase the entire amount of shares to which such holder is
entitled to purchase in the Proposed Issuance (the "Refused
Shares") then the Company shall give prompt
8
<PAGE> 27
written notice to the other holders of Preferred Stock of the
aggregate amount of Refused Shares and for ten (10) calendar
days after receipt of such second written notice the other
holders of the Preferred Stock shall be entitled to purchase
an amount of Refused Shares not to exceed the amount
determined by multiplying the aggregate Refused Shares by the
quotient of (i) the number of shares of Preferred Stock owned
by each such holder after giving effect to any shares
purchased in the Proposed Issuance (collectively, the
"Aggregate Shares") by (ii) the sum of the Aggregate Shares
plus the number of shares held by all holders of the Preferred
Stock who exercised rights under clause (a) of this Section 6
(after giving effect to any shares so purchased). This
procedure shall be repeated until either no shares remain to
be issued to third parties or no holder of Preferred Stock
desires to purchase additional shares in the Proposed
Issuance.
(d) In the event the Company does not consummate the
Proposed Issuance (to the extent not purchased by the holders
of Preferred Stock) within sixty (60) calendar days of the
notice required by Section 6.1 (a) above, the Company shall be
required again to comply with this Section 6.1 prior to
issuing any shares of capital stock or securities directly or
indirectly convertible into or exercisable for capital stock.
SECTION 7
MISCELLANEOUS
7.1 Headings of Subdivisions. The headings of the various
Sections hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
7.2 Severabililty of Provisions. If any right, preference or
limitation of the Preferred Stock set forth herein (as this resolution may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
9
<PAGE> 28
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed, under penalties of perjury, by Chris O'Brien, its
Chief Executive Officer.
SOFTCOM, INC.
Dated: May_, 1999
By:
-----------------------
Name: Chris O'Brien
Title: Chief Executive Officer
10
<PAGE> 29
EXHIBIT B
Founder's Note
<PAGE> 30
EXHIBIT B
SUBORDINATED
PROMISSORY NOTE
May __, 1999
$581,905 New York, New York
The undersigned, SoftCom, Inc. a Delaware corporation (the
"Borrower"), hereby acknowledges that it is obligated to pay to Kevin O'Brien
(the "Lender") the sum of $581,905 ("Principal"). The Borrower hereby
unconditionally promises to pay to the order of the Lender the Principal,
together with interest thereon at the rate of eight (8%) percent per annum from
the date hereof, payable in thirty-six equal (as nearly as practicable) monthly
installments commencing on the earlier to occur of (a) the consummation of the
Borrower's next private equity financing (or series of financings) after
consummation of the offering of the Borrower's Series A Convertible Preferred
Stock on the date hereof which yields aggregate proceeds to the Lender of at
least $5,000,000 (the "Equity Financing Trigger Date") or (b) December 31, 2001
(to the extent of any excess cash derived from operations held by Borrower net
of reserves for reasonably anticipated needs of the Borrower as determined by
Borrower's Board of Directors in accordance with Borrower's By-laws), and,
subject to the immediately preceding parenthetical, shall fully repay the
amounts evidenced by this Note not later than the numerically corresponding day
in the thirty-fifth (35th) month thereafter. In the event that (i) Borrower
shall consummate an initial public offering of its securities, merge or
consolidate with or into any other entity or sell all or substantially all of
its business or assets or (ii) there shall occur any event (or series of related
events) as a result of which any person or entity, or group of persons and/or
entities (other than members of the O'Brien family) shall have the right to
elect a majority of the Board of Directors, whether by agreement, stock
ownership or otherwise, the entire Principal shall then become immediately due
and payable, together with interest thereon.
This Note may be prepaid, at any time without premium or
penalty.
All payments to be made by the Borrower to the Lender
hereunder shall be made, without set-off or counterclaim, in lawful money of the
United States of America and in immediately available funds to the Lender at 200
Middlesex Essex Turnpike, Suite 303, Iselin, New Jersey 08830 or at such other
place or address of the Lender as the Lender may specify in a written notice to
the Borrower.
If all or a portion of the Principal of this Note, or any
interest payable thereon, shall not be paid when due, whether on a stated
repayment date, by acceleration or otherwise, such overdue amount shall bear
interest, to the extent permitted by law, at a rate of fifteen (15%) percent per
annum from the date of such non-payment until such amount is paid in full (after
as well as before judgment).
<PAGE> 31
The Borrower hereby waives demand, acceptance, presentment and
any and all notices required for the enforceability hereof.
No failure to exercise and no delay in exercising, on the part
of the Lender, any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof, or the exercise of any
other power or right. The rights and remedies herein provided are cumulative and
not exclusive of any rights or remedies provided by law.
The obligations and rights under this Note shall be binding
upon and inure to the benefit of the Borrower and the Lender and their
respective permitted successors, endorsees and assigns, except that the Borrower
may not assign or transfer its obligations hereunder without the prior written
consent of the Lender. The Lender may assign this Note and any rights and
obligations it has pursuant to this Note to any third party upon written notice
to the Borrower.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
This Note is subordinate, and junior in right of payment, to
the obligation of Borrower to pay any liquidation preference that may be
required to be paid to holders of the Borrower's Series A Convertible Preferred
Stock pursuant to the rights and preferences thereof as set forth in Borrower's
certificate of incorporation and all amounts received hereon after (but not
before) any such payments shall become due and payable to the holders thereof
shall be held in trust for the benefit of such holders and promptly returned to
the Borrower.
SOFTCOM, INC.
By:
-----------------------
Title:
AGREED TO AND ACCEPTED:
By:
------------------------
Kevin O'Brien
2
<PAGE> 32
EXHIBIT C-1
Non-Founder Deferred Compensation Subordination Agreement
<PAGE> 33
EXHIBIT C-1
DEFERRED COMPENSATION ACKNOWLEDGEMENT
The undersigned ___________________________ ("Employee") and
SoftCom, Inc., a Delaware corporation (the "Company"), hereby acknowledge that
for employment services rendered to the Company through _________, 199__, the
Company owes Employee $________ in deferred compensation. Employee agrees that
any deferred compensation due hereunder is subordinate, and junior in right of
payment, to the obligation of the Company to pay any liquidation preference that
may be required to be paid to holders of the Company's Series A Convertible
Preferred Stock pursuant to the rights and preferences thereof as set forth in
the Company's certificate of incorporation and all amounts received hereon after
(but not before) any such payments shall become due and payable to the holders
of such Preferred Stock shall be held in trust for the benefit of such persons
and promptly returned to the Company.
SOFTCOM, INC. Employee:
By:
_____________________________ _____________________________
Name:
Title:
<PAGE> 34
EXHIBIT C-2
Founder Deferred Compensation Subordination Agreement
<PAGE> 35
EXHIBIT C-2
FOUNDER'S DEFERRED COMPENSATION ACKNOWLEDGEMENT
The undersigned ("Employee") and SoftCom, Inc., a Delaware
corporation (the "Company"), hereby acknowledge that for employment services
rendered to the Company through 199_, the Company owes Employee $________ in
deferred compensation. Employee agrees that any deferred compensation due
hereunder is subordinate, and junior in right of payment, to the obligation of
the Company to pay any liquidation preference that may be required to be paid to
holders of the Company's Series A Convertible Preferred Stock pursuant to the
rights and preferences thereof as set forth in the Company's certificate of
incorporation and all amounts received hereon after (but not before) any such
payments shall become due and payable to the holders of such Preferred Stock
shall be held in trust for the benefit of such persons and promptly returned to
the Company. Employee further agrees that any deferred compensation due
hereunder shall be paid only after the earlier to occur of (a) the consummation
of the Company's next private equity financing (or series of financings) after
consummation of the offering of the Company's Series A Convertible Preferred
Stock which yields aggregate proceeds to the Company of at least $5,000,000 or
(b) December 31, 2001 (to the extent of any excess cash derived from operations
held by the Company net of reserves for reasonably anticipated needs of the
Company as determined by the Company's Board of Directors in accordance with the
Company's By-laws).
SOFTCOM, INC. Employee:
By:
___________________________ _________________________
Name:
Title:
<PAGE> 36
EXHIBIT D
Shareholders Agreement
<PAGE> 37
EXHIBIT D
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "Agreement"), dated as of
May 14, 1999, by and between SoftCom, Inc., a Delaware corporation (the
"Company") and each of the holders of the Company's capital stock and/or rights
to acquire capital stock signatories hereto (each a "Shareholder" and
collectively, the "Shareholders").
WHEREAS, the Shareholders own in the aggregate (a) all of the
issued and outstanding shares of the Company's Series A Convertible Preferred
Stock, $.001 par value per share (the "Preferred Stock") which they acquired
pursuant to that certain Preferred Stock Purchase Agreement, dated as of May 14,
1999, between the Company and the Shareholders (the "Purchase Agreement"), and
(b) all of the issued and outstanding shares of the Company's common stock, par
value $.001 per share ("Common Stock");
WHEREAS, the term "Shares" shall refer to any and all shares
of capital stock of the Company and securities convertible into or exercisable
for capital stock of the Company, including without limitation, shares of
capital stock of the Company that the Preferred Stock is converted into and for
which options and/or warrants may be exercised, whether now owned or
subsequently acquired by the Shareholders, however acquired, including without
limitation, pursuant to recapitalizations, stock splits and stock dividends; and
WHEREAS, the parties hereto desire to make various agreements
with respect to the transfer and voting of the Shares.
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Restriction on Transfers.
1.1 No Shareholder shall sell, assign, exchange, encumber,
pledge, transfer, grant an option in respect of, or otherwise dispose of (any of
the foregoing being hereinafter referred to as a "Transfer") any Shares in whole
or in part (other than a Permitted Transfer (as defined below)) except pursuant
to Section 3 hereof.
1.2 Any attempted Transfer of Shares by any Shareholder
contrary to the provisions of this Agreement shall be null and void. In addition
to any other legal or equitable remedies which it may have, the Company may
enforce its rights by actions for specific performance (to the extent permitted
by law) and shall refuse to recognize any prohibited transferee as one of its
<PAGE> 38
stockholders for any purpose, including without limitation for purposes of
dividend and voting rights, until all applicable provisions hereof have been
complied with.
1.3 For purposes of this Agreement "Permitted Transfer" means
any distribution and/or transfer by a Shareholder to (a) a spouse (other than
pursuant to any divorce or separation proceeding or settlement), parents,
children (natural or otherwise), stepchildren or grandchildren or to a trust for
any of their benefit, (b) a corporation or other entity owned or controlled by
such Shareholder, (c) any other Shareholder, (d) such Shareholder's
stockholders, partners or members, as applicable; provided, that at the request
of the Company such Shareholder shall, prior to making such Permitted Transfer,
enter into a voting trust or other satisfactory voting arrangement for such
shares where such shares shall be voted by a single stockholder, partner or
member, as applicable or (e) any other party in a Sale of Control pursuant to
Section 4 hereof, provided, however that prior to such Permitted Transfer, such
transferee shall agree in writing to be bound by the obligations imposed on the
Shareholder under this Agreement as if such transferee were originally a
signatory to this Agreement.
2. Certain Transfers Prohibited. Each of the Shareholders agree that,
notwithstanding any provision of this Agreement to the contrary, it will not at
any time Transfer or agree to Transfer any Shares to any person or entity
(including any stockholders or equityholders of such entity) that to the
knowledge of the transferring party is engaged in a business or activity
competing with the Company's business as then conducted.
3. Right of First Refusal.
3.1 At any time a Shareholder desires to Transfer (other than
a Permitted Transfer), for cash and/or negotiable promissory notes only, all or
any part of his or its Shares pursuant to a bona fide written offer (which, upon
acceptance by such Shareholder, would constitute a legally binding obligation)
from a third party (the "Proposed Transferee"), such Shareholder (the "Selling
Shareholder") shall first submit a written offer (the "Offer") to sell such
Shares (the "Offered Shares") to the other Shareholders and the Company on
identical terms and conditions, including price, on which the Selling
Shareholder proposes to sell such Offered Shares to the Proposed Transferee. The
Offer shall disclose the identity of the Proposed Transferee, the Offered Shares
proposed to be sold, the total number of Shares owned by the Selling
Shareholder, the terms and conditions, including price, of the proposed sale,
and any other material facts relating to the proposed sale and shall include a
copy of the written offer with the Proposed Transferee. The Offer shall further
state that the other Shareholders and the Company may acquire, in accordance
with the provisions of this Agreement, all, but not less than all of the Offered
Shares for the price and upon the other terms and conditions, including deferred
payment (if applicable), set forth in the Offer.
3.2 Within thirty (30) days following the date on which the
Offer is given, the Shareholders may notify the Selling Shareholder that they
desire to purchase from the Selling Shareholder, upon the terms and conditions
set forth in the Offer, such number of the Offered Shares
2
<PAGE> 39
as shall equal such Shareholder's percentage of the outstanding Shares of the
Company (or such other number(s) as any other Shareholders may agree inter se).
3.3 The sale of any Offered Shares shall occur forty-five (45)
days following the date on which the Offer was first delivered to the other
Shareholders (or, if such date shall not be a business day, on the next
succeeding business day). Such sale shall be effected by the Selling
Shareholder's delivery to the acquiring Shareholders of certificates evidencing
the Offered Shares purchased, duly endorsed for transfer, against payment to the
Selling Shareholder of the purchase price therefor by such acquiring
Shareholders. The Company hereby agrees to reasonably cooperate with the Selling
Shareholder to issue new certificates to the acquiring Shareholders in exchange
for the Selling Shareholder's certificate.
3.4 If the Shareholders do not elect to purchase all of the
Offered Shares, then the Company shall have the option to purchase all remaining
Offered Shares not so elected to be purchased by the Shareholders on the same
terms and conditions as specified in the Offer. Not later than forty-five (45)
days following the date on which the Offer was first received, the Company may
notify the Selling Shareholder that it desires to purchase from the Selling
Shareholders all of the remaining Offered Shares not previously agreed to be
purchased by the other Shareholders pursuant to Section 3.2 above. If the
Shareholders and the Company do not elect to purchase all of the Offered Shares
then the Shareholders and the Company shall have no right to purchase any of the
Offered Shares, and the Offered Shares may be sold by the Selling Shareholder at
any time within 60 days after the date the Offer was made. Any such sale shall
be to the Proposed Transferee and at not less than the price and upon other
terms and conditions, if any, not more favorable to the Proposed Transferee than
those specified in the Offer. If all such Offered Shares are not sold within
such 60 day period, any subsequent Transfer of such Offered Shares shall again
be subject to the requirements of this Section 3. Any Offered Shares sold or
transferred pursuant to this Agreement shall remain subject to this Agreement
and any such transferee shall agree in writing to be bound by the obligations
imposed upon the Shareholders pursuant to this Agreement as if such transferee
were originally a signatory to this Agreement.
3.5 The Shareholders' right provided in this Section 3 shall
not apply with respect to sales, transfers or exchanges of Shares in conjunction
with the sale of the Company to an unaffiliated third party whether by merger,
consolidation or sale of stock in a transaction in which all of the
Shareholders' Shares are also to be sold or Transferred.
4. Sale of Control.
4.1 Tag-Along. Subject to Section 4.2 below, in the event that
at any time a Shareholder or group of Shareholders propose to Transfer, in any
transaction or series of related transactions, to a third party, or group which
is not a shareholder or consisting primarily of Shareholders, for valuable
consideration Shares consisting of a majority of the then outstanding capital
stock of the Company and a majority of the then outstanding Shares entitled to
vote on any action of the Company (a "Sale of Control"), the Shareholder or
group of Shareholders proposing
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<PAGE> 40
such Sale of Control must first afford the other Shareholders the opportunity to
transfer up to their pro rata percentage of all the outstanding Shares to the
third party on the same terms and conditions governing such Sale of Control
(subject to Section 4.3 below). At least thirty (30) days prior to the scheduled
closing of a Sale of Control, the Shareholder or group of Shareholders proposing
such Sale of Control shall give written notice to the other Shareholders of the
terms and conditions of the Sale of Control. If the other Shareholders desire to
transfer to such third party any of the Shares then owned by such other
Shareholders pursuant to this tag-along right, such other Shareholders shall, at
least fifteen (15) days prior to the scheduled closing of the Sale of Control,
give the Shareholder or group of Shareholders proposing such Sale of Control
written notice of their desire to so transfer Shares (and setting forth the
number of Shares to be transferred) and at the closing of the Sale of Control
the other Shareholders shall transfer, and the Shareholder or group of
Shareholders proposing such Sale of Control shall take such actions necessary to
effectuate such Transfer to the third party such Shares on the same terms and
conditions governing the Sale of Control (subject to Section 4.3 below).
4.2 Bring Along. In the event that a Shareholder or a group of
Shareholders agree to Transfer in a Sale of Control, then the other Shareholders
shall, upon the written request of such transferring Shareholder or group of
Shareholders, also Transfer to such third party a proportionate number of their
Shares on the same terms and conditions pursuant to which such Shareholder or
group of Shareholders have transferred their Shares (subject to Section 4.3
below).
4.3 Pricing. In the event of a sale of Shares pursuant to this
Section 4, the allocation of the aggregate purchase price (and the determination
of the appropriate price per share of each class or series of capital stock)
will be determined by valuing the entire Company at the price per share upon
which the Sale of Control is proposed (or the aggregate purchase price which has
been proposed for the Company, as applicable), and treating the sale as if the
Company had sold all of its assets, had the aggregate purchase price available
for distribution to its stockholders, and distributed such proceeds in
accordance with the terms of the Company's Certificate of Incorporation
(including all Certificates of Designations).
