<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PAYTRU$T, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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<S> <C> <C>
DELAWARE 7389 22-3631685
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
29 EMMONS DRIVE, BUILDING B
PRINCETON, NJ 08540
(609) 720-1818
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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FLINT A. LANE
CHAIRMAN OF THE BOARD AND PRESIDENT
29 EMMONS DRIVE, BUILDING B
PRINCETON, NJ 08540
(609) 720-1818
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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<S> <C>
ALAN SINGER, ESQ. JAMES E. ODELL, ESQ.
STEVEN M. COHEN, ESQ. O'MELVENY & MYERS LLP
MORGAN, LEWIS & BOCKIUS LLP CITIGROUP CENTER
502 CARNEGIE CENTER 153 EAST 53RD STREET, 53RD FLOOR
PRINCETON, NJ 08540 NEW YORK, NY 10022
(609) 919-6600 (212) 326-2000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE AND DISTRIBUTION TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ----------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] --------------------------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] --------------------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $0.0001 per share............ $57,500,000 $15,180
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
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 we are not
soliciting offers to buy these securities, in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 3, 2000
PROSPECTUS
Shares
[PAYTRUST LOGO]
Common Stock
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This is our initial public offering of shares of common stock. We are offering
shares.
No public market currently exists for our shares.
We have applied for quotation on the Nasdaq National Market under the symbol
"PAYT." Anticipated Price Range $ to $ per share.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 9.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Paytrust........................................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock on the same terms and conditions as set forth
above to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The underwriters expect to deliver the shares on or about , 2000.
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Joint Lead Managers and Bookrunners
LEHMAN BROTHERS THOMAS WEISEL PARTNERS LLC
------------------------
WIT SOUNDVIEW
FIDELITY CAPITAL MARKETS
a division of National Financial
Services Corporation
, 2000
<PAGE> 3
INSIDE FRONT COVER
Four screenshots from the paytrust.com web site that highlight the four
principal features of our service: receive, review, pay and organize bills. Each
screenshot contains a menu column on the left side. The heading of the column is
"Paytrust Bill Center." The items on the menu listed vertically in the column
are "My Bills," "My Billers," "My Bank," "Reports," "Profile," "Contact Us,"
"Tell-A-Friend" and "Sign-Out".
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary..................... 4
Risk Factors........................... 9
Forward-Looking Statements............. 19
Use of Proceeds........................ 20
Dividend Policy........................ 20
Capitalization......................... 21
Dilution............................... 23
Selected Consolidated Financial Data... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
Business............................... 30
Management............................. 42
Related Party Transactions............. 49
Principal Stockholders................. 52
Description of Capital Stock........... 54
Shares Eligible for Future Sale........ 57
Underwriting........................... 58
Legal Matters.......................... 61
Experts................................ 61
Additional Information................. 61
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 2000, all dealers selling shares of the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, especially the discussion
regarding the risks of investing in our common stock discussed under "Risk
Factors," before investing in our common stock.
PAYTRU$T, INC.
We provide a convenient and secure Internet service that enables our
members to receive, review, pay and organize all of their bills through
paytrust.com. Unlike the limited online payment services typically offered by
banks, we offer a comprehensive bill management solution. Using our proprietary
technology, we can deliver 100% of a member's bills online. We can also issue
payments directly from any check writing account designated by a member, provide
information that enables a member to balance her checkbook and provide data that
a member can download into her personal financial management software. We
believe our service represents a meaningful development in the use of the
Internet for consumer convenience and that our service substantially reduces the
time, effort and frustration involved in paper-based bill management.
We offer our service directly on our web site, and will be offering our
service on a co-branded basis through the web sites of our business development
partners. We have recently launched a co-branded service with one of these
partners and anticipate that, during 2000, we will launch our service through
the web sites of our other current partners. Our partners include large consumer
billers, financial institutions, and online financial sites and portals. We have
recently entered into business development partnerships with American Express
Travel Related Service Company, Inc., GE Financial Assurance Holdings, Inc. and
NextCard, Inc., and are also seeking to enter into additional business
development partnerships. We believe that business development partnerships with
consumer-based companies are important to our success because they provide us
access to large numbers of potential members at an acquisition cost per member
that is substantially less than is available through direct marketing. We
believe that our partners can benefit from the ability to introduce our
co-branded service to their customers without the expenditure of the time and
resources necessary to develop an in-house service.
Paper-based bill delivery and payment can be a cumbersome, time-consuming
process. Traditional online bill delivery and payment services are inconvenient
and incomplete. We believe that the limitations of existing paper-based methods
and traditional online bill delivery services, combined with the large and
recurring nature of bill payment demand, offer a substantial opportunity for our
consumer-focused service. In addition, while a significant number of Internet
users are conducting financial transactions online, the number of users engaged
in online bill delivery and payment is still quite small. As a result, we
believe there is a significant potential market for our service.
Our service enables members to:
- receive, review, pay and organize 100% of their bills online through a
single web site;
- receive e-mail notifications when bills have arrived, are about to become
overdue, or are not received as expected;
- view or print an image of their actual bills;
- pay their bills from any existing check writing account;
- instruct us to pay automatically recurring monthly bills, such as utility
bills, without requiring approval each time, or requiring approval only
if the bills exceed a preset dollar limit;
- balance their checkbooks through the use of our SmartBalance feature,
which automatically combines members' statement activity of their bank or
other financial institution accounts with members' activity on our web
site; and
- download their billing data into personal financial management software.
4
<PAGE> 6
CORPORATE INFORMATION
We are the successor to LM Holdings, Inc., which was incorporated in
September 1998 in New Jersey. In January 1999, we completed a merger of LM
Holdings with Secure Commerce Services, Inc., a newly-formed Delaware
corporation, in which Secure Commerce Services was the surviving corporation. In
February 2000, we changed our name to Paytru$t, Inc.
Our executive offices are located at 29 Emmons Drive, Building B,
Princeton, New Jersey 08540. Our telephone number is (609) 720-1818 and our
Internet address is www.paytrust.com. THE INFORMATION ON OUR WEB SITE IS NOT A
PART OF THIS PROSPECTUS.
Paytrust, Paytrust.com, SmartBalance, "Pay Your Bills in Nanoseconds" and
our floating check design are our trademarks. This prospectus also includes
other trademarks, trade names and service marks of Paytrust and of other
parties, which are the property of their respective owners.