5. Voting of Shares. In any and all elections of members of the Company's Board
of Directors (whether at a meeting or by written consent in lieu of a meeting),
each Shareholder shall vote or cause to be voted (at a meeting or by consent)
all Shares owned by him or it or over which he or it has voting control, in
accordance with, and shall use his or its best efforts otherwise to elect (a)
Kevin O'Brien or such other person as may be designated by him to serve in his
stead, or in the event of his death or disability, Chris O'Brien or such other
person as may be designated to serve in his stead (b) Chris O'Brien or such
other person as may be designated by him to serve in his stead, or in the event
of his death or disability, Kevin O'Brien or such other person as may be
designated to serve in his stead (c) a nominee of Kevin O'Brien and Chris
O'Brien, or in the event of either of their deaths or disability, a nominee of
the survivor, (d) a nominee of Kevin O'Brien and Chris O'Brien, reasonably
acceptable to the holders of a majority of all preferred stock of any series
issued by the Company, to serve as an independent member of the Board, or in the
event of either of their deaths or disability, a nominee of the survivor
reasonably acceptable to the holders of a majority of all
4
<PAGE> 41
preferred stock of any series issued by the Company, (e) one nominee of the
holders of a majority of all preferred stock of any series issued by the
Company, reasonably acceptable to Kevin O'Brien or Chris O'Brien, or in the
event of either of their deaths or disability the survivor, to serve as an
independent member of the board, (f) one nominee of PS Capital Ventures, LP and
(g) one nominee of Mitchell & Co., Ltd. Notwithstanding any provision of the
By-laws to the contrary, any Shareholder(s) entitled to designate a person to
serve as a member of the Board may remove such person, with or without cause and
the other Shareholders agree to cooperate as may be necessary to effect such
removal.
Following the consummation of the sale of the Preferred Stock
the Shareholders agree that the board shall consist of the following members:
Chris O'Brien, Kevin O'Brien, Mark Lieberman (as nominee pursuant to (d) above),
David Mitchell (as nominee pursuant to (g) above), Jay Chiat (as nominee
pursuant to (e) above), Gerry Byrne (as nominee pursuant to (c) above), and
Daniel Burstein (as nominee pursuant to (f) above).
6. Termination. This Agreement shall terminate in its entirety (a) on the
closing of the Company's initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of capital stock for the account of the Company to the public
with net proceeds to the Company of not less than $10,000,000, (b) upon the
consummation of a Sale of Control pursuant to Section 4 hereof or (c) upon the
vote of a majority of the holders of shares of Common Stock and Preferred Stock
each voting as a separate class.
7. No Revocation. The voting agreements contained herein are coupled with an
interest and may not be revoked.
8. Restrictive Legend. So long as any Shares are subject to the provisions
hereof, all certificates representing Shares owned or hereafter acquired by any
Shareholder or any transferee thereof bound by this Agreement shall bear the
following legend:
(i) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with the respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(ii) "The Shares evidenced hereby are subject to a
Shareholders Agreement (a copy of which may be obtained upon written request
from the Company), and by accepting any interest in such Shares the person
accepting such interest shall be deemed to agree to and shall become bound by
all the provisions of said Shareholders Agreement."
9. Amendment to By-Laws. Article IX of the Company's By-laws shall only be
amended or repealed by the stockholders of the Company upon the vote of (i) a
majority of the outstanding Common Stock and (ii) holders of 66 2/3% of the
Preferred Stock; provided, however, that the
5
<PAGE> 42
Shareholders hereby consent to all such amendments to Article IX to the extent
recommended or approved by five out of seven directors (or as similar a
percentage as possible if the board of directors consists of a greater or lesser
number of directors).
10. Provisions of General Application.
10.1 Severability. If any of the terms, provisions, or
conditions of this Agreement or the application thereof in any circumstances
shall, to any extent, be invalid or unenforceable, the remainder of this
Agreement and the application of such term, provision, or condition to
circumstances other than those to which it is held invalid or unenforceable
shall not be affected thereby, and each of the terms, provisions and conditions
of this Agreement shall be valid and enforceable to the fullest extent permitted
by law.
10.2 Entire Agreement. This Agreement constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings of the
parties.
10.3 Successors and Assigns. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and the respective
successors and permitted assigns of each of them, so long as they hold Shares.
10.4 Remedies. The parties stipulate that money damages may
not be an adequate remedy for any actual, apparent, or attempted breach of the
provisions of this Agreement and that any party may apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief in order to remedy or prevent any actual, apparent, or attempted
violation of this Agreement.
10.5 Notices. Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile transmission, or by
overnight courier, certified, registered, or express mail, postage or fees
prepaid, and shall be deemed given when so delivered personally, telegraphed,
telexed, sent by facsimile transmission or by overnight courier or express mail
service or, if mailed, four days after the date of mailing to the address set
forth on the signature page hereto. The parties hereto may, by notice given in
accordance with this Section, change their addresses and transmission numbers
for notices.
10.6 Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of New York
without regard to any choice of law rules that would require or permit the
application of the laws of any other jurisdiction.
10.7 Descriptive Headings. The subject headings of the
sections of this Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
6
<PAGE> 43
10.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 Amendments. This Agreement may be amended upon the vote
of a majority of the holders of shares of Common Stock and Preferred Stock each
voting as a separate class; provided, that no amendment shall adversely affect
any person or entity's rights hereunder unless such person or entity has
approved such amendment.
10.10 Additional Shareholders. Pursuant to Section 1.4 of the
Purchase Agreement, at any time on or before May 19, 1999, the Company may sell
up to an aggregate of 5,769,231 shares of Preferred Stock (including shares sold
on the date hereof) to "New Investors" (as defined in the Purchase Agreement).
In addition, the Purchase Agreement provides for the sale by the Company after
May 19, 1999 to a New Investor of up to an additional 641,026 shares of
Preferred Stock, subject to certain limitations provided in the Purchase
Agreement. If a New Investor purchases shares of Preferred Stock as provided in
the Purchase Agreement, it shall, as a condition to such purchase, execute and
deliver a counterpart of this agreement and thereafter shall be deemed to be a
"Shareholder" for all purposes under this Agreement.
7
<PAGE> 44
IN WITNESS WHEREOF, the undersigned have executed this
Shareholders Agreement on the date first above written.
SOFTCOM, INC.
By:
Name: Chris O'Brien
Title: Chief Executive Officer
Buyer:
Address for Notice:
8
<PAGE> 45
Name: Kevin O'Brien
Address for Notice:
Name: Chris O'Brien
Address for Notice:
Name: David O'Brien
Address for Notice:
Name: Rory O'Brien
Address for Notice:
9
<PAGE> 46
Name: Tanya Agathocleous
Address for Notice:
10
<PAGE> 47
EXHIBIT E
Founder Non-Compete Agreements
<PAGE> 48
EXHIBIT E
CONFIDENTIALITY, INVENTIONS AND NONCOMPETE AGREEMENT
CONFIDENTIALITY, INVENTIONS AND NONCOMPETE AGREEMENT (this
"Agreement"), dated as of May 14, 1999, made by ____________________________
("Employee") in favor of SoftCom, Inc., a Delaware corporation (the "Company").
BACKGROUND
It is recognized by the undersigned Employee that the
day-to-day performance of his or her duties while in the employment of the
Company is likely to give or require access to confidential Company records and
sources of information and to bring him or her into contact with others engaged
in confidential work for the Company. It is further recognized by the Employee
that by reason of being employed by the Company, he or she may create or develop
intellectual property (including inventions, ideas, discoveries, trade secrets
and copyrightable works) resulting from or arising out of the work performed by
the undersigned within the scope of his or her responsibilities, or with the
Company's facilities, equipment or supplies, or in connection with or resulting
from his or her use or knowledge of confidential or trade secret information
which is proprietary to the Company.
NOW, THEREFORE, in consideration of employment by the Company
and of prospective assignments to work on confidential matters which Employee
acknowledges is sufficient consideration for this Agreement, Employee agrees to
the following continuing obligations:
1. Confidentiality. During the period of Employee's
employment with the Company, Employee agrees, except in the course of Employee's
duties on behalf of the Company:
(a) to keep secret and treat confidentially all
confidential information of the Company pertaining to Company customers and
prospective customers, customer requirements, customer financial information,
and other such confidential information compiled or maintained internally by the
Company concerning its customers and prospective customers; and
(b) to keep secret and treat confidentially all
confidential information of the Company pertaining to Company products, costs,
marketing plans and contemplated activities, financial matters, research and
development, production, engineering, product design, and other such
confidential information compiled or maintained internally by the Company
concerning its business, operations and activities; by way of illustration, but
not limitation, confidential information includes inventions, processes,
formulae, data, computer programs (whether in source or object code form) and
all information relating to programs now existing or under development, computer
program listings, know-how, improvements, discoveries, developments, designs,
techniques, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses,
<PAGE> 49
prices, costs, customer and supplier lists and compilations of information.
Confidential information does not include information (i) known to the Employee
prior to employment by the Company and not used in connection with the Company's
business, (ii) received from a third party not in connection with or as a result
of, or used in connection with, the undersigned's employment by the Company, or
(iii) which is or becomes generally known to the public (other than through a
breach of this agreement or any other obligation of confidentiality to the
Company).
2. Confidentiality Upon Termination. Upon termination
of Employee's employment with the Company, whether voluntary or involuntary and
for whatever reason, Employee agrees:
(a) to promptly return to the Company any and all
documents made or obtained by Employee in the course of his or her employment
pertaining to or containing any of the confidential information of the Company
referred to in Section 1 above; and
(b) to keep confidential and to make no written
record of confidential information of the Company referred to in Section 1
above, and to make no use or disclosure thereof.
3. Confidential Relationship. Employee acknowledges
that this Agreement provides notice that the Company regards it to be vital to
its interest that its confidential information and trade secrets be safeguarded
by its employees. Employee understands that this Agreement establishes a
confidential relationship between Employee and the Company, and that Employee
has a duty under the law not to breach the confidential relationship by using or
disclosing Company confidential information and trade secrets. Employee further
understands that the Company relies upon Employee honoring such duty of
confidence when the Company entrusts Employee with access to Company
confidential information and trade secrets.
4. Invention Disclosure and Assignment.
4.1 During the period of Employee's employment with
the Company, Employee agrees to report to the Company fully and promptly in
writing, all intellectual property (including inventions, ideas and discoveries,
patentable or unpatentable, trade secrets and copyrightable works) which is
made, developed, conceived or reduced to practice by Employee either solely or
jointly with others resulting from or arising out of the work performed by
Employee, within the scope of his or her responsibilities, or with the Company's
facilities, equipment or supplies, or in connection with or which results from
his or her use or knowledge of confidential or trade secret information which is
proprietary to the Company.
4.2 Upon termination of Employee's employment with
the Company, and for a period of eighteen (18) months after termination,
Employee agrees to report to the Company fully and promptly in writing, all
intellectual property (including inventions, ideas and discoveries, patentable
or unpatentable, trade secrets and copyrightable works) which is reduced to
practice by Employee either solely or jointly with others, reasonably resulting
from the work performed by
2
<PAGE> 50
Employee during employment by the Company within the scope of his or her
responsibilities, or with the Company's facilities, equipment or supplies, or in
connection with or which results from his or her use or knowledge of
confidential or trade secret information which is proprietary to the Company.
4.3 Employee agrees to hold all such intellectual property
described in this Section 4 for the benefit of the Company and not to assign nor
attempt to assign any rights therein to anyone other than the Company.
4.4 Employee agrees to assign to the Company upon its request
and without further compensation all rights, title and interest in such
intellectual property described in this Section 4 to which the Company is
entitled as set forth in this Section 4, at any time whether during or
subsequent to his or her period of said employment. Employee agrees to execute
and deliver in a prompt manner all proper documents provided by the Company and
presented to Employee including those necessary and attendant to domestic and
foreign patent applications including but not limited to divisional,
continuation, continuation-in-part, substitute and/or reissue applications, and
all other instruments for the perfection of intellectual property rights
including related registrations of issued patents, design patent applications
and registrations, applications for utility models and industrial models and
copyrights, as well as formal assignments thereof. The Company will pay all
reasonable out-of-pocket expenses incurred by Employee in perfecting the
Company's rights as they relate to assisting the Company in all proper ways in
the acquisition and preservation of the fights to such intellectual property as
described in this subsection 4.4.
4.5 Employee covenants that there are no unpatented
inventions, discoveries, ideas or information currently held by Employee which
are to be outside the scope of this agreement.
5. Non-Competition; Non-Solicitation.
5.1 During the period of Employee's employment with the
Company and for a period of eighteen (18) months after the termination or
expiration thereof for any reason, the Employee will not directly or indirectly:
(a) as an individual proprietor, partner,
stockholder, officer, employee, director, joint venturer, investor, lender, or
in any other capacity whatsoever (other than as the holder of not more than two
percent (2%) of the total outstanding stock of a publicly held company), and in
any city, county, state or other geographic area where the Company is then
marketing or selling its products or providing services, engage in the business
of developing, producing, marketing or selling products or providing services of
the kind or type developed or being developed, produced, marketed, sold or
provided by the Company while Employee was employed by the Company; or
(b) recruit, solicit, hire or induce, or attempt to
recruit, solicit, hire or induce, any employee or employees of the Company to
terminate their employment with, or otherwise cease their relationship with, the
Company; or
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<PAGE> 51
(c) solicit, divert or take away, or attempt to
solicit, divert or to take away, the business or patronage of any of the
clients, customers or accounts, or prospective clients, customers or accounts,
of the Company which were contracted, solicited or served by the Employee while
employed by the Company.
5.2 If any restriction set forth in this Section 5 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
5.3 The restrictions contained in this Section 5 are necessary
for the protection of the business and goodwill of the Company and are
considered by Employee to be reasonable for such purpose. In addition, Employee
acknowledges that Employee's education, background, skills, and experience are
such that the enforcement of the restrictions in this Section 5 will not
unreasonably interfere with Employee's ability to earn a living.
6. Miscellaneous. (a) All of the covenants and provisions
herein contained are severable; in the event that any of said covenants or
provisions shall be held by any court of competent jurisdiction to be invalid or
unenforceable, this agreement shall be construed as if any such invalid or
unenforceable covenant or provision were not herein contained. In addition to
any other available remedies in enforcing this agreement, the Company shall be
entitled to injunctive relief. No delay or omission by the Company in exercising
any right under this agreement shall operate as a waiver of that or any other
right. A written waiver or consent given by the Company on any one occasion
shall be effective only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
(b) This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. Employee agrees that
notwithstanding Employee's place of residence at the time of or subsequent to
any breach by undersigned of this agreement, that he or she shall be subject to
suit in the New York State or Federal court located in or having jurisdiction
over agreements entered into in New York County, New York.
IN WITNESS WHEREOF, the undersigned has executed this
Confidentiality, Inventions and Noncompete Agreement as of the day and year
first above written.
Employee:
----------------------------------
4
<PAGE> 52
EXHIBIT F
Amendment to By-laws
<PAGE> 53
EXHIBIT F
AMENDMENTS TO THE BY-LAWS OF
SOFTCOM, INC. EFFECTIVE AS OF MAY 14, 1999
1. Article III, Section 8 of the By-laws is hereby amended by deleting the
word "of" after the word "meetings" in the first line thereof.
2. Article III, Section 8 of the By-laws is hereby further amended by
adding at the end of the first sentence thereof the following:
"or by another Article or Section of these by-laws."
3. Article VI, Section 4 of the By-laws is hereby amended by deleting
everything after the first sentence thereof.
4. The By-laws are hereby amended by adding a new Article IX at the end
thereof as follows:
ARTICLE IX
SUPER MAJORITY BOARD VOTING; APPROVAL
Section 1. Notwithstanding anything to the contrary contained elsewhere in these
by-laws, the following actions may only be taken by the corporation if approved
by five out of seven directors (or as similar a percentage as possible if the
board of directors consists of a greater or lesser number of directors) at a
meeting of directors held pursuant to the other provisions of these by-laws:
(a) approval and adoption of the annual budget of the corporation;
(b) any change (including any termination, replacement or creation of a
new position) in senior management of the corporation, involving the
office of the President, any Vice President, the Treasurer or Secretary
of the Corporation;
(c) any sale or other issuance of any debt securities by the
corporation;
(d) any transaction or series of related transactions, outside the
ordinary course of the corporation's business, resulting in obligations
of $50,000 with the same party or group of related or affiliated
parties (whether or not part of any approved budget);
(e) any issuance of any of the corporation's capital stock at a price
below the fair market value of such capital stock on the date of such
issuance (as such fair market value is determined, in good faith, by
the directors);
<PAGE> 54
(f) increasing the size of the board of directors to a number greater
than seven;
(g) any offer or issuance of securities of the corporation pursuant to
a public offering;
(h) any transaction with any party or entity related to or affiliated
with any member of the corporation's board of directors;
(i) any adoption of, or reservation of shares for awards under any new
stock option or other stock-based incentive plan (not in existence or
awarded as of May 14, 1999);
(j) prepayment of any amount of that certain Promissory Note, dated May
14, 1999, made by the Corporation in favor of Kevin O'Brien (the
"O'Brien Note");
(k) calculation of reserves from excess cash derived from operations
held by the Corporation for purposes of payments on the O'Brien Note
and payments of deferred compensation owed to Kevin O'Brien and Chris
O'Brien; and
(l) any amendment to this Section 1 of this Article IX.
Section 2. Notwithstanding anything to the contrary contained elsewhere in these
by-laws, and in addition to the restrictions set forth in Section 1 of this
Article IX, any transaction or series of related transactions, outside the
ordinary course of the corporation's business, resulting in obligations to one
party (or a group of related or affiliated parties) of $25,000 or more shall be
required to be approved by the President or Chief Executive Officer, the
Chairman of the board of directors and the Chief Technology Officer (to the
extent such positions then exist).
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<PAGE> 55
EXHIBIT G
Preferred Stock Purchase Warrant
<PAGE> 56
EXHIBIT G
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES WHICH MAY BE
ISSUED UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES OR BLUE SKY
LAWS. NO SALE OR DISTRIBUTION HEREOF OR THEREOF MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
- --------------------------------------------------------------------------------
Warrant No. W-1 Date of Issuance: May 14, 1999
SOFTCOM, INC.
Preferred Stock Purchase Warrant
SoftCom, Inc. (the "Company"), for value received, hereby certifies
that ___________________________, or its registered assigns (the "Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time after the date hereof and on or before the Expiration
Date (as defined in Section 5 below) upon surrender of this warrant up to
________ shares (subject to adjustment as described herein) of Series A
Convertible Preferred Stock of the Company ("Preferred Stock"), at an exercise
price per share equal to $.39. The shares of Preferred Stock purchasable upon
exercise of this Warrant, and the purchase price per share shall be adjusted
from time to time pursuant to the provisions of this Warrant and are hereinafter
referred to as the "Warrant Stock" and the "Purchase Price," respectively.
1. Exercise.
1.1 Manner of Exercise. This Warrant may be exercised by the
Registered Holder, in whole or in part, by surrendering this Warrant, with the
purchase form appended hereto as Exhibit A duly executed by such Registered
Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full of the Purchase Price payable in
respect of the number of shares of Warrant Stock purchased upon such exercise.
The Purchase Price may be paid by cash, check, wire transfer or other
immediately available funds.
1.2 Net Issue Exercise. In lieu of exercising this Warrant in the
manner provided above in Section 1.1, the Registered Holder may elect to receive
shares equal to the value of this Warrant (or the portion thereof being
cancelled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
such Holder a number of shares of Warrant Stock computed using the following
formula:
<PAGE> 57
X= Y(A-B)
------
A
Where X= The number of shares of Warrant Stock to be issued to the Registered
Holder.
Y= The number of shares of Warrant Stock purchasable under this Warrant
(at the date of such calculation).
A= The fair market value of one share of Warrant Stock (at the date of
such calculation).
B= The Purchase Price (as adjusted to the date of such calculation).
(a) For purposes of this Section 1.2, the fair market value of Warrant
Stock on the date of calculation shall mean with respect to each share of
Warrant Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's common stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by the
Securities and Exchange Commission, then the fair market value per share shall
be the product of (A) the initial "Price to Public" specified in the final
prospectus with respect to the offering and (B) the number of shares of
Preferred Stock into which each share of Warrant Stock is convertible at the
date of calculation; and
(ii) if (i) above is not applicable, the fair market value of
Warrant Stock shall be at the highest price per share which the Company could
obtain on the date of calculation from a willing buyer (not a current employee
or director) for shares of Warrant Stock sold by the Company, from authorized
but unissued shares, as determined in good faith by the Board of Directors.
1.3 Effective Time of Exercise. Each exercise of this Warrant shall
be deemed to have been effected immediately prior to the close of business on
the day on which this Warrant shall have been surrendered to the Company as
provided above. At such time, the person or persons in whose name or names any
certificate(s) for Warrant Stock shall be issuable upon such exercise as
provided in Section 1.4 below shall be deemed to have become the holder or
holders of record of the Warrant Stock represented by such certificates.
1.4 Delivery to Holder. As soon as practicable after the exercise
of this Warrant in whole or in part, and in any event within fifteen (15) days
thereafter, the Company at its expense will cause to be issued in the name of,
and delivered to, the Registered Holder, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct:
(a) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be entitled; and
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<PAGE> 58
(b) in case such exercise is in part only, a new warrant (dated
the date hereof) of like tenor for the remaining Warrant Stock not so purchased.
2. Adjustments
2.1 Redemption or Conversion of Preferred Stock. If all of the
Preferred Stock underlying this Warrant shall become converted into shares of
Common Stock, then this Warrant shall automatically become exercisable for that
number of shares of Common Stock equal to the number of shares of Common Stock
that would have been received if this Warrant had been exercised in full and the
shares of Preferred Stock received thereupon had been simultaneously converted
into shares of Common Stock immediately prior to such event, and the Exercise
Price shall be automatically adjusted to equal the number obtained by dividing
(a) the aggregate Purchase Price of the shares of Preferred Stock for which this
Warrant was exercisable immediately prior to such redemption or conversion, by
(b) the number of shares of Common Stock for which this Warrant is exercisable
immediately after such redemption or conversion.
2.2 Stock Splits and Dividends. If outstanding shares of the
Company's Preferred Stock or Common Stock (depending on the class of stock for
which this warrant is then exercisable) shall be subdivided into a greater
number of shares or a dividend in Preferred Stock or Common Stock, as
applicable, shall be paid in respect of Preferred Stock or Common Stock, the
Purchase Price in effect immediately prior to such subdivision or at the record
date of such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding shares of Preferred Stock or Common
Stock, as applicable, shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (a) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (b) the Purchase Price in effect immediately after such
adjustment.
2.3 Reclassification, Etc. In case there occurs any
reclassification or change of the outstanding securities of the Company or of
any reorganization of the Company (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) or any similar corporate reorganization on or after the date hereof,
then and in each such case the Registered Holder, upon the exercise hereof at
any time after the consummation of such reclassification, change, or
reorganization shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise hereof prior to such
consummation, the stock or other securities or property to which such Holder
would have been entitled upon such consummation if such Holder had exercised
this Warrant immediately prior thereto, all subject to further adjustment
pursuant to the provisions of this Section 2.
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2.4 Adjustment Certificate. When any adjustment is required to be
made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the
Company shall promptly mail to the Registered Holder a certificate setting forth
(a) a brief statement of the facts requiring such adjustment, (b) the Purchase
Price after such adjustment and (c) the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable after such
adjustment.
3. Transfers.
3.1 Unregistered Security. Each Holder of this Warrant acknowledges
that this Warrant and the Warrant Stock have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and each Holder
agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise
dispose of this Warrant or any Warrant Stock issued upon its exercise in the
absence of (a) an effective registration statement under the Act as to this
Warrant or such Warrant Stock and registration or qualification of this Warrant
or such Warrant Stock under any applicable Federal or state securities law then
in effect, or (b) an opinion of counsel, satisfactory to the Company, that such
registration and qualification are not required. Each certificate or other
instrument for Warrant Stock issued upon the exercise of this Warrant shall bear
a legend substantially to the foregoing effect.
3.2 Transferability. Subject to the provisions of Section 3.1
hereof, this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of the Warrant with a properly executed assignment at the
principal office of the Company.
3.3 Warrant Register. The Company will maintain a register
containing the names and addresses of the Registered Holders of this Warrant.
Until any transfer of this Warrant is made in the warrant register, the Company
may treat the Registered Holder of this Warrant as the absolute owner hereof for
all purposes; provided, however, that if this Warrant is properly assigned in
blank, the Company may (but shall not be required to) treat the bearer hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary. Any Registered Holder may change such Registered Holder's address as
shown on the warrant register by written notice to the Company requesting such
change.
4. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets 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 of
this Warrant against impairment.
5. Termination. This Warrant (and the right to purchase Warrant Stock
upon exercise hereof) shall terminate, to the extent then unexercised, upon the
date five (5) years after the date of issuance of this Warrant (the "Expiration
Date").
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<PAGE> 60
6. Notices of Certain Transactions. In case:
6.1 the Company shall take a record of the holders of its Preferred
Stock or Common Stock (or other stock or securities at the time deliverable upon
the exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right, to subscribe for or purchase any shares of stock of any
class or any other securities, or to receive any other right; or
6.2 of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company, any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving entity), or any transfer of all or substantially all of the
assets of the Company; or
6.3 of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
6.4 of any automatic conversion of the Preferred Stock into Common
Stock of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (a)
the date on which a 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 (b) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up or conversion is to take place, and the time, if any is to be fixed,
as of which the holders of record of Preferred Stock or Common Stock (or such
other stock or securities at the time deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up or conversion) are to be determined. Such notice shall be mailed at
least ten (10) days prior to the record date or effective date for the event
specified in such notice.
7. Reservation of Stock. The Company will at all times reserve and keep
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
8. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 3
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the
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<PAGE> 61
number of shares of Warrant Stock called for on the face or faces of the Warrant
or Warrants so surrendered.
9. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of
any indemnity agreement (with surety if reasonably required) in an amount
reasonably satisfactory to the Company, or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
10. Mailing of Notices. Any notice required or permitted pursuant to
this Warrant shall be in writing and shall be deemed sufficient upon receipt,
when delivered personally or sent by courier, overnight delivery service or
confirmed facsimile, or three (3) business days after being deposited in the
regular mail, as certified or registered mail (airmail if sent internationally),
with postage prepaid, addressed (a) if to the Registered Holder, to the address
of the Registered Holder most recently furnished in writing to the Company and
(b) if to the Company, to the address set forth below or subsequently modified
by written notice to the Registered Holder.
11. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
12. No Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Warrant Stock received on the date of exercise, as determined in good faith by
the Company's Board of Directors.
13. Amendment or Waiver. Any term of this Warrant may be amended or
waived only in a written instrument executed by the Company and the Registered
Holder.
14. Headings. The headings in this Warrant are for purposes or
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
15. Governing Law. This Warrant shall be governed, construed and
interpreted in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of law.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned has executed this
Preferred Stock Purchase Warrant on the date first above written.
SOFTCOM, INC.
By: ______________________________________
Name: Chris O'Brien
Title: Chief Executive Officer
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<PAGE> 63
EXHIBIT A
PURCHASE FORM
Dated: _________________
To: SoftCom, Inc.
The undersigned, pursuant to the provisions set forth in the attached
Warrant No. __, hereby irrevocably elects to purchase shares of the Preferred
Stock or Common Stock covered by such Warrant and herewith makes payment of
$______, representing the full purchase price for such shares at the price per
share provided for in such Warrant.
The undersigned acknowledges that it has reviewed the representations
and warranties contained in Section 2.2 of the Preferred Stock Purchase
Agreement, dated as of May __, 1999, between SoftCom, Inc. and the other
investors signatures thereto (the "Purchase Agreement"), and by its signature
below hereby makes such representations and warranties to the Company, effective
as of the date written above. Defined terms contained in such representations
and warranties shall have the meanings assigned to them in the Purchase
Agreement provided that the term "Buyer" shall refer to the undersigned and the
term "Shares" shall refer to the Warrant Stock received upon exercise of the
Warrant.
Signature: _______________________________
Name (print): ____________________________
Title (if applicable): ___________________
Company (if applicable): _________________
<PAGE> 1
Exhibit 10.13
SCREAMING MEDIA.NET, INC.
1999 STOCK OPTION PLAN
1. Purpose of the Plan.
This stock option plan (the "Plan") is intended to encourage
ownership of the stock of Screaming Media.Net, Inc., a Delaware corporation (the
"Company"), by employees, officers, directors, consultants and advisors of the
Company and its subsidiaries, to induce qualified personnel to enter and remain
in the employ of the Company or its subsidiaries and otherwise to provide
additional incentive for optionees to promote the success of the Company's
business.
2. Stock Subject to the Plan.
(a) The shares of the Common Stock, $.01 par value,
of the Company ("Common Stock") for which options may be granted under the Plan
shall be either authorized but unissued shares or treasury shares. The number of
such shares for which options may be granted under the Plan shall not exceed
three hundred thousand (300,000) shares of Common Stock, subject to adjustment
as provided in Section 12 hereof.
(b) If an option granted or assumed hereunder shall
expire, terminate or become unexercisable for any reason without having been
exercised in full, the unpurchased shares which were subject thereto shall,
unless the Plan shall have been terminated, again be available for subsequent
option grants under the Plan.
(c) Stock issuable upon exercise of an option granted
under the Plan may be subject to such restrictions on transfer, repurchase
rights or other restrictions as shall be determined by the Committee, as defined
below.
<PAGE> 2
3. Administration of the Plan.
The Plan shall be administered by a committee (the
"Compensation Committee") appointed by the Company's Board of Directors
consisting of two or more members of the Company's Board of Directors.
The Board of Directors may from time to time appoint a member
or members of the Committee in substitution for or in addition to the member or
members then in office and may fill vacancies on the Committee however caused.
The Committee shall choose one of its members as Chairman and shall hold
meetings at such times and places as it shall deem advisable. A majority of the
members of the Committee shall constitute a quorum and any action may be taken
by a majority of those present and voting at any meeting. Any action may also be
taken without the necessity of a meeting by a written instrument signed by a
majority of the Committee's members. The decision of the Committee as to all
questions of interpretation and application of the Plan shall be final, binding
and conclusive on all persons. The Committee shall have the authority to adopt,
amend and rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement granted here under in the manner and to the extent it shall
deem expedient to carry the Plan into effect and shall be the sole and final
judge of such expediency. No Committee member shall be liable for any action or
determination made in good faith.
4. Type of Options.
Options granted pursuant to the Plan shall be authorized by
action of the Committee and may be designated as either incentive stock options
meeting the requirements of Section 422 of the Internal Revenue Code of 1986
(the "Code") or non-qualified
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<PAGE> 3
options which are not intended to meet the requirements of such Section 422 of
the Code, the designation to be in the sole discretion of the Committee.
5. Eligibility.
Options designated as incentive stock options may be granted
only to officers who are employees of the Company or any subsidiary corporation
(herein called "subsidiary" or "subsidiaries"), as defined in Section 424 of the
Code and the Treasury Regulations promulgated thereunder (the "Regulations"),
and other employees of the Company or of any subsidiary who are designated as
"key employees" by the Compensation Committee.
Options designated as non-qualified options may be granted to
officers, employees, directors, consultants, advisors and representatives of the
Company or of any of its subsidiaries.
In determining the eligibility of an individual to be granted
an option, as well as in determining the number of shares to be optioned to any
individual, the Committee shall take into account the position and
responsibilities of the individual being considered, the nature and the value to
the Company or its subsidiaries of his or her service and accomplishments, his
or her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Committee may deem relevant.
No option designated as an incentive stock option shall be
granted to any employee of the Company or any subsidiary if such employee owns,
immediately prior to the grant of an option, stock representing more than 10% of
the total combined voting power of all classes of stock of the Company or a
parent or a subsidiary, unless the purchase price for the stock under such
option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable
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<PAGE> 4
more than five years from the date it is granted. In determining the stock
ownership under this paragraph, the provisions of Section 424(d) of the Code
shall apply. In determining the fair market value under this paragraph, the
provisions of Section 7 hereof shall apply.
6. Option Agreement.
Each option shall be evidenced by an option agreement (the
"Agreement") duly executed on behalf of the Company and by the optionee to whom
such option is granted, which Agreement shall comply with and be subject to the
terms and conditions of the Plan. The Agreement shall set forth the number of
shares of Common Stock to which it applies, and the conditions and circumstances
under which the option may be exercised. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan as may
be determined by the Committee, provided that options designated as incentive
stock options shall meet all of the conditions for incentive stock options as
defined in Section 422 of the Code. The date of grant of an option shall be as
determined by the Committee. More than one option may be granted to an
individual.
7. Option Price.
The option price or prices of shares of the Company's Common
Stock for incentive stock options shall be the fair market value of such Common
Stock at the time the option is granted as determined by the Committee in
accordance with the Regulations promulgated under Section 422 of the Code. The
fair market value per Share shall be the mean of the bid and asked prices of the
Common Stock in the over-the-counter market on the date of grant, as reported in
The Wall Street Journal (or, if not so reported, as other wise reported by the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
System) or, in the event that the Common Stock is traded on the NASDAQ
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<PAGE> 5
National Market System or listed on a stock exchange, the fair market value per
Share shall be the closing price on the largest such system or exchange on the
date of grant of the Option, as reported in The Wall Street Journal, provided,
however, that if such market or exchange is closed on the date of the grant of
the Option then the fair market value per Share shall be based on the most
recent date on which such trading occurred immediately prior to the date of the
grant of the Option; provided, further, that if the fair market value cannot be
determined in accordance with the forgoing, it shall be determined in good faith
by the Board. If the fair market value cannot be determined under the preceding
sentence, it shall be determined in good faith by the Committee. The option
price or prices of shares of the Company's Common Stock for non-qualified stock
options shall be at least 85% of the fair market value on the date of grant, as
determined by the Committee in accordance with the preceding two sentences.
8. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for
the payment of the exercise price by delivery of (i) cash or a check payable to
the order of the Company in an amount equal to the exercise price of such
options, (ii) a promissory note in an amount equal to the exercise price of such
options, (iii) shares of Common Stock of the Company owned by the optionee
having a fair market value equal in amount to the exercise price of the options
being exercised, or (iv) any combination of (i), (ii) and (iii), provided,
however, that payment of the exercise price by delivery of a promissory note or
shares of Common Stock of the Company owned by such optionee may be made only
under such circumstances, if any, and on such terms as may from time to time be
established by the Committee. The fair market value of any shares of the
Company's Common Stock which may be delivered upon exercise of an option shall
be determined by the Committee in accordance with Section 7 hereof.
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<PAGE> 6
(b) To the extent that the right to purchase shares
under an option has accrued and is in effect, options may be exercised in full
at one time or in part from time to time, by giving written notice, signed by
the person or persons exercising the option, to the Company, stating the number
of shares with respect to which the option is being exercised, accompanied by
payment in full for such shares as provided in subparagraph (a) above. Upon such
exercise, delivery of a certificate for paid-up non-assessable shares shall be
made at the principal office of the Company to the person or persons exercising
the option at such time, during ordinary business hours, within thirty (30) days
from the date of receipt of the notice by the Company, as shall be designated in
such notice, or at such time, place and manner as may be agreed upon by the
Company and the person or persons exercising the option.
9. Exercise of Options.
Each option granted under the Plan shall, subject to Section
10(b) and Section 12 hereof, be exercisable at such time or times and during
such period as shall be set forth in the Agreement; provided, however, that no
option granted under the Plan shall have a term in excess of ten (10) years from
the date of grant.