5
<PAGE> 7
THE OFFERING
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<S> <C>
Common stock offered by us........................... shares
Common stock to be outstanding after the offering.... shares
Use of proceeds...................................... For working capital and general corporate purposes,
including sales and marketing activities, expansion
of our operations and further technological
development. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............... PAYT
</TABLE>
In addition to the shares of common stock to be outstanding
after the offering, as of March 3, 2000 we may issue additional shares of common
stock under the following plans and arrangements:
- 7,127,523 shares issuable under our employee benefit plans, consisting
of:
- 2,059,657 shares underlying outstanding options under our equity
compensation plan at a weighted average exercise price of $1.76 per
share, of which options to purchase 57,800 shares were exercisable;
- 4,567,866 shares available for future grant under our equity
compensation plan; and
- 500,000 shares available for issuance under our employee stock
purchase plan;
- 1,500,000 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $1.74 per share;
- 2,500,000 shares of Series D preferred stock issuable to Citicorp
Electronic Commerce, Inc. at a purchase price of $4.00 per share, subject
to approval by the Office of the Comptroller of the Currency or other
applicable regulatory authority; if issued, these shares will convert
into 2,500,000 shares of common stock upon the closing of this offering;
and
- 100,000 shares issuable upon the exercise of warrants that we may issue
in connection with a patent license at an exercise price of $5.00 per
share.
Unless otherwise specifically stated, all information contained in this
prospectus:
- reflects the automatic conversion of all of our outstanding preferred
stock into common stock upon the closing of this offering;
- assumes no exercise of the underwriters' over-allotment option; and
- reflects the filing of an amendment to our certificate of incorporation
upon the closing of this offering to authorize 5,000,000 shares of
preferred stock that may be issued from time to time with such
designations, rights and preferences as may be determined by our board of
directors.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the consolidated financial information for
our business. You should read the following summary consolidated financial data
together with "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and the notes to those statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
INCEPTION
(SEPTEMBER 16, 1998) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
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<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................ $ -- $ 10,269
Total cost and expenses................................. 124,126 9,633,167
--------- -----------
Operating loss........................................ (124,126) (9,622,898)
Net loss................................................ $(122,951) $(9,479,669)
========= ===========
Basic and diluted net loss per share.................... $ (0.01) $ (1.02)
========= ===========
Unaudited pro forma basic and diluted net loss per
share................................................. $ (0.01) $ (0.59)
========= ===========
Weighted average shares outstanding used in basic and
diluted per share calculation......................... 9,000,000 9,290,626
========= ===========
Weighted average shares outstanding used in unaudited
pro forma basic and diluted per share calculation..... 9,000,000 16,180,278
========= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $29,235,014 $29,235,014 $
Working capital..................................... 26,672,434 26,672,434
Total assets........................................ 30,232,811 30,232,811
Total redeemable convertible preferred stock........ 36,668,233 --
Total stockholders' equity (deficit)................ (9,080,936) 27,587,297
OPERATING DATA (UNAUDITED):
Number of members at December 31, 1999.............. 9,157
Number of bills received through December 31,
1999.............................................. 73,543
Number of payments made through December 31, 1999... 130,876
</TABLE>
------------------------
When reading this summary consolidated financial data, you should be aware
that:
- potentially dilutive shares of common stock have been excluded from the
shares used to compute historical and unaudited pro forma net loss per
share in each period because their inclusion would be antidilutive;
- the unaudited pro forma basic and diluted net loss per share during the
periods presented is computed by dividing the net loss by the sum of the
weighted average shares outstanding plus the weighted average number of
shares that will be outstanding upon the automatic conversion of all
shares of outstanding preferred stock, excluding the Series D preferred
stock, into common stock;
- the assumed conversion of the preferred stock has an antidilutive effect
on the unaudited pro forma basic and diluted net loss per share;
7
<PAGE> 9
- the unaudited pro forma consolidated balance sheet data reflect the
automatic conversion of all outstanding preferred stock, excluding the
Series D preferred stock, into common stock upon the closing of this
offering;
- the unaudited pro forma as adjusted consolidated balance sheet data
reflect the issuance of shares of common stock in this
offering at an assumed initial public offering price of $ per share
and after deduction of the underwriting discount and the estimated
expenses of this offering;
- the sale of the Series D preferred stock will result in a charge to net
loss applicable to common stockholders of approximately $5,000,000 based
upon the difference between the purchase price of the Series D preferred
stock and the fair market value of the Series D preferred stock at the
date of the commitment;
- the issuance of warrants to purchase 500,000 shares of our common stock
at a weighted average exercise price of $3.22 per share to two business
development partners will result in a charge of approximately $2,300,000
over the period to be benefited; and
- the number of members includes all persons who have enrolled in our
service, most of whom were in the period of free service.
8
<PAGE> 10
RISK FACTORS
Set forth below is a discussion of what we believe to be the principal
risks and uncertainties affecting our business or an investment in our common
stock. You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the adverse events described in the
risks actually occur, our business, financial condition and results of
operations would likely suffer. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
consolidated financial statements and the notes to those statements.
RISKS RELATED TO OUR BUSINESS
WE HAVE A VERY LIMITED OPERATING HISTORY AND SIGNIFICANT HISTORICAL LOSSES; WE
MAY NEVER BE PROFITABLE.
We have a very limited operating history upon which you may evaluate us. We
first offered our service to the general public in July 1999. To date, we have
only generated a limited amount of revenues. As of December 31, 1999, we had an
accumulated deficit of $9.5 million. We expect to continue to incur losses for
the foreseeable future in light of our planned marketing and other operating
expenditures.
We encounter risks and difficulties frequently encountered by companies in
an early stage of development in new and rapidly evolving markets. In order to
overcome these risks and difficulties, we must, among other things:
- increase and retain the number of individuals that subscribe to our
service;
- reduce the time and cost involved in acquiring new members;
- encourage billers to convert from paper-based billing to electronic
billing;
- minimize fraud and other security concerns;
- prevent and respond quickly to service interruptions;
- upgrade our processing system so that we can handle efficiently and
effectively any rapid increase in our membership;
- continue to develop our technology; and
- continue to attract, hire, motivate and retain qualified personnel.
If we fail to achieve these objectives, we may never become profitable.