To the extent that an option to purchase shares is not
exercised by an optionee when it becomes initially exercisable, it shall not
expire but shall be carried forward and shall be exercisable, on a cumulative
basis, until the expiration of the exercise period. No partial exercise may be
made for less than twenty-five (25) full shares of Common Stock.
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<PAGE> 7
10. Term of Options; Exercisability.
(a) Term.
(i) Each option shall expire not more than
ten (10) years from the date of the granting thereof, but shall be
subject to earlier termination as herein provided.
(ii) Except as otherwise provided in this
Section 10, an option granted to any employee optionee who ceases for
any reason to be an employee of the Company or one of its subsidiaries
shall terminate immediately on the date such optionee ceases to be an
employee of the Company or one of its subsidiaries, or on the date on
which the option expires by its terms, whichever occurs first.
(iii) If such termination of employment is
because the optionee has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), such option shall terminate
on the last day of the twelfth month from the date such optionee ceases
to be an employee, or on the date on which the option expires by its
terms, whichever occurs first.
(iv) If the employment of an employee
optionee is terminated by a successor entity within six months of the
date on which there occurs a hostile change of control of the Company
(whether by tender offer for more than 50% of the outstanding voting
stock, proxy contest for the election of Board members or other means
lacking the approval of the Board of Directors of the Company), any
options assumed or replaced in connection with such acquisition shall
be subject to immediate acceleration, and any shares which are not
vested at the time of such termination shall automatically vest in full
and may be exercised
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<PAGE> 8
by the optionee at any time during the three month period after the
date of termination of such optionee's employment.
(v) In the event of the death of any
optionee, any option granted to such optionee shall terminate on the
last day of the twelfth month from the date of death, or on the date on
which the option expires by its terms, whichever occurs first.
(vi) Notwithstanding the provisions of
Section 10(a)(ii), with respect to a particular option under the Plan,
the Committee may permit a recipient to exercise an option after
termination of employment.
(b) Exercisability. Except as the Committee may
otherwise determine is appropriate with respect to a particular option under the
Plan, an option granted to an employee optionee who ceases to be an employee of
the Company or one of its subsidiaries shall be exercisable only to the extent
that the right to purchase shares under such option has accrued and is in effect
on the date such optionee ceases to be an employee of the Company or one of its
subsidiaries.
11. Options Not Transferable.
The right of any optionee to exercise any option granted to
him or her shall not be assignable or transferable by such optionee otherwise
than by will or the laws of descent and distribution, or the rules thereunder,
and any such option shall be exercisable during the lifetime of such optionee
only by him or her. Any option granted under the Plan shall be null and void and
without effect upon the bankruptcy of the optionee to whom the option is
granted, or upon any attempted assignment or transfer, except as herein
provided, including without limitation any purported assignment, whether
voluntary or by operation of law, pledge, hypothecation or other disposition,
attachment, divorce, trustee process or similar process, whether legal or
equitable, upon such option.
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<PAGE> 9
12. Recapitalizations, Reorganizations and the Like.
(a) In the event that the outstanding shares of the
Common Stock of the Company are changed into or exchanged for a different number
or kind of shares or other securities of the Company or of another corporation
by reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, or dividends payable in
capital stock, appropriate adjustment shall be made in the number and kind of
shares as to which options may be granted under the Plan and as to which
outstanding options or portions thereof then unexercised shall be exercisable,
to the end that the proportionate interest of the optionee shall be maintained
as before the occurrence of such event; such adjustment in outstanding options
shall be made without change in the total price applicable to the unexercised
portion of such options and with a corresponding adjustment in the option price
per share.
(b) In addition, unless otherwise determined by the
Committee in its sole discretion, in the case of any (i) sale or conveyance to
another entity of all or substantially all of the property and assets of the
Company or (ii) Change in Control (as hereinafter defined) of the Company, the
purchaser(s) of the Company's assets or stock may, in his, her or its
discretion, deliver to the optionee the same kind of consideration that is
delivered to the holders of Common Stock of the Company as a result of such
sale, conveyance or Change in Control, which consideration shall be equal in
value to the value of those shares of stock or other securities the optionee
would have received had the option been exercised in full and no disposition of
the shares acquired upon such exercise been made prior to such sale, conveyance
or Change in Control, less the option price therefor. Upon receipt of such
consideration by the optionee, his or her option shall immediately terminate and
be of no further force and effect. The value of the stock or other securities
the optionee would have received if the option had been exercised shall be
determined in
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<PAGE> 10
good faith by the Committee of the Company, and in the case of shares of the
Common Stock of the Company, in accordance with the provisions of Section 7
hereof. The Committee shall also have the power and right, but not the
obligation, to accelerate the exercisability of any options, notwithstanding
any limitations in this Plan or in the Agreement upon a merger, consolidation,
sale of all or substantially all of the property and assets of the Company or
Change in Control. Upon a Change of Control, any options or portion thereof
originally designated as incentive stock options that no longer qualify as
incentive stock options under Section 422 of the Code as a result of such Change
of Control shall be redesignated as non-qualified stock options. In the event of
a hostile change in control of the Company (whether by tender offer for more
than 50% of the outstanding voting stock, proxy contest for the election of
Board members or other means lacking the approval of the Board of Directors of
the Company), each outstanding option under this Plan shall automatically
accelerate in full and unvested shares shall vest in full immediately. A
"Change in Control" shall be deemed to have occurred if any person, or any two
or more persons acting as a group, and all affiliates of such person or persons,
who prior to such time owned less than fifty percent (50%) of the then
outstanding Common Stock of the Company, shall acquire such additional shares of
the Company's Common Stock in one or more transactions, or series of
transactions, such that following such transaction or transactions, such person
or group and affiliates beneficially own more than fifty percent (50%) of the
Company's Common Stock outstanding.
(c) Upon dissolution or liquidation of the Company,
all options granted under this Plan shall terminate, but each optionee (if at
such time in the employ of or otherwise associated with the Company or any of
its subsidiaries) shall have the right, immediately prior to such dissolution or
liquidation, to exercise his or her option to the extent then exercisable.
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<PAGE> 11
(d) If by reason of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization, or
liquidation, the Committee shall authorize the issuance or assumption of a
stock option or stock options in a transaction to which Section 424(a) of the
Code applies, then, notwithstanding any other provision of the Plan, the
Committee may grant an option or options upon such terms and conditions as it
may deem appropriate for the purpose of assumption of the old option, or
substitution of a new option for the old option, in conformity with the
provisions of such Section 424(a) of the Code and the Regulations thereunder,
and any such option shall not reduce the number of shares otherwise available
for issuance under the Plan.
(e) No fraction of a share shall be purchasable or
deliverable upon the exercise of any option, but in the event any adjustment
hereunder of the number of shares covered by the option shall cause such number
to include a fraction of a share, such fraction shall be adjusted to the nearest
smaller whole number of shares.
13. No Special Employment Rights.
Nothing contained in the Plan or in any option granted under
the Plan shall confer upon any option holder any right with respect to the
continuation of his or her employment by the Company (or any subsidiary) or
interfere in any way with the right of the Company (or any subsidiary), subject
to the terms of any separate employment agreement to the contrary, at any time
to terminate such employment or to increase or decrease the rate of compensation
of the option holder from the rate of compensation in existence at the time of
the grant of an option. Whether an authorized leave of absence, or absence in
military or government service, shall constitute termination of employment shall
be deter mined by the Committee at the time.
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<PAGE> 12
14. Withholding.
The Company's obligation to deliver shares upon the exercise
of any non-qualified option granted under the Plan shall be subject to the
option holder's satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements. The Company and employee may agree
to withhold shares of Common Stock purchased upon exercise of an option to
satisfy the above-mentioned withholding requirements. With the approval of the
Committee, which it shall have sole discretion to grant, and on such terms and
conditions as the Committee may impose, the option holder may satisfy the
foregoing condition by electing to have the Company withhold from delivery
shares having a value equal to the amount of tax to be withheld. The Committee
shall also have the right to require that shares be withheld from delivery to
satisfy such condition.
15. Restrictions on Issue of Shares.
(a) Notwithstanding the provisions of Section 8, the
Company may delay the issuance of shares covered by the exercise of an option
and the delivery of a certificate for such shares until one of the following
conditions shall be satisfied:
(i) The shares with respect to which such
option has been exercised are at the time of the issue of such shares
effectively registered or qualified under applicable Federal and state
securities acts now in force or as hereafter amended; or
(ii) Counsel for the Company shall have
given an opinion, which opinion shall not be unreasonably conditioned
or withheld, that such shares are exempt from registration and
qualification under applicable Federal and state securities acts now in
force or as hereafter amended.
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(b) It is intended that all exercises of options
shall be effective, and the Company shall use its best efforts to bring about
compliance with the above conditions within a reasonable time, except that the
Company shall be under no obligation to qualify shares or to cause a
registration statement or a post-effective amendment to any registration
statement to be prepared for the purpose of covering the issue of shares in
respect of which any option may be exercised, except as otherwise agreed to by
the Company in writing.
16. Purchase for Investment; Rights of Holder on Subsequent
Registration.
Unless the shares to be issued upon exercise of an option
granted under the Plan have been effectively registered under the Securities Act
of 1933, as now in force or hereafter amended, the Company shall be under no
obligation to issue any shares covered by any option unless the person who
exercises such option, in whole or in part, shall give a written representation
and undertaking to the Company which is satisfactory in form and scope to
counsel for the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he or she is acquiring the shares issued
pursuant to such exercise of the option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the Securities Act of 1933, or any other applicable law, and
that if shares are issued without such registration, a legend to this effect may
be endorsed upon the securities so issued. In the event that the Company shall,
nevertheless, deem it necessary or desirable register under the Securities Act
of 1933 or other applicable statutes any shares with respect to which an option
shall have been exercised, or to qualify any such shares for exemption from the
Securities Act of 1933 or other applicable statutes, then the Company may take
such action and may require from each
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<PAGE> 14
optionee such information in writing for use in any registration statement,
supplementary registration statement, prospectus, preliminary prospectus or
offering circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors and
controlling persons from such holder against all losses, claims, damages and
liabilities arising from such use of the information so furnished and caused by
any untrue statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.
17. Loans.
The Company may not make loans to optionees to permit them to
exercise options.
18. Modification of Outstanding Options.
The Committee may authorize the amendment of any outstanding
option with the consent of the optionee when and subject to such conditions as
are deemed to be in the best interests of the Company and in accordance with the
purposes of this Plan.
19. Approval of Stockholders.
The Plan shall be subject to approval by the vote of
stockholders holding at least a majority of the voting stock of the Company
voting in person or by proxy at a duly held stockholders' meeting, or by written
consent of a majority of all the stockholders, within twelve (12) months after
the adoption of the Plan by the Board of Directors and shall take effect as of
the date of adoption by the Board of Directors upon such approval. The
Committee may grant options under the Plan prior to such approval, but any such
option shall become effective as of the date of grant only upon such approval
and, accordingly, no such option may be exercisable prior to such approval.
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<PAGE> 15
20. Termination and Amendment.
Unless sooner terminated as herein provided, the Plan shall
terminate ten (10) years from the date upon which the Plan was duly adopted by
the Board of Directors of the Company. The Board of Directors may at any time
terminate the Plan or make such modification or amendment thereof as it deems
advisable; provided, however, that except as provided in this Section 20, the
Board of Directors may not, without the approval of the stockholders of the
Company obtained in the manner stated in Section 19, increase the maximum number
of shares for which options may be granted or change the designation of the
class of persons eligible to receive options under the Plan, or make any other
change in the Plan which requires stockholder approval under applicable law or
regulations, including any approval requirement which is a prerequisite for
exemptive relief under Section 16 of the Securities Exchange Act of 1934. The
Committee may grant options to persons subject to Section 16(b) of the
Securities and Exchange Act of 1934 after an amendment to the Plan by the Board
of Directors requiring stockholder approval under Section 20, but any such
option shall become effective as of the date of grant only upon such approval
and, accordingly, no such option may be exercisable prior to such approval. The
Committee may terminate, amend or modify any outstanding option without the
consent of the option holder, provided, however, that, except as provided in
Section 12, without the consent of the optionee, the Committee shall not change
the number of shares subject to an option, nor the exercise price thereof, nor
extend the term of such option.
21. Compliance with Rule 16b-3.
It is intended that the provisions of the Plan and any option
granted there under to a person subject to the reporting requirements of Section
16(a) of the Act shall comply in all respects with the terms and conditions of
Rule 16b-3 under the Securities
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<PAGE> 16
Exchange Act of 1934 (the "Act"), or any successor provisions. Any agreement
granting options shall contain such provisions as are necessary or appropriate
to assure such compliance. To the extent that any provision hereof is found not
to be in compliance with such Rule, such provision shall be deemed to be
modified so as to be in compliance with such Rule, or if such modification is
not possible, shall be deemed to be null and void, as it relates to a recipient
subject to Section 16(a) of the Act.
22. Reservation of Stock.
The Company shall at all times during the term of the Plan
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of the Plan and shall pay all fees and expenses
necessarily incurred by the Company in connection therewith.
23. Limitation of Rights in the Option Shares.
An optionee shall not be deemed for any purpose to be a
stockholder of the Company with respect to any of the options except to the
extent that the option shall have been exercised with respect thereto and, in
addition, a certificate shall have been issued theretofore and delivered to the
optionee.
24. Notices.
Any communication or notice required or permitted to be given
under the Plan shall be in writing, and mailed by registered or certified mail
or delivered by hand, if to the Company, to its principal executive offices,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
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<PAGE> 1
EXHIBIT 10.14
SCREAMINGMEDIA INC.
2000 EQUITY INCENTIVE PLAN
1. Purpose and Types of Awards.
The purpose of the ScreamingMedia Inc. 2000 Equity Incentive Plan (the
"Plan") is to promote the long-term growth and profitability of ScreamingMedia
Inc., a Delaware corporation (the "Company") by (i) providing key people with
incentives to improve stockholder value and to contribute to the growth and
financial success of the Company, and (ii) enabling the Company to attract,
retain and reward the best available persons for positions of substantial
responsibility.
The Plan permits the granting of Options (including Incentive Stock
Options), Restricted Stock, Phantom Stock, Stock Bonuses and other stock-based
Awards.
2. Definitions.
Under the Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter
existing, that controls, is controlled by, or is under common
control with, the Company (including, but not limited to,
joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean
ownership of 50% or more of the voting power of the entity.
(b) "Award" shall mean any Option, Restricted Stock, Phantom
Stock, Stock Bonus or Other Award granted under the Plan.
(c) "Award Agreement" shall mean the written agreement between the
Company and a Grantee evidencing an Award.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean, unless a Grantee is a party to a written
employment agreement with the Company or an Affiliate which
contains a definition of "cause," "termination for cause" or
any other similar term or phrase, in which case "Cause" shall
have the meaning set forth
<PAGE> 2
in such agreement: (1) an act or omission by a Grantee that
would reasonably be expected to cause injury to the business
and affairs of the Company or an Affiliate, monetarily or
otherwise; (2) the chronic use of alcohol, drugs or other
similar substances affecting a Grantee's work performance; or
(3) a Grantee being convicted of, or pleading guilty or nolo
contendere to a felony or other crime involving theft, fraud
or moral turpitude. The good faith determination by the
Committee of whether a Grantee's employment or service
relationship was terminated by the Company for 'Cause' shall
be final and binding for all purposes hereunder.
(f) "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall
have occurred: (1) any Person is or becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company (not
including in the securities Beneficially Owned by such Person
any securities acquired directly from the Company) rep-
resenting 25% or more of the voting power of the Company's
then outstanding securities, excluding any Person who becomes
such a Beneficial Owner in connection with a transaction
described in sub-clause (A) of clause (3) below; (2) the
following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on the Effective Date, constitute the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for
election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on
the Effective Date or whose appointment, election or
nomination for election was previously so approved or
recommended; (3) there is consummated a merger or
consolidation of the Company with any other corporation other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent
thereof) at least 50% of the combined voting power of the
voting securities of the
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<PAGE> 3
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in
the securities Beneficially Owned by such Person any
securities acquired directly from the Company) representing
25% or more of the combined voting power of the Company's then
outstanding securities; or (4) the stockholders of the
Company approve a plan of complete liquidation or dissolution
of the Company or there is consummated an agreement for the
sale or disposition by the Company of all or substantially
all of the Company's assets, other than a sale or disposition
by the Company of all or substantially all of the Company's
assets to an entity at least 50% of the combined voting power
of the voting securities of which are owned by Persons in
substantially the same proportions as their ownership of the
Company immediately prior to such sale.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any regulations promulgated
thereunder.
(h) "Committee" shall have the meaning set forth in Section 3
hereof.
(i) "Company" shall mean ScreamingMedia Inc., a Delaware
corporation, and its successors.
(j) "Common Stock" shall mean the common stock of the Company, par
value $.01 per share.
(k) "Constructive Termination" shall mean, unless a Grantee is a
party to a written employment agreement with the Company or an
Affiliate which contains a definition of "constructive
termination," "termination for good reason" or any other
similar term or phrase, in which case "Constructive
Termination" shall have the meaning set forth in such
agreement: (i) a material reduction in the Grantee's
compensation, or (ii) relocation of the Grantee's primary
place of business more than 25 miles from the location in
effect as of the date of grant of the Award.
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<PAGE> 4
(l) "Disability" shall mean: (1) any physical or mental condition
that would qualify a Grantee for a disability benefit under
the long-term disability plan maintained by the Company and
applicable to him or her; (2) when used in connection with the
exercise of an Incentive Stock Option following termination of
employment, disability within the meaning of Section 22(e)(3)
of the Code, or (3) such other condition as may be determined
in the sole discretion of the Committee to constitute
Disability.