Our planned operating costs are based to a considerable extent on the
anticipated growth of our future revenues. However, we may not be able to
forecast growth accurately due to our limited operating history. If we do not
grow as anticipated and our expenditures are not reduced accordingly, our
operating results could decline significantly, and we may never be profitable.
OUR BUSINESS WILL SUFFER IF CONSUMERS DO NOT ACCEPT THE INTERNET AS A MEANS OF
RECEIVING AND PAYING BILLS.
Rapid growth in the use of the Internet and electronic commerce generally
is a recent phenomenon. Our success depends on the increased acceptance and use
of the Internet as a medium for delivery and payment of bills. However, the use
of the Internet in this manner remains largely untested in the marketplace. As a
result, we can give no assurance that acceptance and use of the Internet as a
medium for delivery and payment of bills will continue to develop at recent
rates or that there will be commercial acceptance of our service.
9
<PAGE> 11
The Internet may not prove to be a viable medium for online delivery and
payment of bills for the following reasons, any of which could seriously harm
our business:
- consumers may not use the Internet for bill management due to concerns
regarding security and confidentiality of information provided online;
- a sufficient number of billers may not provide bills to us
electronically;
- alternative solutions for online bill delivery and payment may be
implemented;
- consumers may be unwilling to change their traditional bill paying
habits;
- use of the Internet and other online services may not continue to
increase or may increase more slowly than expected;
- the development or adoption of new standards and protocols for online
bill delivery and payment may be delayed; and
- new and burdensome government regulations may be imposed.
OUR BUSINESS MAY BE LIMITED BY AN OUTSTANDING PATENT, AND WE COULD BE SUBJECT TO
COSTLY PATENT INFRINGEMENT CLAIMS.
We are aware of U.S. Patent No. 5,956,700 relating to electronic bill
presentment and payment services owned by Midwest Payment Systems, a division of
Fifth Third Bank, a bank holding company. The Midwest patent covers, among other
things, an automated bill payment system that does not require any interaction
by a bill payor and a system for bill receipt and payment whereby a bill payor's
bank account is debited through various methods, such as the automated
clearinghouse system. Specifically, the Midwest patented system allows bill
payors to receive and review their bills and to pay their bills electronically
or to pay their bills automatically. Although the Midwest patent principally
involves electronic bill receipt and payment services, its scope could be
broader and may extend to non-electronic bill payment services such as ours.
We are currently developing our capability to receive electronic bills. Our
future profitability will depend, in significant part, on our ability to
increase the percentage of bills we receive electronically and our ability to
make payments electronically on behalf of our members. If we conduct electronic
bill presentment and payment services without obtaining a license from Midwest,
we could infringe the Midwest patent. Accordingly, we face the risk that Midwest
could initiate a patent infringement lawsuit against us claiming that our
business practices infringe their patent.
In February 2000, we received a letter from Midwest inquiring as to the
possibility of licensing all or the relevant portions of their patent, as well
as other technology set forth in their pending patent applications. We have
commenced licensing discussions with them, and have entered into a non-binding
letter agreement under which we will license their patent in exchange for
warrants to purchase 100,000 shares of our common stock at an exercise price of
$5.00 per share and an annual license fee of $25,000. However, any license would
be subject to negotiation of definitive terms. Therefore, we can give no
assurance that we will be able to obtain a license from Midwest. Our failure to
obtain the necessary license or other rights from Midwest would materially
adversely affect our ability to conduct our business and could result in
litigation.
The outcome of any patent infringement lawsuit commenced by Midwest against
us is uncertain, and we can give no assurance that Midwest will not prevail in
any such lawsuit. Any patent infringement lawsuit commenced against us would
likely result in a diversion of management resources and cause us to incur
significant expenses in defending against the claim, which could significantly
harm our business. To the extent that Midwest successfully asserts that we are
infringing its patent, we may be limited in how we implement our service and
conduct our business. Alternatively, we could be subject to significant damages,
which could materially and adversely affect our business, financial condition
and results of operations. In addition, we are obligated under certain
agreements to indemnify other parties for claims that we infringe the
proprietary rights of others, and if we are required to indemnify such parties,
our business would be harmed.
10
<PAGE> 12
Moreover, we have agreed with one of our business development partners not
to remit payments to third party billers electronically or to make recurring
payments under a member's blanket authorization until the Midwest patent issue
has been resolved to the satisfaction of our business development partner.
IF WE DO NOT MANAGE EXPANSION OF OUR MEMBERSHIP OR GROWTH OF OUR BUSINESS, OUR
LONG-TERM PROSPECTS WOULD BE ADVERSELY AFFECTED.
Our reputation and our ability to attract, retain and serve our members
depend upon the reliable performance of our web site, network infrastructure and
other systems. We have only recently developed our infrastructure and systems,
and their expansion will be required to address the anticipated growth in our
membership base and market opportunities. If we are unable at any time to
appropriately address customer service issues or provide a satisfactory
experience for current or potential members, our business and reputation may be
damaged. Moreover, if demand for our services grows significantly faster than we
have anticipated, our web site, network infrastructure and other systems would
be strained. We have designed and developed our systems and planned expenditures
to accommodate what we believe is reasonably foreseeable growth. However, we
cannot predict whether our plans for expansion of such systems will be
sufficient to address our members' needs if growth in our member base is more
rapid than anticipated. Moreover, our technology may not be capable of handling
such growth. Under those circumstances, our operations may be disrupted if we
are unable to deploy the necessary improvements in our web site, network
infrastructure, technology and systems or if the improvements put in place are
inadequate to meet the needs of our members.
We have experienced rapid growth in our operations generally. From July 1,
1999 through February 19, 2000, we grew from approximately 15 employees to 88
full time employees and 78 temporary personnel, and from July 1, 1999 through
February 25, 2000, our memberships increased from approximately 140 to 15,131.
We are planning for continued growth of our operations. This growth could strain
our infrastructure, management, internal controls and financial systems, as well
as our ability to integrate and properly train new employees. To manage our
growth, we must continue to enhance our operating and financial systems,
infrastructure and controls, as well as our sales and marketing organization. We
must also expand, train and manage our employee base.
Our business, financial condition and results of operations would be
materially adversely affected if we are unable to effectively manage expansion
of our membership or growth of our operations generally.
THE MARKET FOR ONLINE BILL DELIVERY AND PAYMENT SERVICES IS INTENSELY
COMPETITIVE; IF WE CANNOT COMPETE SUCCESSFULLY, OUR LONG-TERM VIABILITY WILL BE
THREATENED.
Our market is intensely competitive. We are only one of several companies
servicing this market. Commercial banks, other financial institutions, and
online consumer financial service providers, many of which currently offer
electronic bill payment services, have financial resources greater than ours and
could enter our market. In addition, PayMyBills.com and Cyberbills/
StatusFactory, as well as electronic billing networks such as CheckFree and
TransPoint (which have recently announced plans for CheckFree to acquire
TransPoint), provide online bill delivery and payment services. Potential and
existing members and potential business development partners may choose our
competitors' services over ours. If we do not compete effectively, our financial
performance will suffer and our long-term viability will be threatened. For a
more detailed discussion of our competitive environment, see "Business --
Competition."
IF WE ARE UNABLE TO ESTABLISH AND MAINTAIN OUR BUSINESS DEVELOPMENT
PARTNERSHIPS, OUR SERVICE MAY NOT ACHIEVE COMMERCIAL ACCEPTANCE.
Our business development partnerships are designed to enable us to promote
our brand through our partners' web sites and their marketing materials and to
attract potential members. To enter into effective business development
relationships, it is necessary for us to convince potential partners that they
can
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realize meaningful benefits from the provision of our service to their
customers. We can give no assurance that we can successfully establish and
maintain our business development partnerships.
Our current business development relationships have been formed only
recently and have not resulted in any revenues as we have only launched our
service on one partner's web site to date. As a result, our business development
partners may not view their relationships with us as significant or vital to
their businesses and, consequently, may not perform according to our
expectations. We have little ability to influence the efforts of our business
development partners in promoting our service. Therefore, even if we are able to
establish business development relationships, these relationships may not be
successful and our service may not achieve commercial acceptance.
IF WE ARE UNABLE TO INCREASE THE PERCENTAGE OF BILLS WE RECEIVE ELECTRONICALLY,
OUR ABILITY TO ATTAIN PROFITABILITY IN THE FUTURE WOULD BE SIGNIFICANTLY
IMPAIRED.
Almost all of the transactions we currently handle on behalf of our
customers are paper-based. We are currently developing the capability to receive
bills electronically, either through electronic bills provided directly by
billers or electronic bill consolidators or through the billers' web sites. Our
future profitability depends, in significant part, on increased adoption by
billers of electronic billing. Compared with conventional paper-based
transactions, electronic transactions:
- cost considerably less to complete;
- give rise to fewer errors, which can be costly to resolve; and
- generate fewer member inquiries and, therefore, consume fewer customer
service resources.
Our failure to substantially increase our use of electronic billing and to
develop the necessary software to receive electronic bills could materially
impair our ability to become profitable.
IF WE CANNOT OBTAIN ADDITIONAL FINANCING WHEN NEEDED, WE MAY NOT BE ABLE TO FUND
THE GROWTH OF OUR BUSINESS.
Since our inception, our operations have used substantially more cash than
they have generated. Because we expect to experience significant negative cash
flows for the foreseeable future, we will continue to need substantial amounts
of working capital to fund the growth of our business. While we anticipate that
the net proceeds of this offering and available cash will support our operations
for at least the next 12 months, we expect that we will require additional funds
in the future. However, we may not be able to find additional financing on
favorable terms or at all. If we raise additional funds through the issuance of
equity securities, these securities may have rights, preferences or privileges
senior to those of our common stock, and our stockholders may experience
dilution to their equity ownership. If we raise additional funds through the
issuance of debt securities, we may have to agree to limitations on our
operations, including restrictions on our spending and payment of dividends. If
additional financing is not available on acceptable terms when required, we may
be unable to fund the development and expansion of our business, promote our
service successfully, take advantage of business opportunities or respond to
competitive pressures, any of which could have a material adverse effect on our
business, financial condition and results of operations.
OUR BUSINESS COULD BE SUBJECT TO FINANCIAL INSTITUTION REGULATION, WHICH COULD
MAKE OUR BUSINESS MORE EXPENSIVE TO OPERATE.
We believe that we are not a bank or other form of depository institution
that is required to be chartered or licensed and then subject to ongoing
regulation by federal and/or state agencies that regulate depository
institutions such as banks, thrifts and credit unions. Most states presently
regulate the "money services business," which has traditionally included "money
transmitters," "check cashers," "wire transferors" and "check sellers."
Recently, a few states have added "bill payers" as an additional category of
business requiring an application and/or licensing. The regulation of money
services businesses typically
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<PAGE> 14
entails the posting of a bond and the maintenance of minimum net worth
requirements. While our present activities do not require that we do so, we have
determined to apply for a "money transmitter" license under New Jersey law. We
will be required to post a surety bond in the minimum amount of $100,000 and
maintain a minimum net worth of at least $100,000 in order to receive this
license. It is possible that we will become subject to licensing or registration
requirements in additional states, or regulation at the federal level.
Regulation or supervision could subject us to additional administrative burdens,
restrictions on the manner in which we do business, the prohibition or
limitation of certain kinds of business, minimum capital requirements, the
posting of bonds, and the payment of special assessments or fees. Our failure or
inability to obtain a required license or qualification could impede our ability
to provide our service in affected jurisdictions. If we become subject to
financial institution regulations, our business could become more expensive to
operate.
RISKS INHERENT IN FINANCIAL TRANSACTIONS PROCESSING COULD HURT OUR BUSINESS AND
EXPOSE US TO LIABILITIES.
In connection with our business, we will need to be able to initiate
transactions on, and otherwise access, the Fedwire and other automated
clearinghouse systems which constitute the payments system through which banks
and other depository institutions customarily receive and transmit electronic
payments. We are only able to initiate electronic payment transactions or
otherwise access the payments system through banks or other similar depository
institutions. If banks and similar institutions were to decline to afford us the
right to access the payment system through them, or the regulation or internal
rules of payment systems materially restricted access by non-banks, our business
would be materially and adversely affected. We have accessed the payments system
through a bank that recently informed us that it is terminating its relationship
with us because of an unspecified concern about the privacy and security of
consumer data. While we believe that, with respect to our service, the bank's
concern is unfounded, other banks may take the same position. We have secured
another bank for automated clearinghouse processing.