(m) "Effective Date" shall have the meaning set forth in Section
30.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(o) "Fair Market Value" of a share of the Common Stock for any
purpose on a particular date shall be determined in a manner
such as the Committee shall in good faith determine to be
appropriate; provided, however, that in the case of Incentive
Stock Options, the determination of Fair Market Value shall
be made by the Committee in good faith in conformance with the
Treasury Regulations under Section 422 of the Code; and
provided, further, that with respect to Awards granted on the
date of the consummation of the Initial Public Offering, the
"Fair Market Value" of a share of Common Stock on such date
shall be the initial price to the public as set forth in the
final prospectus included within the registration statement on
form S-1 filed with the Securities and Exchange Commission for
the Initial Public Offering.
(p) "Grant Date" shall mean the date on which the Committee
formally acts to grant an Award to a Grantee or such other
date as the Committee shall so designate at the time of taking
such formal action.
(q) "Grantee" shall mean a person granted an Award pursuant to the
Plan.
(r) "Incentive Stock Option" shall mean an Option that is an
"incentive stock option" within the meaning of Section 422 of
the Code, or any successor provision, and that is designated
by the Committee as an Incentive Stock Option.
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<PAGE> 5
(s) "Initial Public Offering" shall mean the initial public
offering of shares of Common Stock, as registered with the
Securities and Exchange Commission.
(t) "Issue Date" shall mean the date established by the Company on
which certificates representing shares of Restricted Stock
shall be issued by the Company pursuant to the terms of
Section 8(e).
(u) "Non-Qualified Stock Option" shall mean an Option other than
an Incentive Stock Option.
(v) "Option" shall mean an option to purchase shares of Common
Stock granted pursuant to Section 7.
(w) "Other Award" shall mean an award granted pursuant to Section
11 hereof.
(x) "Parent" shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of "parent
corporation" provided in Section 424(e) of the Code, or any
successor thereto of similar import.
(y) "Partial Exercise" shall mean an exercise of an Award for less
than the full extent permitted at the time of such exercise.
(z) "Performance Goals" shall mean performance goals determined by
the Committee in its sole discretion. Such goals may be based
on one or more or none of the following criteria: (1) pre-tax
income or after-tax income, (2) operating profit, (3) return
on equity, assets, capital or investment, (4) earnings or book
value per share, (5) sales or revenues, (6) operating
expenses, (7) Common Stock price appreciation; (8)
implementation or completion of critical projects or
processes; or (9) comparison of actual performance during a
performance period against budget for such period; (10) growth
of revenue, which growth may be expressed in terms of absolute
numbers and/or as a percentage increase; or (11) reductions in
expenses, which reductions may be expressed in terms of
absolute numbers and/or as a percentage decrease; provided
that with respect to clauses (10) and (11), such achievement
may be measured against budget for the same period.
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<PAGE> 6
Where applicable, the Performance Goals may be expressed in
terms of attaining a specified level of the particular
criteria or the attainment of a percentage increase or
decrease in the particular criteria, and may be applied to one
or more of the Company, a Subsidiary or Affiliate, or a
division or strategic business unit of the Company, or may be
applied to the performance of the Company relative to a market
index, a group of other companies or a combination thereof,
all as determined by the Committee. The Performance Goals may
include a threshold level of performance below which no
vesting will occur, levels of performance at which specified
vesting will occur, and a maximum level of performance at
which full vesting will occur. Each of the foregoing
Performance Goals shall be determined in accordance with
generally accepted accounting principles and shall be subject
to certification by the Committee; provided, however, that the
Committee shall have the authority to make equitable
adjustments to the Performance Goals in recognition of unusual
or non-recurring events affecting the Company or any
Subsidiary or Affiliate or the financial statements of the
Company or any Subsidiary or Affiliate in response to changes
in applicable laws or regulations, or to account for items of
gain, loss or expense determined to be extraordinary or
unusual in nature or infrequent in occurrence or related to
the disposal of a segment of a business or related to a change
in accounting principles.
(aa) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include: (1)
the Company or any of its subsidiaries; (2) a trustee or other
fiduciary holding securities under an employee benefit plan
of the Company or any of its Affiliates; (3) an underwriter
temporarily holding securities pursuant to an offering of such
securities; or (4) a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock
of the Company.
(ab) "Phantom Stock" shall mean the right, granted pursuant to
Section 9, to receive in cash or shares the Fair Market Value
of a share of Common Stock.
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<PAGE> 7
(ac) "Restricted Stock" shall mean a share of Common Stock which is
granted pursuant to the terms of Section 8 hereof and which is
subject to the restrictions set forth in Section 8(c).
(ad) "Retirement" shall mean termination of a Grantee's employment
or service, other than for Cause, on or after attainment of
age 65.
(ae) "Rule 16b-3" shall mean the Rule 16b-3 promulgated under the
Exchange Act, as amended from time to time.
(af) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
(ag) "Stock Bonus" shall mean a bonus payable in shares of Common
Stock granted pursuant to Section 10.
(ah) "Subsidiary" and "Subsidiaries" shall mean only a corporation
or corporations, whether now or hereafter existing, within the
meaning of the definition of "subsidiary corporation" provided
in Section 424(f) of the Code, or any successor thereto of
similar import.
(ai) "Vesting Date" shall mean the date established by the Board on
which a share of Restricted Stock or Phantom Stock may vest.
3. Administration of the Plan.
The Plan shall be administered by the Board; provided, however, that
the Board may establish one or more committees (the "Committee") which may, to
the extent set forth in the resolutions establishing such Committee or
Committees, be authorized to grant Awards to, and administer such Awards with
respect to, those Grantees who are subject to Section 16 of the Exchange Act
with respect to the Company ("Section 16 Grantees") or who are executive
officers of the Company. Any such Committee that is authorized to grant Awards
to Section 16 Grantees (a "Section 16 Committee") shall, to the extent necessary
to comply with Rule 16b-3 promulgated under the Exchange Act, be comprised of
two or more "non-employee directors" within the meaning of such Rule, and any
such Committee that is authorized to grant Awards to executive officers of the
Company (which may or may not be the same Committee as the Section 16 Committee)
shall, to the extent necessary to comply with Section 162(m) of the Code, be
comprised of two or more "outside
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<PAGE> 8
directors" within the meaning of such Section. In the event that the Board is
the administrator of the Plan in lieu of a Committee, the term "Committee" as
used herein shall be deemed to mean the Board. The Committee shall have the
authority in its sole discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards; to determine the persons to whom and
the time or times at which Awards shall be granted; to determine the type and
number of Awards to be granted, the number of shares of Common Stock to which an
Award may relate and the terms, conditions, restrictions and Performance Goals
relating to any Award; to determine whether, to what extent, and under what
circumstances an Award may be settled, cancelled, forfeited, exchanged, or
surrendered; to make adjustments in the Performance Goals in recognition of
unusual or non-recurring events affecting the Company or the financial
statements of the Company, or in response to changes in applicable laws,
regulations, or accounting principles; to construe and interpret the Plan and
any Award; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of Award Agreements; and to make all
other determinations deemed necessary or advisable for the administration of the
Plan.
The Committee may, in its absolute discretion, without amendment to the
Plan (a) accelerate the date on which any Option granted under the Plan becomes
exercisable; (b) waive or amend the operation of Plan provisions respecting
exercise after termination of employment or otherwise adjust any of the terms of
such Option; (c) accelerate the Vesting Date or Issue Date, or waive any
condition imposed hereunder, with respect to any share of Restricted Stock,
Phantom Stock or Other Award; or (d) otherwise adjust any of the terms
applicable to any such Award; provided, however.
No member of the Board or the Committee shall be liable for any action,
omission or determination relating to the Plan, and the Company shall indemnify
(to the extent permitted under Delaware law and the bylaws of the Company) and
hold harmless each member of the Board, the Committee and each other employee of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Board or the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in either case,
such action, omission or determination was
8
<PAGE> 9
taken or made by such director or employee in bad faith and without reasonable
belief that it was in the best interests of the Company.
4. Stock Subject to the Plan.
(a) Shares Available for Awards.
The maximum number of shares of Common Stock reserved for
issuance under the Plan shall be 4,000,000 shares (subject to
adjustment as provided herein). Following an Initial Public
Offering, the maximum number of shares of Common Stock that
may be made subject to Options with respect to any executive
officer of the Company with respect to any 12-month period
during the term of the Plan shall be 1,000,000. Such shares
may be authorized but unissued Common Stock or authorized and
issued Common Stock held in the Company's treasury. The
Committee may direct that any stock certificate evidencing
shares issued pursuant to the Plan shall bear a legend setting
forth such restrictions on transferability as may apply to
such shares pursuant to the Plan.
(b) Adjustment for Change in Capitalization.
In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash,
Common Stock, or other property), recapitalization, Common
Stock split, reverse Com mon Stock split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or
event, affects the Common Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the
rights of Grantees under the Plan, then the Committee shall
make such equitable changes or adjustments as it deems
necessary or appropriate to any or all of (1) the number and
kind of shares of Common Stock which may thereafter be issued
in connection with Awards, (2) the number and kind of shares
of Common Stock issued or issuable in respect of outstanding
Awards, (3) the exercise price, grant price or purchase price
relating to any Award, and (4) the maximum number of shares
subject to Awards which may be awarded to any employee during
any tax year of the Company; provided, however, that, with
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<PAGE> 10
respect to Incentive Stock Options, such adjustment shall be
made in accordance with Section 424 of the Code.
(c) Re-use of Shares.
Any shares of Common Stock subject to an Award that remain
unissued upon the cancellation, surrender, exchange or
termination of such award for any reason whatsoever; and any
shares of Restricted Stock forfeited shall again become
available for Awards.
5. Eligibility.
The persons who shall be eligible to receive Awards pursuant to the
Plan shall be such directors, officers, employees and consultants of the
Company, or any Affiliate of the Company, as may be selected by the Committee
from time to time.
6. Awards Under the Plan; Award Agreement.
The Committee may grant Options, shares of Restricted Stock, shares of
Phantom Stock, Stock Bonuses and Other Awards in such amounts and with such
terms and conditions as the Committee shall determine, subject to the provisions
of the Plan.
Each Award granted under the Plan (except an unconditional Stock Bonus)
shall be evidenced by an Award Agreement which shall contain such provisions as
the Committee may in its sole discretion deem necessary or desirable. By
accepting an Award, a Grantee thereby agrees that the award shall be subject to
all of the terms and provisions of the Plan and the applicable Award Agreement.
7. Options.
(a) Identification of Options.
Each Option shall be clearly identified in the applicable
Award Agreement as either an Incentive Stock Option or a
Non-Qualified Stock Option.
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<PAGE> 11
(b) Exercise Price.
Each Award Agreement with respect to an Option shall set forth
the amount (the "option exercise price") payable by the
Grantee to the Company upon exercise of the Option. The option
exercise price per share shall be determined by the Committee;
provided, however, that in the case of an Incentive Stock
Option, the option exercise price shall in no event be less
than the Fair Market Value of a share of Common Stock on the
Grant Date.
(c) Term and Exercise of Options.
(1) Unless earlier terminated pursuant to the provisions
of the Plan or Award Agreement, each Option shall
become vested in accordance with the vesting schedule
specified in the Award Agreement, which vesting
schedule shall be determined by the Committee in its
sole discretion. The Committee shall determine the
expiration date of each Option; provided, however,
that no Option shall be exercisable more than 10
years after the Grant Date.
(2) Notwithstanding the provisions of subsection (1)
above, the exercisability of Options granted pursuant
to this Section 7 may be subject to the attainment by
the Company of Performance Goals pre-established by
the Committee. The exercisability of Options (or
portions thereof) under this sub-section (2) shall
not be effective unless the attainment of such
Performance Goals has been certified by the
Committee.
(3) An Option may be exercised for all or any portion of
the shares as to which it is exercisable, provided
that no Partial Exercise of an Option shall be for
less than 100 shares of Common Stock. The Partial
Exercise of an Option shall not cause the expiration,
termination or cancellation of the remaining portion
thereof.
(4) An Option shall be exercised by delivering notice to
the Company's principal office, to the attention of
its Secretary. Such
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<PAGE> 12
notice shall be accompanied by the applicable Award
Agreement, shall specify the number of shares of
Common Stock with respect to which the Option is
being exercised and the effective date of the
proposed exercise and shall be signed by the Grantee
or other person then having the right to exercise the
Option. Payment for shares of Common Stock purchased
upon the exercise of an Option shall be made on the
effective date of such exercise by one or a
combination of the following means: (A) in cash (or
cash equivalents acceptable to the Committee); (B)
the surrender of previously acquired shares of Common
Stock having a Fair Market Value less than or equal
to the aggregate exercise price, which shares shall
have been held by the Grantee for at least six months
prior to the date of such surrender; (C) if so
determined by the Committee as of the Grant Date and
set forth in the applicable Award Agreement,
authorization for the Company to withhold a number of
shares otherwise payable pursuant to the exercise of
an Option having a Fair Market Value less than or
equal to the aggregate exercise price; or (D)
following an Initial Public Offering, if so
determined by the Committee prior to exercise,
through a "broker cashless exercise" procedure
established by the Company from time to time. The
Committee may, in its sole discretion, authorize the
Company to make or guarantee loans to Grantees to
assist Grantees in exercising Options. The Committee
shall have sole discretion to disapprove of an
election pursuant to any of clauses (B) - (D) and in
the case of a Grantee who is subject to Section 16 of
the Exchange Act, the Company may require that the
method of making such payment be in compliance with
Section 16 and the rules and regulations thereunder.
Any payment in shares of Common Stock shall be
effected by the delivery of such shares to the
Secretary of the Company, duly endorsed in blank or
accompanied by stock powers duly executed in blank,
together with any other documents and evidences as
the Secretary of the Company shall require.
(5) Certificates for shares of Common Stock purchased
upon the exercise of an Option shall be issued in the
name of the Grantee or other person entitled to
receive such shares, and
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<PAGE> 13
delivered to the Grantee or such other person as soon
as practicable following the effective date on which
the Option is exercised.
(d) Limitations on Incentive Stock Options.
(1) Incentive Stock Options shall only be granted to
employees of the Company, or a Parent or Subsidiary
of the Company.
(2) To the extent that the aggregate Fair Market Value of
shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first
time by a Grantee during any calendar year under the
Plan and any other stock option plan of the Company
shall exceed $100,000, such Options shall be treated
as Non-Qualified Stock Options. Such Fair Market
Value shall be determined as of the date on which
each such Incentive Stock Option is granted.
(3) No Incentive Stock Option may be granted to an
individual if, at the time of the proposed grant,
such individual owns (or is deemed to own under the
Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the
Company unless (A) the option exercise price of such
Incentive Stock Option is at least 110% of the Fair
Market Value of a share of Common Stock at the time
such Incentive Stock Option is granted and (B) such
Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive
Stock Option is granted.
(e) Tandem Awards Prohibited.
An Incentive Stock Option may not be granted in tandem with
any other Award in such a manner that the exercise of one
effects a Grantee's right under the other.
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<PAGE> 14
(f) Effect of Termination of Employment.
(1) Unless the applicable Award Agreement provides
otherwise, in the event that the employment of a
Grantee with the Company shall terminate for any
reason other than Cause, Retirement, Disability or
death, (A) Options granted to such Grantee, to the
extent that they are exercisable at the time of such
termination, shall remain exercisable until the date
that is 90 days after such termination, on which date
they shall expire, and (B) Options granted to such
Grantee, to the extent that they were not exercisable
at the time of such termination, shall expire at the
close of business on the date of such termination.
The 90-day period described in this Section 7(f)(1)
shall be extended to one year from the date of such
termination in the event of the Grantee's death
during such 90-day period. Notwithstanding the
foregoing, no Option shall be exercisable after the
expiration of its term.
(2) Unless the applicable Award Agreement provides
otherwise, in the event that the employment of a
Grantee with the Company shall terminate on account
of the Retirement, Disability or death of the
Grantee, (A) Options granted to such Grantee, to the
extent that they were exercisable at the time of such
termination, shall remain exercisable until the date
that is one year after such termination, on which
date they shall expire, and (B) Options granted to
such Grantee, to the extent that they were not
exercisable at the time of such termination, shall
expire at the close of business on the date of such
termination. Notwithstanding the foregoing, no Option
shall be exercisable after the expiration of its
term.
(3) Unless the applicable Award Agreement provides
otherwise, in the event of the termination of a
Grantee's employment for Cause, all outstanding
Options granted to such Grantee shall expire at the
commencement of business on the date of such
termination.
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<PAGE> 15
(g) Exercise Prior to Vesting.
The Committee may in its sole discretion provide at the time
of grant of any Option that the Grantee may elect at any time
during both (1) the term of such Option and (2) the period
during which such Grantee is employed by or providing services
to the Company or any of its Affiliates, that the Grantee may
exercise all or any portion of such Option, including the
unvested portion of such Option; provided, however, that: (A)
a Partial Exercise of such Option shall be deemed to cover
first vested shares and then the earliest vesting installment
of unvested shares; (B) any shares so purchased from
installments which have not vested as of the date of exercise
shall be subject to a repurchase option in favor of the
Company, the terms of which shall be set forth in the Award
Agreement evidencing such Option; (C) the Grantee shall enter
into a form of early exercise stock purchase agreement with a
vesting schedule that will result in the same vesting as if no
early exercise had occurred; and (D) if such Option is an
Incentive Stock Option, then, the maximum vesting provisions
of Section 7(d)(2) shall continue to apply with respect to
such shares.
(h) Restrictions on Transfer.
The Committee may in its sole discretion provide at the time
of grant of any Option that, upon its exercise, the shares of
Common Stock to be issued to the Grantee shall be subject to
such restrictions on transfer as the Committee may determine
are advisable.
8. Restricted Stock.
(a) Issue Date and Vesting Date.