Certain risks are inherent in payments processing, including the risk that
transactions will be returned due to:
- unauthorized use;
- payment disputes;
- erroneous transmissions;
- theft; and
- fraud.
The extent of our liability for these risks will depend on the particular
circumstances of the transactions. Regardless of the merits of the claim, we may
have the obligation to indemnify persons acting as agents for us in transmitting
transactions through the payment system pending the ultimate resolution of
claims.
Our ability to avoid these risks contractually or otherwise is limited by
competitive pressures, as well as various laws and regulations that are intended
to protect consumers. It is also possible that the protections afforded to
consumers by law or regulation may be expanded, imposing on us increased
administrative burdens and liability for payments processing risks. The
Electronic Fund Transfer Act provides a basic framework establishing the rights,
liabilities, and responsibilities of participants in electronic fund transfer
systems relating to consumer accounts. Neither the Electronic Fund Transfer Act
nor Regulation E, which interprets that law, specifically address bill payment
services such as ours. At such time as we initiate electronic bill payment, we
may become subject to the Electronic Fund Transfer Act and Regulation E
provisions governing electronic fund transfer service providers that do not hold
customer accounts. These provisions provide for various disclosures and the
maintenance of error resolution procedures. In some instances, we may also be
subject to provisions relating to pre-authorized electronic transfers, including
obtaining customer pre-authorization and providing certain notices.
Given the expansion of the Internet commerce market, it is possible that
the Federal Reserve Board might revise Regulation E or adopt additional rules
governing electronic funds transfer. Because of growth in commerce on the
Internet and growing concern regarding the possibility of unauthorized
transactions,
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<PAGE> 15
Congress has held hearings on whether to regulate providers of services and
transactions in the Internet commerce market. It is possible that Congress or
individual states could enact laws regulating this market. If enacted, these
laws could be imposed on our industry. Any new laws or regulations relating to
the Internet could have a material and adverse effect on our business, financial
condition and results of operations.
We are also exposed to risk from fraud and erroneous transmissions. We
attempt to manage this risk through risk management measures, which include
requiring members to provide us with a voided check. There can be no assurance,
however, that these measures will prevent substantial losses resulting from
fraud or erroneous transmissions. These losses could result in our liability to
financial institutions, merchants or members, which could have a material
adverse effect on our business, financial condition and results of operations.
IF WE DO NOT ADEQUATELY MAINTAIN OUR MEMBERS' CONFIDENTIAL INFORMATION, OUR
REPUTATION COULD BE HARMED AND WE COULD INCUR LIABILITY.
Ensuring the secure transmission over the Internet of the non-public
personal information of our members is essential if we are to retain the
confidence of our customers. Any breach of security resulting in unauthorized
disclosure or use of a member's non-public personal information could result in
liability for us and a reduction in use or cancellation of our service by our
members, any of which could have a material adverse effect on our business,
financial condition and results of operations. We receive and store in our files
highly confidential non-public information from members. Our exposure to the
risk of disclosure or other mishandling of the non-public information of our
members may grow as the amount of information we possess increases. Moreover,
advances in computer capabilities, new discoveries or other developments could
result in a compromise or breach of the technology we use to protect customer
transaction data.
We currently have procedures in place designed to ensure the
confidentiality of our members' non-public information. However, our security
procedures to protect against the risk of inadvertent disclosure or intentional
breaches of security might fail to adequately protect our members' non-public
information. A person who is able to circumvent our security systems could steal
or otherwise compromise a member's non-public information, or cause
interruptions in our operations. Security breaches could damage our reputation
and expose us to a risk of loss or litigation. Our insurance coverages may not
extend to or be adequate to reimburse us for losses caused by such security
breaches.
Security and the protection of confidential information is also a matter of
growing public policy concern. We must comply with federal privacy law
provisions set forth in the recently enacted Gramm-Leach-Bliley Act. These
provisions require disclosure of our privacy policy when we establish a customer
relationship, which is consistent with our present practice, and may
significantly limit the ability to make secondary use of consumer confidential
information. Many states and Congress are considering adopting additional
privacy protection and data sharing restrictions to which we may become subject.
OUR BUSINESS WILL SUFFER IF INSTITUTIONS REFUSE TO HONOR THE CHECKS WE DRAW ON
THEIR ACCOUNTS.
From time to time, a broker dealer has refused to honor checks that we have
drawn on members' money market accounts at that broker dealer. If other
institutions were to adopt a similar position, our business will suffer.
OUR BUSINESS WILL SUFFER IF BILLERS REFUSE TO RE-DIRECT BILLS FROM THEIR
CUSTOMERS TO US.
From time to time, certain billers, including at least one major credit
card company, have notified their customers that they will not send any bills
directly to bill payment service providers, including us. While, in most
instances, a biller has ultimately forwarded the bills to us upon direct request
by a member, one biller has refused to do so. If billers generally were to
refuse to direct bills to us, despite their customers' instructions, our
business, financial condition and results of operations would be materially
adversely affected.
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<PAGE> 16
IF WE DO NOT RESPOND TO TECHNOLOGICAL CHANGE OR CORRECT TECHNOLOGICAL DEFECTS,
OUR BUSINESS WILL SUFFER.
Our market is characterized by rapidly changing technologies and frequent
product and service introductions. If we fail to introduce new technology or to
improve our existing technology on a timely basis in response to industry
developments, customer demand or competitive pressures, we could lose existing
and potential members to competitors.
Our technology is complex, and accordingly may contain undetected errors or
defects that we may not be able to fix on a timely basis, if ever. Defects in
our software may result in:
- reduced market acceptance of our service;
- increased development costs;
- diversion of technological and other resources from our development
efforts;
- harm to our reputation; and
- liability.
To the extent any of these events occur, our business will suffer.
OUR PROPRIETARY RIGHTS MAY NOT BE FULLY PROTECTED, AND WE MAY BE SUBJECT TO
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BY OTHERS.
Our failure to adequately protect our intellectual property rights could
harm our business by making it easier for our competitors to duplicate our
services. Paytrust, Paytrust.com, SmartBalance, "Pay Your Bills in Nanoseconds"
and our floating check design are our trademarks, and we have applied to
register these marks in the United States. We have also applied for European
trademark registration on Paytrust. We have applied for a patent on aspects of
our technology and processes, but we can give no assurance that the patent will
be issued. We also require each of our employees to enter a confidentiality
agreement, an invention assignment agreement and, in some cases, non-competition
agreements. Nevertheless, our efforts to establish and protect our proprietary
rights may be inadequate to prevent imitation of our service by others or may be
subject to challenge by others. Furthermore, our ability to protect our
proprietary rights is uncertain since legal standards relating to the validity,
enforceability and scope of intellectual property rights in Internet-related
industries are uncertain and still evolving. Moreover, the laws of foreign
countries in which our service may in the future be sold may offer less
protection for proprietary rights than the laws of the United States.
In addition to the risk of failing to adequately protect our proprietary
rights, there is a risk that we may become subject to a claim that we infringe
upon the proprietary rights of others. Although we do not believe that we are
infringing upon the rights of others, third parties may claim that we are doing
so. In this regard see "Risk Factors -- Our business may be limited by an
outstanding patent, and we could be subject to costly patent infringement
claims." The possibility of inadvertently infringing upon the proprietary rights
of another is increased for businesses such as ours because there is significant
uncertainty regarding the applicability to the Internet of existing laws
regarding matters such as property ownership, copyrights and other intellectual
property rights. A claim of intellectual property infringement may cause us to
incur significant expenses in defending against the claim, which could adversely
affect our business, financial condition and results of operations. If we are
not successful in defending against an infringement claim, we could be liable
for substantial damages or may be prevented from offering some aspects of our
service. We may also be required to make royalty payments, which could be
substantial, to a party claiming that we have infringed their rights. These
events could have a material adverse effect on our business, financial condition
and results of operations.
FAILURES OF OUR HARDWARE SYSTEMS OR SOFTWARE COULD UNDERMINE OUR MEMBERS'
CONFIDENCE IN OUR RELIABILITY AND COULD CAUSE US TO INCUR LIABILITY.
To successfully operate our business, we must be able to protect our
payment processing and other systems from interruption by events that are beyond
our control. Our operations are subject to interruption
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<PAGE> 17
resulting from power failures, telecommunications outages, network service
outages and disruptions, "denial of service" attacks, computer viruses, fires,
natural disasters, vandalism and other misconduct. A significant disruption in
our online service could seriously undermine our members' confidence in our
business, particularly because of the nature of our service. From time to time,
we have experienced, and may experience in the future, service interruptions
during online transactions. Past service interruptions have lasted for as long
as two hours. Service interruptions may interfere with our ability to execute
bill payment transactions in accordance with our members' instructions on a
timely basis, which may cause us to incur liability.
Although we regularly back-up data and take other measures to protect
against data loss and system failures, there is still some risk that we may lose
critical data or experience system failures. Our business interruption insurance
may not compensate us fully for losses that may result from these disruptions.
THE LOSS OF OUR EXECUTIVES WOULD DISRUPT OUR BUSINESS.
We believe that our ability to implement our business strategies depends on
continued service by our executive management team. We are particularly reliant
on:
- Edward G. McLaughlin, our Chief Executive Officer;
- Flint A. Lane, our Chairman of the Board, President and Chief Operating
Officer;
- John A. Yapaola, our Executive Vice President, Business Development; and
- Kenneth W. Zeng, our Chief Financial Officer.
The loss of any of our executives would disrupt our business and impair our
growth.
WE MAY NOT BE ABLE TO HIRE OR RETAIN QUALIFIED STAFF, WHICH COULD IMPAIR OUR
GROWTH.
Our ability to provide our service to our members and expand our business
depends, in part, on our ability to attract and retain staff with the requisite
educational background and professional experience necessary to perform the
technology development and other functions important for our business.
Competition for personnel with these skills is intense. We can give no assurance
that we will be able to recruit or retain the caliber of staff required to carry
out essential functions at the pace necessary to sustain or expand our business.
WE MAY ACQUIRE OTHER BUSINESSES OR TECHNOLOGIES; IF WE DO, WE MAY BE UNABLE TO
INTEGRATE THEM WITH OUR BUSINESS, OR WE MAY IMPAIR OUR FINANCIAL PERFORMANCE.
If appropriate opportunities present themselves, we may attempt to acquire
other businesses or technologies. However, we do not currently have any
understandings, commitments or agreements with respect to any acquisition, nor
are we currently pursuing any acquisition. We may not be able to identify,
negotiate or finance any future acquisition successfully. Even if we do succeed
in acquiring a business, technology, service or product, we have no experience
in integrating an acquisition into our business; the process of integration may
produce operating difficulties and expenditures and may require significant
attention of our management that otherwise would be available for the ongoing
development of our business. Moreover, if we make acquisitions, we may issue
shares of stock that dilute stockholders, incur debt, assume contingent
liabilities or create additional expenses related to amortizing goodwill and
other intangible assets, any of which might negatively affect our financial
results and cause our stock price to decline. Any financing that we might need
for future acquisitions may also place restrictions on our business. We may
never achieve any of the benefits that we might anticipate from a future
acquisition.
GOVERNMENT REGULATION OF THE INTERNET MAY ADD TO OUR OPERATING COSTS.
There is a great deal of uncertainty as to potential government regulation
of Internet-based businesses such as ours. The Internet has rapidly emerged as a
commerce medium, and regulatory authorities have not yet been able to adapt many
existing regulations to the Internet environment. Laws and regulations
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<PAGE> 18
may be introduced and court decisions reached that affect the Internet or other
online services, covering issues such as the following:
- user pricing;
- user privacy;
- access charges;
- taxation;
- online content regulation;
- quality of products and services;
- advertising;
- intellectual property rights;
- information security; and
- freedom of expression.
The adoption of any of these laws or regulations may decrease the growth of
the Internet, which could in turn decrease the demand for our service, increase
our cost of doing business or could otherwise have a material adverse effect on
our business, financial condition and results of operations.
As an Internet company, it is unclear in which jurisdictions we are
actually conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines or penalties
and could result in our inability to enforce contracts in that jurisdiction. In
addition, because we intend to offer our service overseas, foreign jurisdictions
may claim that we are required to comply with their laws. The applicability of
state and foreign laws to us may entail expenses and operational burdens that
could have a material adverse effect on our business, financial condition and
results of operations.
RISKS RELATED TO THIS OFFERING
OUR MANAGEMENT HAS BROAD DISCRETION OVER HOW TO USE THE NET PROCEEDS OF THIS
OFFERING.