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a
Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a
different Issue Date and/or Vesting Date for each class. If
the Grantee is employed by the Company on an Issue Date
(which may be the date of grant), the specified number of
shares of Restricted Stock shall be issued in accordance
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<PAGE> 16
with the provisions of Section 8(e). Provided that all
conditions to the vesting of a share of Restricted Stock
imposed pursuant to Section 8(b) are satisfied, and except as
provided in Section 8(g), upon the occurrence of the Vesting
Date with respect to a share of Restricted Stock, such share
shall vest and the restrictions of Section 8(c) shall lapse.
(b) Conditions to Vesting.
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions to the
vesting of such shares as it, in its absolute discretion,
deems appropriate.
(c) Restrictions on Transfer Prior to Vesting.
(1) Prior to the vesting of a share of Restricted Stock,
no transfer of a Grantee's rights with respect to
such share, whether voluntary or involuntary, by
operation of law or otherwise, shall be permitted.
Immediately upon any attempt to transfer such rights,
such share, and all of the rights related thereto,
shall be forfeited by the Grantee.
(2) Except as provided in the applicable award agreement
relating to the Restricted Stock, a Grantee granted
Restricted Stock will have (upon issuance of a stock
certificate with respect to the shares of Restricted
Stock) all the rights of a stockholder.
(d) Dividends on Restricted Stock.
The Committee in its discretion may require that any dividends
paid on shares of Restricted Stock be held in escrow until all
restrictions on such shares have lapsed.
(e) Issuance of Certificates.
(1) Reasonably promptly after the Issue Date with respect
to shares of Restricted Stock, the Company shall
cause to be issued a stock certificate, registered in
the name of the Grantee to whom such shares were
granted, evidencing such shares;
16
<PAGE> 17
provided that the Company shall not cause such a
stock certificate to be issued unless it has
received a stock power duly endorsed in blank with
respect to such shares. Each such stock certificate
shall bear the following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE
SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE
RESTRICTIONS, TERMS AND CONDITIONS (INCLUDING
FORFEITURE PROVISIONS AND RESTRICTIONS AGAINST
TRANSFER) CONTAINED IN THE SCREAMINGMEDIA INC. 2000
EQUITY INCENTIVE PLAN AND AN AWARD AGREEMENT ENTERED
INTO BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND
THE COMPANY. A COPY OF THE PLAN AND AWARD AGREEMENT
IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE
COMPANY, 601 WEST 26TH STREET, 13TH FLOOR, NEW YORK,
NEW YORK 10001.
Such legend shall not be removed until such shares
vest pursuant to the terms hereof.
(2) Each certificate issued pursuant to this Section
8(e), together with the stock powers relating to the
shares of Restricted Stock evidenced by such
certificate, shall be held by the Company unless the
Committee determines otherwise.
(f) Consequences of Vesting.
Upon the vesting of a share of Restricted Stock pursuant to
the terms hereof, the restrictions of Section 8(c) shall lapse
with respect to such share. Reasonably promptly after a share
of Restricted Stock vests, the Company shall cause to be
delivered to the Grantee to whom such shares were granted, a
certificate evidencing such share, free of the legend set
forth in Section 8(e).
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<PAGE> 18
(g) Effect of Termination of Employment.
Subject to such other provision as the Committee may set forth
in the applicable Award Agreement, and to the Committee's
amendment authority pursuant to Section 3, upon the
termination of a Grantee's employment for any reason, any and
all shares to which restrictions on transferability apply
shall be immediately forfeited by the Grantee and transferred
to, and reacquired by, the Company. In the event of a
forfeiture of shares pursuant to this Section 8(g), the
Company shall repay to the Grantee (or the Grantee's estate)
any amount paid by the Grantee for such shares. In the event
that the Company requires a return of shares, it shall also
have the right to require the return of all dividends paid on
such shares, whether by termination of any escrow arrangement
under which such dividends are held or otherwise.
(h) Special Provisions Regarding Restricted Stock.
Notwithstanding anything to the contrary contained herein,
Restricted Stock granted pursuant to this Section 8 may be
based on the attainment of Performance Goals. Such shares of
Restricted Stock shall be released from restrictions only
after the attainment of such Performance Goals has been
certified by the Committee.
9. Phantom Stock.
(a) Vesting Date.
At the time of the grant of shares of Phantom Stock, the
Committee shall establish a Vesting Date or Vesting Dates with
respect to such shares. The Committee may divide such shares
into classes and assign a different Vesting Date for each
class. Provided that all conditions to the vesting of a share
of Phantom Stock imposed pursuant to Section 9(c) are
satisfied, and except as provided in Section 9(d), upon the
occurrence of the Vesting Date with respect to a share of
Phantom Stock, such share shall vest.
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<PAGE> 19
(b) Benefit Upon Vesting.
Upon the vesting of a share of Phantom Stock, the Grantee
shall be entitled to receive, within 30 days of the date on
which such share vests, an amount, in cash or Common Stock, as
determined by the Committee, equal to the sum of (1) the Fair
Market Value of a share of Common Stock on the date on which
such share of Phantom Stock vests and (2) the aggregate amount
of cash dividends paid with respect to a share of Common
Stock during the period commencing on the date on which the
share of Phantom Stock was granted and terminating on the
date on which such share vests.
(c) Conditions to Vesting.
At the time of the grant of shares of Phantom Stock, the
Committee may impose such restrictions or conditions to the
vesting of such shares as it, in its absolute discretion,
deems appropriate.
(d) Effect of Termination of Employment.
Subject to such other provision as the Committee may set forth
in the applicable Award Agreement, and to the Committee's
amendment authority pursuant to Section 3, shares of Phantom
Stock that have not vested, together with any dividends
credited on such shares, shall be forfeited upon the Grantee's
termination of employment for any reason.
(e) Special Provisions Regarding Awards.
Notwithstanding anything to the contrary contained herein, the
vesting of Phantom Stock granted pursuant to this Section 9
may be based on the attainment by the Company of one or more
Performance Goals. No payment in respect of any such Phantom
Stock award will be paid until the attainment of the
respective performance measures have been certified by the
Committee.
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<PAGE> 20
10. Stock Bonuses.
In the event that the Committee grants a Stock Bonus, a certificate for
the shares of Common Stock comprising such Stock Bonus shall be issued in the
name of the Grantee to whom such grant was made and delivered to such Grantee as
soon as practicable after the date on which such Stock Bonus is payable.
11. Other Awards.
Other forms of Awards ("Other Awards") valued in whole or in part by
reference to, or otherwise based on, Common Stock may be granted either alone or
in addition to other Awards under the Plan. Subject to the provisions of the
Plan, the Committee shall have sole and complete authority to determine the
persons to whom and the time or times at which such Other Awards shall be
granted, the number of shares of Common Stock to be granted pursuant to such
Other Awards and all other conditions of such Other Awards.
12. Change in Control.
Upon the occurrence of a Change in Control, Awards granted hereunder
shall be assumed by any successor corporation or entity to the Company and
Grantees shall be entitled to receive upon exercise or vesting of any Award, as
the case may be, the same number and kind of stock, securities, cash, property,
or other consideration that each holder of a share of Common Stock was
otherwise entitled to receive in the transaction constituting a Change in
Control. In the event that any Award is not assumed in such transaction, then
any portion of such Award that is not yet vested and/or exercisable shall become
immediately vested and/or exercisable upon the occurrence of such Change in
Control.
In the event that, during the two-year period following a Change in
Control, the employment or service of a Grantee is terminated either (i) by the
Company or its successor without Cause or (ii) pursuant to a Constructive
Termination, then any portion of an Award granted hereunder held by such Grantee
that is not exercisable as of the effective date of such termination of
employment or service shall become immediately vested and/or exercisable as of
the effective date of such termination of employment and shall remain
exercisable in accordance with the applicable Award Agreement.
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<PAGE> 21
13. Rights as a Stockholder.
No person shall have any rights as a stockholder with respect to any
shares of Common Stock covered by or relating to any Award until the date of
issuance of a stock certificate with respect to such shares. Except as otherwise
expressly provided in Section 4(b), no adjustment to any Award shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
14. No Special Employment Rights; No Right to Award.
Nothing contained in the Plan or any Award Agreement shall confer upon
any Grantee any right with respect to the continuation of employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate employment or to increase or decrease the compensation of the Grantee.
No person shall have any claim or right to receive an Award hereunder.
The Board's granting of an Award to a Grantee at any time shall neither require
the Board to grant any other Award to such Grantee or other person at any time
or preclude the Board from making subsequent grants to such Grantee or any other
person.
15. Securities Matters.
(a) The Company shall be under no obligation to effect
the registration pursuant to the Securities Act of
any interests in the Plan or any shares of Common
Stock to be issued hereunder or to effect similar
compliance under any state laws. Notwithstanding
anything herein to the contrary, the Company shall
not be obligated to cause to be issued or delivered
any certificates evidencing shares of Common Stock
pursuant to the Plan unless and until the Company is
advised by its counsel that the issuance and delivery
of such certificates is in compliance with all
applicable laws, regulations of governmental
authority and the requirements of any securities
exchange on which shares of Common Stock are traded.
The Committee may require, as a condition of the
issuance and delivery of certificates evidencing
shares of Common Stock pursuant to the terms hereof,
that the recipient of such shares make such
agreements and representations, and that such
21
<PAGE> 22
certificates bear such legends, as the Committee, in
its sole discretion, deems necessary or desirable.
(b) The transfer of any shares of Common Stock hereunder
shall be effective only at such time as counsel to
the Company shall have determined that the issuance
and delivery of such shares is in compliance with all
applicable laws, regulations of governmental
authority and the requirements of any securities
exchange on which shares of Common Stock are traded.
The Committee may, in its sole discretion, defer the
effectiveness of any transfer of shares of Common
Stock hereunder in order to allow the issuance of
such shares to be made pursuant to registration or an
exemption from registration or other methods for
compliance available under federal or state
securities laws. The Committee shall inform the
Grantee in writing of its decision to defer the
effectiveness of a transfer. During the period of
such deferral in connection with the exercise of an
Option, the Grantee may, by written notice, withdraw
such exercise and obtain the refund of any amount
paid with respect thereto.
16. Withholding Taxes.
Whenever cash is to be paid pursuant to an Award, the Company shall
have the right to deduct therefrom an amount sufficient to satisfy any federal,
state and local withholding tax requirements related thereto. Whenever shares of
Common Stock are to be delivered pursuant to an Award, the Company shall have
the right to require the Grantee to remit to the Company in cash an amount
sufficient to satisfy any federal, state and local withholding tax requirements
related thereto. With the approval of the Committee, a Grantee may satisfy the
foregoing requirement by electing to have the Company withhold from delivery
shares of Common Stock having a value equal to the amount of tax to be withheld
or by agreeing to surrender to the Company shares of Common Stock owned by the
Grantee for at least six months having a value equal to the amount of tax to be
withheld. If shares are to be withheld by the Company for purposes of satisfying
withholding obligations, the number of shares to be so withheld shall be
calculated using the minimum statutory withholding rates for federal and state
tax purposes, including payroll taxes, that are applicable to any Award, its
exercise, or any payment or transfer in respect thereof. Such shares shall be
valued at their Fair Market Value on the date of which the amount of tax to be
withheld is determined. Fractional share amounts shall be settled in cash. Such
a withholding election may be made with respect to all or any portion
22
<PAGE> 23
of the shares to be delivered pursuant to an Award. The Committee may, in its
sole discretion, authorize the Company to make or guarantee loans to Grantees to
assist Grantees in satisfying such withholding obligation.
17. Notification of Election Under Section 83(b) of the Code.
If any Grantee shall, in connection with the acquisition of shares of
Common Stock under the Plan, make the election permitted under Section 83(b) of
the Code, such Grantee shall notify the Company of such election within 10 days
of filing notice of the election with the Internal Revenue Service.
18. Notification Upon Disqualifying Disposition Under Section 421(b) of the
Code.
Each Award Agreement with respect to an Incentive Stock Option shall
require the Grantee to notify the Company of any disposition of shares of Common
Stock issued pursuant to the exercise of such Option under the circumstances
described in Section 421(b) of the Code (relating to certain disqualifying
dispositions), within 10 days of such disposition.
19. Amendment or Termination of the Plan.
The Board may, at any time, suspend or terminate the Plan or revise or
amend it in any respect whatsoever; provided, however, that stockholder approval
shall be required if and to the extent the Board determines that such approval
is appropriate for purposes of satisfying applicable laws and regulations,
including but not limited to Sections 162(m) or 422 of the Code or Rule 16b-3.
Awards may be granted under the Plan prior to the receipt of such stockholder
approval but each such grant shall be subject in its entirety to such approval
and no award may be exercised, vested or otherwise satisfied prior to the
receipt of such approval. Nothing herein shall restrict the Board's ability to
exercise its discretionary authority pursuant to Section 3, which discretion may
be exercised without amendment to the Plan. No action hereunder may, without the
consent of a Grantee, reduce the Grantee's rights under any outstanding Award.
20. Transfers of Awards.
Except as otherwise determined by the Committee, and in any event in
the case of an Incentive Stock Option, no Award granted under the Plan shall be
transfer-
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<PAGE> 24
able by a Grantee otherwise than by will or the laws of descent and
distribution. Unless otherwise determined by the Committee in accord with the
provisions of the immediately preceding sentence, an Option may be exercised
during the lifetime of the Grantee, only by the Grantee or, during the period
the Grantee is under a legal disability, by the Grantee's guardian or legal
representative.
21. Expenses and Receipts.
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Award will be used for general
corporate purposes.
22. Failure to Comply.
In addition to the remedies of the Company elsewhere provided for
herein, failure by a Grantee (or beneficiary) to comply with any of the terms
and conditions of the Plan or the applicable Award Agreement, unless such
failure is remedied by such Grantee (or beneficiary) within 10 days after notice
of such failure by the Committee, shall be grounds for the cancellation and
forfeiture of such Award, in whole or in part, as the Committee, in its absolute
discretion, may determine.
23. Applicable Law.
Except to the extent preempted by any applicable federal law, the Plan
will be construed and administered in accordance with the laws of the State of
Delaware, without reference to its principles of conflicts of law.
24. Grantee Rights.
No Grantee shall have any claim to be granted any award under the Plan,
and there is no obligation for uniformity of treatment for Grantees. Except as
provided specifically herein, a Grantee or a transferee of an Award shall have
no rights as a stockholder with respect to any shares covered by any award until
the date of the issuance of a Common Stock certificate to him or her for such
shares.
25. Unfunded Status of Awards.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a Grantee
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<PAGE> 25
pursuant to an Award, nothing contained in the Plan or any Award Agreement shall
give any such Grantee any rights that are greater than those of a general
creditor of the Company.
26. No Fractional Shares.
No fractional shares of Common Stock shall be issued or delivered
pursuant to the Plan. The Board shall determine whether cash, other Awards, or
other property shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.
27. Beneficiary.
A Grantee may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Grantee, the executor or administrator of the Grantee's estate
shall be deemed to be the grantee's beneficiary.
28. Interpretation.
The Plan is designed and intended to comply with Rule 16b-3 and, to the
extent applicable, with Section 162(m) of the Code, and all provisions hereof
shall be construed in a manner to so comply.
29. Severability.
If any provision of the Plan is held to be invalid or unenforceable,
the other provisions of the Plan shall not be affected but shall be applied as
if the invalid or unenforceable provision had not been included in the Plan.
30. Effective Date and Term of Plan.
The Plan is effective as of the date on which the Plan is approved by
the Board, or such other date as the Board may specify as the effective date,
subject to approval of the stockholders within twelve months before or after
such date. No Award shall be granted under the Plan after the close of business
on the day immediately preceding the tenth anniversary of the effective date of
the Plan. Subject to other applicable provisions of the Plan, all Awards made
under the Plan prior to such
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<PAGE> 26
termination of the Plan shall remain in effect until such Awards have been
satisfied or terminated in accordance with the Plan and the terms of such
Awards.
Date Approved by the Board: March __, 2000.
Date Approved by the Shareholders: March __, 2000.
26
<PAGE> 1
EXHIBIT 10.15
SCREAMINGMEDIA INC.
MANAGEMENT INCENTIVE PLAN
1. Purpose.
The purpose of the ScreamingMedia Inc. Management Incentive
Plan is to reinforce corporate, organizational and business-development goals;
to promote the achievement of year-to-year and long-range financial and other
business objectives; and to reward the performance of individual officers and
other key employees in fulfilling their personal responsibilities for long-range
achievements.
2. Definitions.
The following terms, as used herein, shall have the following
meanings:
(a) "Affiliate" shall mean any entity, whether now or hereafter
existing, that controls, is controlled by, or is under common
control with, the Company (including, but not limited to,
joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean
ownership of 50% or more of the voting power of the entity.
(b) "Annual Base Salary" shall mean the base salary paid to a
Participant during any Performance Period.
(c) "Award" shall mean an annual incentive compensation award,
granted pursuant to the Plan, which is contingent upon the
attainment of Performance Goals with respect to a Performance
Period.
(d) "Award Agreement" shall mean any written agreement, contract,
or other instrument or document between the Company and a
Participant evidencing an Award.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall
have occurred: (i) any Person is or becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company (not
including in the securities Beneficially Owned by such Person
<PAGE> 2
any securities acquired directly from the Company)
representing 25% or more of the voting power of the Company's
then outstanding securities, excluding any Person who becomes
such a Beneficial Owner in connection with a transaction
described in clause (1) of paragraph (iii) below; (ii) the
following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on the Effective Date, constitute the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for
election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on
the Effective Date or whose appointment, election or
nomination for election was previously so approved or
recommended; (iii) there is consummated a merger or
consolidation of the Company with any other corporation other
than (1) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent
thereof) at least 50% of the combined voting power of the
voting securities of the Company or such surviving entity or
any parent thereof outstanding immediately after such merger
or consolidation, or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities Beneficially Owned by such
Person any securities acquired directly from the Company)
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or (iv) the
stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity at
least 50% of the combined voting power of the voting
securities of which are owned by Persons in substantially the
same proportions as their ownership of the Company immediately
prior to such sale.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
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<PAGE> 3
(h) "Committee" shall mean the Compensation Committee of the
Board.