Our management will have broad discretion with respect to the expenditure
of the net proceeds of this offering. We expect to use the net proceeds of this
offering for working capital and general corporate purposes, including sales and
marketing activities, expansion of our operations and further technological
development. You will be relying on the judgment of our management with respect
to the use of the net proceeds. See "Use of Proceeds."
OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD CONTROL
STOCKHOLDER VOTES AND OUR MANAGEMENT AND AFFAIRS.
Following this offering, our executive officers, directors and 5% or
greater stockholders will own approximately % of our outstanding common
stock. As a result, they may act together to control all matters submitted to
stockholders for approval, including the election and removal of directors and
any proposed merger, consolidation or sale of all or substantially all of our
assets. In addition, their large ownership position enables them to effectively
control our management and affairs. Accordingly, they may prevent a change in
control or business combination involving us or discourage a potential acquiror
from making a tender offer or otherwise attempting to obtain control of us. This
could, in turn, have an adverse effect on the market price of our common stock.
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
STOCKHOLDERS.
Before this offering, there has been no public market for our common stock.
The initial public offering price for the shares of common stock will be
determined through negotiations between us and the
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<PAGE> 19
underwriters of this offering and may not indicate the price of our stock in any
trading market that develops. The market price for our common stock is likely to
be highly volatile and subject to wide fluctuations in response to the risks
described above and many other factors, some of which are beyond our control.
The market prices for stocks of Internet companies and other companies whose
businesses are heavily dependent on the Internet have generally proven to be
highly volatile, and particularly so in recent periods. A decline in the market
for Internet stocks or the stock market in general could affect our stock price,
even though the decline is not related to our own operations. You may suffer a
loss of all or part of your investment.
SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THE OFFERING COULD CAUSE OUR STOCK
PRICE TO FALL.
Other than the shares of common stock sold in this offering, all of our
outstanding shares of common stock are currently restricted from resale, but
some may be sold into the market in the near future. Sales of these shares by
our stockholders, including shares issued upon the exercise of outstanding
options and warrants, could cause the market price of our common stock to drop
significantly, even if our business is doing well, and might also make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. Most stock and warrant holders are entitled to
registration rights. The exercise of these rights could adversely affect the
market price of our common stock.
Immediately following this offering, we will have outstanding
shares of common stock. This includes the shares
we are selling in this offering, which may be resold immediately. The remaining
shares will become available for resale in the public market to
the extent permitted under Rule 144 under the Securities Act or an exemption
under the Securities Act, subject to an agreement by our officers, directors and
all of our stockholders limiting their ability to sell their common stock for
180 days following the date of this prospectus. In addition, following the
offering we intend to file a Registration Statement on Form S-8 to cover the
sale of 7,127,523 shares reserved for sale under our employee benefit plans,
including 2,059,657 shares subject to currently outstanding options. For a more
detailed description, see "Shares Eligible for Future Sale."
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF YOUR INVESTMENT.
The initial public offering price per share will significantly exceed our
net tangible book value per share. Accordingly, you will experience immediate
and substantial dilution in your investment. For more information, see
"Dilution."
CERTAIN PROVISIONS OF OUR CORPORATE DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE
OUR ACQUISITION BY OTHERS AND DEPRESS OUR STOCK PRICE.
Provisions of our certificate of incorporation and Delaware law could make
it more difficult for a third party to acquire us, even if a change in control
would be beneficial to our stockholders. Following this offering, our
certificate of incorporation will provide that our board of directors is divided
into three classes, with each class serving a three year term. In addition, our
directors will have the discretion, without stockholder approval, to issue and
specify the terms of preferred stock. These and other provisions might
discourage, delay or prevent a change in control of us or a change in our
management. These provisions could also limit the price that investors might be
willing to pay in the future for shares of common stock.
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<PAGE> 20
FORWARD-LOOKING STATEMENTS
Various statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements." Forward-looking statements include,
without limitation, statements about:
- the market opportunity for online bill delivery;
- management and payment services;
- business development relationships;
- competition;
- expected expense levels;
- the adequacy of our available cash resources;
- the possibility and effect of intellectual property infringement claims;
and
- other statements contained in this prospectus that are not historical
facts.
When used in this prospectus, the words "anticipate," "believe,"
"estimate," "expect" and "may" and similar expressions are generally intended to
identify forward-looking statements, but are not the exclusive expressions of
forward-looking statements. Because forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including but not limited to:
- lack of acceptance of our service by existing and potential members;
- our inability to establish and maintain business development
relationships;
- our inability to continue to develop and improve our technology
infrastructure;
- significant increases in competitive pressures in the online bill
delivery, management and payment industry;
- our inability to defend against or obtain a license to resolve
intellectual property infringement claims;
- our inability to manage member growth;
- obligations imposed by government regulation;
- our inability to protect against security breaches; and
- the other matters discussed under "Risk Factors."
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of our shares of common
stock in this offering will be approximately $ million, assuming an initial
public offering price of $ per share and after deducting the underwriting
discount and estimated offering expenses payable by us. If the underwriters
exercise their over-allotment option in full, then we estimate that our net
proceeds from the sale of our shares of common stock in this offering will be
approximately $ million.
We have no specific plans for the net proceeds of this offering other than
working capital and general corporate purposes, and our use of these proceeds
will be in the discretion of our management. We anticipate that portions of the
net proceeds will be used for sales and marketing activities, expansion of our
operations to support anticipated growth and further technological development.
We may use a portion of the net proceeds to acquire complementary technologies
or businesses; however, we currently have no commitments or agreements and are
not involved in any negotiations regarding any acquisitions. Pending use of the
net proceeds of this offering, we intend to invest the net proceeds principally
in short-term, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain any future earnings to finance the expansion of our business.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on an unaudited pro forma basis to reflect the automatic conversion of
all of our shares of preferred stock, excluding the Series D preferred
stock, into common stock, which will occur upon the closing of this
offering; and
- on an unaudited pro forma as adjusted basis to reflect the sale of
shares of common stock at an assumed initial public
offering price of $ per share in this offering, after deducting the
underwriting discount and estimated offering expenses.