(i) "Common Stock" shall mean shares of common stock, par value
$.01 per share, of the Company.
(j) "Company" shall mean ScreamingMedia Inc. and its successors.
(k) "Covered Employee" shall have the meaning set forth in Section
162(m)(3) of the Code.
(l) "Effective Date" shall have the meaning set forth in Section
6(l).
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(n) "Executive Officer" shall mean those employees of the Company
who are its executive officers for purposes of Section 16 of
the Exchange Act.
(o) "Participant" shall mean an officer or other key employee of
the Company who is, pursuant to Section 4 of the Plan,
selected to participate herein.
(p) "Performance Goals" shall mean performance goals determined by
the Committee in its sole discretion. Such goals may be based
on one or more or none of the following criteria: (i) pre-tax
income or after-tax income, (ii) operating profit, (iii)
return on equity, assets, capital or investment, (iv) earnings
or book value per share, (v) sales or revenues, (vi) operating
expenses, (vii) Common Stock price appreciation; (viii)
implementation or completion of critical projects or
processes; (ix) comparison of actual performance during a
performance period against budget for such period; (x) growth
of revenue, which growth may be expressed in terms of absolute
numbers and/or as a percentage increase; or (xi) reductions in
expenses, which reductions may be expressed in terms of
absolute numbers and/or as a percentage decrease; provided
that with respect to clauses (x) and (xi), such achievement
may be measured against budget for the same period. Where
applicable, the Performance Goals may be expressed in terms of
attaining a specified level of the particular criteria or the
attainment of a percentage increase or decrease in the
particular criteria, and may be applied to one or more of the
Company, a Subsidiary or Affiliate, or a division or strategic
business unit of the Company, or may be applied
3
<PAGE> 4
to the performance of the Company relative to a market index,
a group of other companies or a combination thereof, all as
determined by the Committee. The Performance Goals may include
a threshold level of performance below which no vesting will
occur, levels of performance at which specified vesting will
occur, and a maximum level of performance at which full
vesting will occur. Each of the foregoing Performance Goals
shall be determined in accordance with generally accepted
accounting principles and shall be subject to certification by
the Committee; provided, however, that the Committee shall
have the authority to make equitable adjustments to the
Performance Goals in recognition of unusual or non-recurring
events affecting the Company or any Subsidiary or Affiliate or
the financial statements of the Company or any Subsidiary or
Affiliate in response to changes in applicable laws or
regulations, or to account for items of gain, loss or expense
determined to be extraordinary or unusual in nature or
infrequent in occurrence or related to the disposal of a
segment of a business or related to a change in accounting
principles.
(q) "Performance Period" shall mean the Company's fiscal year or
such other period as the Committee shall determine in its sole
discretion.
(r) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock
of the Company.
(s) "Plan" shall mean the ScreamingMedia Inc. Management Incentive
Plan, as amended from time to time.
(t) "Subsidiary" shall mean only a corporation or corporations,
whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section
424(f) of the Code, or any successor thereto of similar
import.
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<PAGE> 5
3. Administration.
The Plan shall be administered by the Committee. The Committee
shall have the authority in its sole discretion, subject to and not inconsistent
with the express provisions of the Plan, to administer the Plan and to exercise
all the powers and authorities either specifically granted to it under the Plan
or necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards; to determine the persons to whom and
the time or times at which Awards shall be granted; to determine the terms,
conditions, restrictions and performance criteria, including Performance Goals,
relating to any Award; to determine whether, to what extent, and under what
circumstances an Award may be settled, cancelled, forfeited, or surrendered; to
make adjustments in the Performance Goals in recognition of unusual or
non-recurring events affecting the Company or the financial statements of the
Company, or in response to changes in applicable laws, regulations, or
accounting principles; to construe and interpret the Plan and any Award; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of Award Agreements; and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee shall consist of two or more persons, each of
whom shall be an "outside director" within the meaning of Section 162(m) of the
Code. The Committee may appoint a chairperson and a secretary and may make such
rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, the Participant (or any person claiming any rights under
the Plan from or through any Participant) and any shareholder.
No member of the Board or the Committee shall be liable for
any action taken or determination made in good faith with respect to the Plan or
any Award granted hereunder.
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4. Eligibility.
Awards may be granted to officers and other key employees of
the Company selected by the Committee in its sole discretion. Subject to Section
5, in determining the persons to whom Awards shall be granted and the
Performance Goals relating to each Award, the Committee shall take into account
such factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan.
5. Terms of Awards.
Awards granted pursuant to the Plan shall be evidenced by an
Award Agreement in such form as the Committee shall from time to time approve.
(a) In General. The Committee shall specify with respect
to a Performance Period the Performance Goals applicable to each Award and
minimum, target and maximum levels applicable to each Performance Goal. The
minimum level reflects the level of performance at which 80% of the performance
goal is achieved and below which no payment shall be made; the target level
reflects the level of performance at which 100% of the Performance Goal is
achieved; and the maximum level reflects the level of performance at which 150%
of the Performance Goal is achieved. Awards for any Performance Period may be
expressed as a dollar amount or as a percentage of the Participant's Annual Base
Salary. Unless otherwise provided by the Committee in connection with specified
terminations of employment, or except as set forth in Section 6(f), payment in
respect of Awards shall be made only if and to the extent the Performance Goals
with respect to such Performance Period are attained.
(b) Special Provisions Regarding Awards. Notwithstanding
anything to the contrary contained in this Section 5, in no event shall payment
in respect of Awards granted for a Performance Period be made to a Participant
who is a Covered Employee in an amount that exceeds 150% of such Participant's
Annual Base Salary.
(c) Time and Form of Payment. Unless otherwise determined
by the Committee, all payments in respect of Awards granted under this Plan
shall be made, in cash, within a reasonable period after the end of the
Performance Period; provided, however, that in order to receive such payment, a
Participant must be employed by the Company or one of its Affiliates on the day
such payment is to be made. In addition, in the case of Participants who are
Covered Employees, unless otherwise determined by the Committee, such payments
shall be made only after achievement of the Performance Goals has been certified
by the Committee.
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<PAGE> 7
6.General Provisions.
(a) Compliance With Legal Requirements. The Plan and the
granting and payment of Awards, and the other obligations of the Company under
the Plan and any Award Agreement or other agreement shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required.
(b) Nontransferability. Awards shall not be transferable
by a Participant except by will or the laws of descent and distribution.
(c) No Right to Continued Employment. Nothing in the Plan
or in any Award granted or any Award Agreement or other agreement entered into
pursuant hereto shall confer upon any Participant the right to continue in the
employ of the Company or to be entitled to any remuneration or benefits not set
forth in the Plan or such Award Agreement or other agreement or to interfere
with or limit in any way the right of the Company to terminate such
Participant's employment.
(d) Withholding Taxes. The Company shall have the right
to withhold the amount of any taxes that the Company may be required to withhold
before delivery of payment of an Award to the Participant or other person
entitled to such payment, or to make such other arrangements for the withholding
of taxes that the Company deems satisfactory.
(e) Amendment, Termination and Duration of the Plan. The
Board or the Committee may at any time and from time to time alter, amend,
suspend, or terminate the Plan in whole or in part; provided, however, that, no
amendment that requires shareholder approval in order for the Plan to continue
to comply with Section 162(m) of the Code shall be effective unless the same
shall be approved by the requisite vote of the shareholders of the Company.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights of any Participant, without such Participant's consent, under any Award
theretofore granted under the Plan.
(f) Change in Control. Notwithstanding any other
provision of the Plan to the contrary, if, while any Awards remain outstanding
under the Plan, a Change in Control shall occur, the Performance Period
outstanding at the time of such Change in Control shall be deemed to have been
completed, the maximum level of performance set forth under the respective
Performance Goals shall be deemed to have been attained and a
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<PAGE> 8
pro rata portion (based on the number of full and partial months that have
elapsed with respect to each Performance Period) of each outstanding Award
granted to each Participant for the outstanding Performance Period shall become
payable in cash to each Participant within ten business days following such
change in control, regardless of whether such Participant is employed by the
Company or any successor or affiliate as of such date.
(g) Participant Rights. No Participant shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment among Participants.
(h) Unfunded Status of Awards. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company.
(i) Governing Law. The Plan and all determinations made
and actions taken pursuant hereto shall be governed by the laws of the State of
Delaware without giving effect to the conflict of laws principles thereof.
(j) Beneficiary. A Participant may file with the
Committee a written designation of a beneficiary on such form as may be
prescribed by the Committee and may, from time to time, amend or revoke such
designation. If no designated beneficiary survives the Participant, the executor
or administrator of the Participant's estate shall be deemed to be the grantee's
beneficiary.
(k) Interpretation. The Plan is designed and intended to
comply, to the extent applicable, with Section 162(m) of the Code, and all
provisions hereof shall be construed in a manner to so comply.
(l) Effective Date. The Plan shall take effect upon its
adoption by the Board.
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<PAGE> 1
EXHIBIT 10.18
SCREAMINGMEDIA INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The ScreamingMedia Inc. Employee Stock Purchase Plan (the
"Plan") is being established for the benefit of employees of ScreamingMedia
Inc., a Delaware corporation (the "Company"), and its Designated Subsidiaries.
The Plan is intended to provide the employees of each Employer with an
opportunity to purchase common shares, par value $.01 per share, of the Company
(the "Shares"). It is the intention of the Company that the Plan qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Code,
and the provisions of the Plan shall be construed in a manner consistent with
the requirements of such Section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change in Capitalization" shall mean any increase,
reduction, or change or exchange of Shares for a different number or kind of
shares or other securities of the Company by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, share dividend, share
split or reverse share split, combination or exchange of shares, repurchase of
Shares, change in corporate structure or otherwise.
(c) "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(i) any Person is or becomes the "Beneficial Owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
(not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company) representing 25% or more of the
voting power of the Company's then outstanding securities, excluding any Person
who becomes such a Beneficial Owner in connection with a transaction described
in clause (1) of paragraph (iii) below; (ii) the following individuals cease for
any reason to constitute a majority of the number of directors then serving:
individuals who, on the Effective Date, constitute the Board and any new
director (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board or nomination for election
by the Company's stockholders was approved or recommended by a vote of at least
two-
<PAGE> 2
thirds (2/3) of the directors then still in office who either were directors on
the Effective Date or whose appointment, election or nomination for election was
previously so approved or recommended; (iii) there is consummated a merger or
consolidation of the Company with any other corporation other than (1) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) at least 50% of the
combined voting power of the voting securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger or
consolidation, or (2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the Beneficial Owner, directly or indirectly, of securities of the
Company (not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company) representing 25% or more of the
combined voting power of the Company's then outstanding securities; or (iv) the
stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or substantially all of
the Company's assets to an entity at least 50% of the combined voting power of
the voting securities of which are owned by Persons in substantially the same
proportions as their ownership of the Company immediately prior to such sale.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(e) "Committee" shall mean the Compensation Committee or any
other committee of members of the Board appointed by the Board to administer the
Plan and to perform the functions set forth herein.
(f) "Company" shall mean ScreamingMedia Inc., a Delaware
corporation, and its successors.
(g) "Compensation" shall mean the fixed salary, wages, com
missions, overtime pay and bonuses paid by an Employer to an Employee as
reported by the Employer to the United States government for Federal income tax
purposes, including an Employee's portion of compensation deferral contributions
pursuant to Section 401(k) of the Code, any amount excludable pursuant to
Section 125 of the Code and/or any non-qualified compensation deferral, but
excluding any
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<PAGE> 3
foreign service allowance, commissions, severance pay, expense
reimbursement or any credit or benefit under any employee plan maintained by the
Employer.
(h) "Continuous Status as an Employee" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Employee's Employer, if such leave is for a
continuous period of not more than one year or re-employment upon the expiration
of such leave is guaranteed by contract or statute.
(i) "Designated Subsidiaries" shall mean the subsidiaries of
the Company which have been designated by the Board from time to time in its
sole discretion as eligible to participate in the Plan, which may include
corporations which become subsidiaries of the Company after the adoption of the
Plan.
(j) "Effective Date" shall have the meaning set forth in
Section 23.
(k) "Employee" shall mean any person, including an officer,
who as of an Offering Date has been regularly employed by the Company, a wholly
owned Subsidiary of the Company or a Designated Subsidiary of the Company for at
least six months and works more than 20 hours per week; provided, however, that
any individual who is employed on a full-time basis as of the first Offering
Date under the Plan shall be entitled to participate in the first Offering
Period under the Plan.
(l) "Employer" shall mean, as to any particular Employee, the
corporation which employs such Employee, whether it is the Company, a wholly
owned Subsidiary of the Company or a Designated Subsidiary of the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(n) "Exercise Date" shall mean the last business day of each
Purchase Period, except as the Committee may otherwise provide.
(o) "Fair Market Value" per Share as of a particular date
shall mean (i) the closing sales price per Share on such date, as reported by
the Composite Transactions reporting system or if not so reported, as reported
by the New York
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Stock Exchange or (ii) in the event the Shares are not traded on such date, the
closing price per Share, as so reported in the immediately preceding date on
which trading occurred, or if not so reported, as reported by any national
securities exchange on which the Shares are listed; provided, however, that for
purposes of the first offering Period, the "Fair Market Value" of a Share on the
first Offering Date shall be the initial price to the public as set forth in the
final prospectus included within the registration statement on form S-1 filed
with the Securities and Exchange Commission for the initial public offering of
Shares.
(p) "Offering Date" shall mean the first Trading Day of each
Offering Period of the Plan, except with respect to the Offering Date coinciding
with the Company's initial public offering, in which case "Offering Date" shall
mean the date the Company's registration statement filed in connection with the
initial public offering is declared effective by the Securities and Exchange
Commission. The Offering Date of an Offering Period is the grant date for the
options offered in such Offering Period.
(q) "Offering Period" shall mean a period as described in
Section 4 hereof.
(r) "Parent" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of granting an option, each of the corporations other than the Company owns
shares possessing 50% or more of the total combined voting power of all classes
of shares in one of the other corporations in such chain.
(s) "Participant" shall mean an Employee who participates in
the Plan.
(t) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
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<PAGE> 5
(u) "Plan" shall mean the ScreamingMedia Inc. Employee Stock
Purchase Plan, as amended from time to time.
(v) "Plan Year" shall mean the calendar year, except that the
first Plan Year shall begin the date the Company's registration statement filed
in connection with the initial public offering is declared effective by the
Securities and Exchange Commission and shall end on the December 31 of the year
following the Plan Year in which the initial public offering of the Shares
occurs.
(w) "Purchase Period" shall mean each approximately six-month
period, within an Offering Period, commencing on the Trading Day next following
the last previous Exercise Date in such Offering Period and ending with the next
Exercise Date in such Offering Period, except that the first Purchase Period of
any Offering Period shall commence on the first Trading Day of such Offering
Period and end with the next Exercise Date.
(x) "Shares" shall mean shares of the common stock, par value
$.01 per share, of the Company.
(y) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting an option, each of the corporations other than the last
corporation in the unbroken chain owns shares possessing 50% or more of the
total combined voting power of all classes of shares in one of the other
corporations in such chain.
(z) "Trading Day" shall mean a day on which national stock
exchanges and the NASDAQ system are open for trading.
(aa) "Year of Service" shall mean each successive period of
twelve consecutive months (from an Employee's original employment date) during
which the Employee's hours of employment are 1,000 hours or more.
3. Eligibility.
(a) Subject to the requirements of Section 3(b) hereof, any
person who is an Employee as of an Offering Date shall be eligible to
participate in the Plan and be granted an option for the Offering Period
commencing on such Offering Date.
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<PAGE> 6
(b) Notwithstanding any provisions of the Plan to the
contrary, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose shares
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own shares and/or hold outstanding options to purchase shares possessing
five percent or more of the total combined voting power or value of all classes
of shares of the Company or of any Subsidiary or Parent of the Company, or (ii)
which permits such Employee's right to purchase shares under all employee stock
purchase plans (as described in Section 423 of the Code) of the Company and any
Subsidiary or Parent of the Company to accrue at a rate which exceeds $25,000 of
Fair Market Value of such shares (determined at the time such option is granted)
for any calendar year in which such option would be outstanding at any time. Any
amounts received from an Employee which cannot be used to purchase Shares as a
result of this limitation will be returned as soon as possible to the Employee
without interest.
4. Offering Periods. The Plan shall be implemented by a series of
consecutive, overlapping Offering Periods. The first such Offering Period shall
commence on the first Trading Day on or after the date on which the Securities
and Exchange commission declares the Company's registration statement on form
S-1 to be effective and ending on the last Trading Day on or before December 31,
2001. Unless otherwise determined by the Committee, each subsequent Offering
Period shall have a duration of two years, commencing on the first Trading Day
on or after January 1 and June 1 of each year. The Plan shall continue until
terminated in accordance with Section 19 hereof. Subject to Section 19 hereof,
the Committee shall have the power to change the duration and/or the frequency
of Offering Periods and/or Purchase Periods with respect to future offerings and
shall use its best efforts to notify Employees of any such change at least 15
days prior to the scheduled beginning of the first Offering Period to be
affected. In no event shall any option granted hereunder be exercisable more
than 27 months from its date of grant.
To the extent permitted by any applicable laws, regulations, or stock
exchange rules, if the Fair Market Value of the Shares on any Exercise Date in
an Offering Period is lower than the Fair Market Value of the Shares on the
Offering Date of such Offering Period, then all Participants in such Offering
Period shall be automatically withdrawn from such Offering Period immediately
after the exercise of their option on such Exercise Date and automatically
re-enrolled in the immediately following Offering Period as of the first day
thereof.
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<PAGE> 7
5. Grant of Option; Participation; Price.
(a) On each Offering Date the Company shall commence an
offering by granting each eligible Employee an option to purchase Shares,
subject to the limitations set forth in Sections 3(b) and 11 hereof. Each option
so granted shall be exercisable for the number of Shares described in Section 8
hereof and shall be exercisable only on the Exercise Date.
(b) Each eligible Employee may elect to become a Participant
in the Plan with respect to an Offering Period, by filing a subscription
agreement with his or her Employer authorizing payroll deductions in accordance
with Section 6 hereof and filing it with the Company or the Employer in
accordance with the form's instructions at least ten business days prior to the
applicable Offering Date, unless a later time for filing the subscription
agreement is set by the Committee for all Employees with respect to a given
offering. Such authorization will remain in effect for subsequent Offering
Periods, until modified or terminated by the Participant by giving written
notice to his or her Employer prior to the next occurring Exercise Date.
Additionally, a Participant may participate to a greater extent by authorizing
reinvest ment of dividends on the Shares held in his or her account (by giving
written notice to the Company) or by making cash payments to be credited to his
or her account under the Plan in accordance with Section 6 hereof.
(c) The option price per Share subject to an offering shall be
85% of the Fair Market Value of a Share on (i) the Offering Date or (ii) the
Exercise Date, whichever is lower.
6. Payroll Deductions and Cash Payments.
(a) Subject to Section 5(b) hereof, a Participant may, in
accordance with rules and procedures adopted by the Committee, authorize a
payroll deduction of any whole percentage from 1 percent to 15 percent of such
Participant's Compensation each pay period (the permissible range within such
percentages to be determined by the Committee from time to time). A Participant
may increase or decrease such payroll deduction (including a cessation of
payroll deductions) at any time but not more frequently than once each Offering
Period, by filing a new authorization form with his or her Employer. All
payroll deductions made by a Participant shall be credited to such Participant's
account under the Plan.
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<PAGE> 8
(b) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
Participant's payroll deductions may be decreased to 0% at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such Participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the Participant as provided in Section 9 hereof.
(c) A Participant may withdraw from the Plan as provided in
Section 9, which will terminate his or her payroll deductions for the Purchase
Period in which such withdrawal occurs. A Participant may increase or decrease
the rate of his or her payroll deductions during an Offering Period by
completing and filing with the Employer a new subscription agreement authorizing
a change in payroll deduction rate. The Committee may, in its discretion, limit
the number of rate changes by a Participant during an Offering Period. A change
in rate shall be effective as of the next payroll period following the date of
filing of the new subscription agreement.
7. Exercise of Option.
(a) Unless a Participant withdraws from the Plan as provided
in Section 9 hereof, or unless the Committee otherwise provides, such
Participant's election to purchase Shares shall be exercised automatically on
the Exercise Date, and the maximum number of Shares (including any fractional
Share) subject to such option will be purchased for such Participant at the
applicable option price with (i) the accumulated payroll deductions, (ii) cash
dividends paid on Shares which have been credited to the Participant's account
under the Plan pursuant to Section 10 hereof, and (iii) any additional cash
payments made by the Participant and credited to the Participant's account
under the Plan in accordance with Section 6 hereof.
(b) Any cash balance remaining in a Participant's account
after the termination of an Offering Period will be carried forward to the
Participant's account for the purchase of Shares during the next Offering Period
if the Participant has elected to continue to participate in the Plan. Otherwise
the Participant will receive a cash payment equal to the cash balance of his or
her account.
(c) The Shares purchased upon exercise of an option hereunder
shall be credited to the Participant's account under the Plan as of the Exercise
Date and shall be deemed to be transferred to the Participant on such date
(except that no Shares purchased during the first Offering Period hereunder
shall be credited to the
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<PAGE> 9
Participant's account until payment of the aggregate option price has been
completed within the Offering Period). Except as otherwise provided herein, the
Participant shall have all rights of a shareholder with respect to such Shares
upon their being credited to the Participant's account.
8. Delivery of Shares.
(a) As promptly as practicable after receipt by the Company of
a written request for withdrawal of Shares from any Participant, the Company
shall arrange the delivery to such Participant of a share certificate
representing the Shares in the Participant's account which the Participant
requests to withdraw (any fractional Share being paid in cash). Subject to
Section 8(b) hereof, withdrawals may be made no more frequently than once each
Offering Period. Shares received upon share dividends or share splits shall be
treated as having been purchased on the Exercise Date of the Shares to which
they relate.
(b) Notwithstanding anything in Section 8(a) hereof to the
contrary, Shares may be withdrawn by a Participant more than once during an
Offering Period under the following circumstances: (i) within 60 days following
a Change in Control of the Company or (ii) upon the approval of the Committee,
in its sole discretion.
9. Withdrawal; Termination of Employment.
(a) A Participant may withdraw at any time all, but not less
than all, cash amounts in his or her account under the Plan that have not been
used to purchase Shares (including, without limitation, the payroll deductions,
cash dividends and cash payments credited to such Participant's account) by
giving written notice to the Company prior to the next occurring Exercise Date.
All such payroll deductions, cash dividends and cash payments credited to such
Participant's account shall be paid to such Participant promptly after receipt
of such Participant's notice of withdrawal and such Participant's option for the
Offering Period in which the withdrawal occurs shall be automatically
terminated. No further payroll deductions for the purchase of Shares will be
made for such Participant during such Offering Period, and any additional cash
dividends during the Offering Period shall be distributed to the Participant.
(b) Upon termination of a Participant's Continuous Status as
an Employee during the Offering Period for any reason, including voluntary
termination, retirement or death, the payroll deductions, cash dividends and
cash payments
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<PAGE> 10
credited to such Participant's account that have not been used to purchase
Shares (and, as to the first Offering Period, any such amounts credited to the
account for partial payment for Shares as to which payment has not been
completed) shall be returned (and any future cash dividends shall be
distributed) to such Participant or, in the case of such Participant's death, to
the person or persons entitled thereto under Section 13 hereof, and such
Participant's option will be automatically terminated.
(c) A Participant's withdrawal from an offering will not have
any effect upon such Participant's eligibility to participate in a succeeding
offering or in any similar plan which may hereafter be adopted by the Company.
10. Dividends and Interest.
(a) Cash dividends paid on Shares held in a Participant's
account shall be credited to such Participant's account and used in addition to
payroll deductions (and cash contributions, if any) to purchase Shares on the
Exercise Date. Dividends paid in Shares or share splits of the Shares shall be
credited to the accounts of Participants. Dividends paid in property other than
cash or Shares shall be distributed to Participants as soon as practicable.
(b) No interest shall accrue on or be payable with respect to
the payroll deductions or credited cash dividends of a Participant in the Plan.
11. Shares.
(a) Subject to adjustment as provided in Section 17 hereof,
the maximum number of Shares which shall be reserved for sale under the Plan
shall be 450,000 Shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2001 equal to the lesser of (i) 200,000
Shares, (ii) 0.5% of the Shares outstanding on such date or (iii) a lesser
amount determined by the Commit tee. Such Shares shall be either authorized and
unissued Shares or Shares which have been reacquired by the Company. If the
total number of Shares which would other wise be subject to options granted
pursuant to Section 5(a) hereof on an Offering Date exceeds the number of Shares
then available under the Plan (after deduction of all Shares for which options
have been exercised or are then outstanding), the Committee shall make a pro
rata allocation of the Shares remaining available for option grant in as uniform
a manner as shall be practicable and as it shall determine to be equitable. In
such event, the Committee shall give written
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notice to each Participant of such reduction of the number of option Shares
affected thereby and shall similarly reduce the rate of payroll deductions, if
necessary.
(b) Shares to be delivered to a Participant under the Plan
will be registered in the name of the Participant or, at the election of the
Participant, in the name of the Participant and another person as joint tenants
with rights of survivorship.
12. Administration. The Plan shall be administered by the
Committee, and the Committee may select administrator(s) to whom its duties and
responsibilities hereunder may be delegated. The Committee shall have full power
and authority, subject to the provisions of the Plan, to promulgate such rules
and regulations as it deems necessary for the proper administration of the Plan,
to interpret the provisions and supervise the administration of the Plan, and to
take all action in connection therewith or in relation thereto as it deems
necessary or advisable. Any decision reduced to writing and signed by a majority
of the members of the Committee shall be fully effective as if it had been made
at a meeting duly held. Except as otherwise provided by the Committee, each
Employer shall be charged with all expenses incurred in the administration of
the Plan with respect to such Employer's Employees. No member of the Committee
shall be personally liable for any action, determination, or interpretation made
in good faith with respect to the Plan, and all members of the Committee shall
be fully indemnified by the Company with respect to any such action,
determination or interpretation. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, the Participant (or any person claiming any rights under
the Plan from or through any Participant) and any shareholder.
13. Designation of Beneficiary.
(a) A Participant may file with the Company, on forms supplied
by the Company, a written designation of a beneficiary who is to receive any
Shares and cash remaining in such Participant's account under the Plan in the
event of the Participant's death.
(b) Such designation of beneficiary may be changed by the
Participant at any time by written notice to the Company, on forms supplied by
the Company. In the event of the death of a Participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver such Shares and/or cash to the
executor or adminis-
11
<PAGE> 12
trator of the estate of the Participant or, if no such executor or administrator
has been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such Shares and/or cash to the spouse or to any one or
more dependents or relatives of the Participant in accordance with the
applicable laws of descent and distribution, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
14. Transferability. Neither payroll deductions, dividends,
dividend reinvestments or cash payments credited to a Participant's account nor
any rights with regard to the exercise of an option or to receive Shares under
the Plan may be assigned, transferred, pledged or otherwise disposed of in any
way by the Participant (other than by will, the laws of descent and distribution
or as provided in Section 13 hereof). Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with Section 9
hereof.
15. Use of Funds. All payroll deductions, dividends, reinvested
dividends and additional cash payments received or held by the Company under the
Plan may be used by the Company for any corporate purpose, and the Company shall
not be obligated to segregate such funds.
16. Reports. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to Participants as
soon as practicable following each Offering Period, which statements will set
forth the amounts of payroll deductions, dividends, dividend reinvestments and
additional cash payments, the per Share purchase price, the number of Shares
purchased, the aggregate Shares in the Participant's account and the remaining
cash balance, if any.
17. Effect of Certain Changes. In the event of a Change in
Capitalization or the distribution of an extraordinary dividend, the Committee
shall conclusively determine the appropriate equitable adjustments, if any, to
be made under the Plan, including without limitation adjustments to the number
of Shares which have been authorized for issuance under the Plan but have not
yet been placed under option, as well as the price per Share covered by each
option under the Plan which has not yet been exercised. In the event of a Change
in Control of the Company, the Offering Period shall terminate unless otherwise
provided by the Committee.
18. Term of Plan. Subject to the Board's right to discontinue the
Plan (and thereby end its Term) pursuant to Section 19 hereof, the Term of the
Plan
12
<PAGE> 13
(and its last Offering Period) shall end on the tenth anniversary of the
commencement of the first Offering Period. Upon any discontinuance of the Plan,
unless the Committee shall determine otherwise, any assets remaining in the
Participants' accounts under the Plan shall be delivered to the respective
Participant (or the Participant's legal representative) as soon as practicable.
19. Amendment to and Discontinuance of Plan. The Board may at any
time amend, suspend or discontinue the Plan. Except as provided in Section 17
hereof, no such suspension or discontinuance may adversely affect options
previously granted and no amendment may make any change in any option
theretofore granted which adversely affects the rights of any Participant which
accrued prior to the date of effectiveness of such amendment without the consent
of such Participant. No amendment shall be effective unless it receives the
requisite approval of the shareholders of the Company if such shareholder
approval of such amendment is required to comply with Rule 16b-3 under the
Exchange Act or Section 423 of the Code or to comply with any other applicable
law, regulation or stock exchange rule.
20. Notices. All notices or other communications by a Participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Regulations and Other Approvals; Governing Law.
(a) This Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of Delaware
without giving effect to the choice of law principles thereof, except to the
extent that such law is preempted by federal law.
(b) The obligation of the Company to sell or deliver Shares
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(c) To the extent applicable hereto, the Plan is intended to
comply with Rule 16b-3 under the Exchange Act, and the Committee shall interpret
and administer the provisions of the Plan in a manner consistent therewith. Any
13
<PAGE> 14
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
22. Withholding of Taxes. If the Participant makes a disposition,
within the meaning of Section 424(c) of the Code and regulations promulgated
thereunder, of any Share or Shares issued to such Participant pursuant to such
Participant's exercise of an option, and such disposition occurs within the
two-year period commencing on the day after the Offering Date or within the
one-year period commencing on the day after the Exercise Date, such Participant
shall, within ten days of such disposition, notify the Company thereof and
thereafter immediately deliver to the Company any amount of Federal, state or
local income taxes and other amounts which the Company informs the Participant
the Company is required to withhold.
23. Effective Date. The Plan shall be effective as of the date of
the completion of the initial public offering of the Shares, subject to the
approval of the Plan by the shareholders of the Company within twelve months
before or after the date the Plan is adopted.
14
<PAGE> 1
Exhibit 23.1
The following consent is in the form that will be signed upon completion of the
stock split described in Note 12 to the financial statements assuming that from
March 27, 2000 to the date of such completion, no other material events have
occurred that would affect the accompanying financial statements or required
disclosures therein. If the stock split ratio changes, all references to number
of shares, per share amounts and stock option data included within the financial
statements will also change.
Deloitte & Touche LLP
New York, New York
March 27, 2000
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-30548 of Screaming Media.com Inc. of our report dated January 19, 2000
(March 27, 2000 as to Note 12) appearing in the Prospectus, which is a part of
such Registration Statement, and to the reference to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
March 27, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Screaming Media.com Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated December 28, 1999, relating to the
financial statements of Screaming Media.com Inc., which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Sincerely,
/s/ DAVID TARLOW & CO., C.P.A., P.C.
------------------------------------
David Tarlow & Co., C.P.A., P.C.
New York, New York
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 22,121,667
<SECURITIES> 0
<RECEIVABLES> 1,537,782
<ALLOWANCES> (138,802)
<INVENTORY> 0
<CURRENT-ASSETS> 26,768,942
<PP&E> 5,003,804
<DEPRECIATION> (451,309)
<TOTAL-ASSETS> 32,370,175
<CURRENT-LIABILITIES> 4,838,530
<BONDS> 0
27,433,838
15,271
<COMMON> 176,912
<OTHER-SE> (740,962)
<TOTAL-LIABILITY-AND-EQUITY> 32,370,175
<SALES> 2,985,190
<TOTAL-REVENUES> 2,985,190
<CGS> 0
<TOTAL-COSTS> (16,479,200)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (138,802)
<INTEREST-EXPENSE> 53,102
<INCOME-PRETAX> (13,165,739)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,165,739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,165,739)
<EPS-BASIC> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
<PAGE> 1
Exhibit 99.1
March 20, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section entitled "Case Studies--thehealthchannel.com" in the
Registration Statement on Form S-1 of Screaming Media.com Inc., to be filed
with the Securities and Exchange Commission and are in agreement with the
statement contained therein.
Sincerely,
/s/ Tom Lonergan
---------------------------------------
Name: Tom Lonergan
Title: COO
Company: thehealthchannel.com
<PAGE> 1
Exhibit 99.2
March 20, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section entitled "Case Studies -- The Black World Today" in
the Registration Statement on Form S-1 of Screening Media.com Inc., to be filed
with the Securities and Exchange Commission and are in agreement with the
statement contained therein.
Sincerely,
/s/ Don Rojas
----------------------------------
Name: Don Rojas
Title: Founder/CEO
Company: The Black World Today
<PAGE> 1
Exhibit 99.3
March 20, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section entitled "Case Studies--Sun Microsystems" in the
Registration Statement on Form S-1 of Screaming Media.com Inc., to be filed
with the Securities and Exchange Commission and are in agreement with the
statement contained therein.
Sincerely,
/s/ Beverly Fleischmann
--------------------------------
Name: Beverly Fleischmann
---------------------------
Title: Manager
--------------------------
Company: Sun Microsystems, Inc.
------------------------
<PAGE> 1
Exhibit 99.4
March 20, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section entitled "Case Studies -- EVOTE.com" in the
Registration Statement on Form S-1 of Screaming Media.com Inc., to be filed with
the Securities and Exchange Commission and are in agreement with the statement
contained therein.
Sincerely,
/s/ Peter Markel
----------------------------------
Name: Peter Markel
---------------------------
Title: Director of Marketing
---------------------------
Company: Ideacast Inc. (EVOTE.COM)
-------------------------
<PAGE> 1
Exhibit 99.5
March 20, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section entitled "Case Studies--InteliHealth" in the
Registration Statement on Form S-1 of Screaming Media.com Inc., to be filed
with the Securities and Exchange Commission and are in agreement with the
statement contained therein.
Sincerely,
/s/ Jeff Bredenberg
---------------------
Name: Jeff Bredenberg
Title: VP for Content
Company: InteliHealth
<PAGE> 1
Exhibit 99.6
Consent of IDC
February 15, 2000
Mr. Jonathan Lin
Credit Suisse First Boston
Eleven Madison Avenue
New York, NY 10010
Dear Mr. Lin,
Per our discussion, you have permission to use the following statistics as
stated below.
IDC estimates that the number of Web users worldwide will increase from
approximately 196 million in 1999 to approximately 502 million by the end of
2003. IDC also estimates that the number of web users in the United States
alone will increase from approximately 81 million in 1999 to approximately 177
million by the end of 2003.
In the last several years, many businesses have emerged with operating models
that are exclusively dependent on the Internet, while traditional businesses of
all sizes are working quickly to establish web sites and expand their Internet
presence. One indicator of the pace of this growth is IDC's projection that the
market for business to business e-commerce will grow from $80 billion in 1999
to $1.1 trillion in 2003.
Sincerely,
/s/ Alexa McCloughan
- --------------------
Alexa McCloughan
Senior Vice President