You should read this information together with "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ------------- -------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series A redeemable convertible preferred stock, $.0001
par value, 2,000,000 shares authorized, 1,000,000
shares issued and outstanding, actual; no shares
issued and outstanding pro forma and pro forma as
adjusted............................................. $ 297 $ -- $
------- ------- -------
Series B redeemable convertible preferred stock, $.0001
par value, 8,000,000 shares authorized, 7,926,829
shares issued and outstanding, actual; no shares
issued and outstanding pro forma and pro forma as
adjusted............................................. 6,469 --
------- ------- -------
Series C redeemable convertible preferred stock, $.0001
par value, 13,500,000 shares authorized, 13,274,338
shares issued and outstanding, actual; no shares
issued and outstanding pro forma and pro forma as
adjusted............................................. 29,902 --
------- ------- -------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value, 40,000,000 shares
authorized, 9,440,000 shares issued and outstanding,
actual; 31,641,167 shares issued and outstanding pro
forma; and shares issued and outstanding
pro forma as adjusted................................ 1 3
Additional paid-in capital............................. 467 37,323
Warrant................................................ 233 233
Stock subscription receivable.......................... (197) (197)
Deferred compensation.................................. (69) (69)
Accumulated deficit.................................... (9,516) (9,706)
------- ------- -------
Total stockholders' equity (deficit)................... (9,081) 27,587
------- ------- -------
Total capitalization.............................. $27,587 $27,587 $
======= ======= =======
</TABLE>
The above table does not reflect that we may issue additional shares of
common stock as follows:
- 3,667,523 shares of common stock reserved for issuance under our equity
compensation plan as of December 31, 1999, of which 1,768,216 shares were
subject to outstanding options at a weighted average exercise price of
$1.43 per share, of which options to purchase 45,000 shares are
exercisable; and
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<PAGE> 23
- 1,000,000 shares of common stock issuable as of December 31, 1999 upon
the exercise of a warrant at an exercise price of $1.00 per share.
In addition, the above table does not reflect the following events that
occurred after December 31, 1999:
- 2,500,000 shares of our Series D preferred stock, $.0001 par value,
issuable to Citicorp Electronic Commerce Inc. at a purchase price of
$4.00 per share, subject to approval by the Office of the Comptroller of
the Currency or other applicable regulatory authority; if issued, these
shares will convert into 2,500,000 shares of common stock upon the
closing of this offering;
- the sale of the Series D preferred stock will result in a charge to net
loss applicable to common stockholders of approximately $5,000,000 based
upon the difference between the purchase price of the Series D preferred
stock and the fair market value of the Series D preferred stock at the
date of the commitment;
- the increase in the number of shares reserved for issuance under our
equity compensation plan from 3,667,523 to 6,667,523, which was approved
by our board of directors and stockholders in February 2000;
- the grant of options to purchase 291,441 shares of common stock in
February 2000 at a weighted average exercise price of $3.77 per share;
- 500,000 shares of common stock issuable upon the exercise of warrants at
a weighted average exercise price of $3.22 per share, which were issued
in February 2000;
- the issuance of warrants to purchase 500,000 shares of our common stock
to two business development partners will result in a charge of
approximately $2,300,000 over the period to be benefited;
- 500,000 shares of common stock reserved for issuance under our employee
stock purchase plan, which was adopted in February 2000; and
- 100,000 shares issuable upon the exercise of warrants that we may issue
in connection with a patent license at an exercise price of $5.00 per
share.
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DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
$ , or $ per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets, reduced by
the amount of our total liabilities, and then divided by the total pro forma
number of shares of common stock outstanding after giving effect to the
automatic conversion of all shares of outstanding preferred stock, excluding the
Series D preferred stock, into common stock that will occur on the closing of
this offering. After giving effect to the sale of the shares of
common stock offered by us at an assumed initial public offering price of $
per share, and after deducting the underwriting discount and estimated offering
expenses, our pro forma net tangible book value at December 31, 1999 would have
been $ million or $ per share of common stock.
The following table illustrates the immediate increase in net tangible book
value of $ per share to existing stockholders and the immediate dilution of
$ per share to purchasers of shares of common stock in this offering, as if
this offering had occurred as of December 31, 1999:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share on December
31, 1999............................................... $
Increase per share attributable to this offering..........
-------
Pro forma net tangible book value per share after the
offering..................................................
-------
Dilution per share to purchasers in this offering........... $
=======
</TABLE>
The following table presents, as of December 31, 1999 on a pro forma basis,
after giving effect to the automatic conversion of the preferred stock,
excluding the Series D preferred stock, into common stock and the sale of our
common stock in this offering at an assumed initial public offering price of
$ per share:
- the number of shares of our common stock purchased from us by our
existing stockholders and new investors;
- the total price paid by our existing stockholders and new investors;
- the average price per share paid by the existing stockholders; and
- the price per share paid by new investors before deducting the
underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... % % $
New investors...............................
------- ----- ------- -----
Totals...................................... 100.0% 100.0%
======= ===== ======= =====
</TABLE>
The preceding tables exclude all outstanding options and warrants. You will
experience additional dilution if these options and warrants are exercised.
23
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below
along with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the notes
to those statements appearing elsewhere in this prospectus. We have derived the
selected consolidated financial data from our consolidated financial statements
that have been audited by Arthur Andersen LLP.
<TABLE>
<CAPTION>
INCEPTION
(SEPTEMBER 16, 1998) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------------- -----------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................ $ -- $ 10,269
Cost and expenses:
Cost of revenues...................................... -- 774,143
Research and development.............................. 68,646 879,831
Sales and marketing................................... 8,518 6,982,595
General and administrative............................ 46,962 996,598
---------- -----------
Operating loss........................................ (124,126) (9,622,898)
Interest income, net.................................... 1,175 143,229
---------- -----------
Net loss................................................ (122,951) (9,479,669)
Accretion of preferred stock to redemption value........ -- 42,757
---------- -----------
Net loss applicable to common stockholders.............. $ (122,951) $(9,522,426)
========== ===========
Basic and diluted net loss per share.................... $ (0.01) $ (1.02)
========== ===========
Unaudited pro forma basic and diluted net loss per
share................................................. $ (0.01) $ (0.59)
========== ===========
Weighted average shares outstanding used in basic and
diluted per share calculation......................... 9,000,000 9,290,626
========== ===========
Weighted average shares outstanding used in unaudited
pro forma basic and diluted per share calculation..... 9,000,000 16,180,278
========== ===========
</TABLE>
When reading the selected consolidated financial data, you should be aware
that:
- potential dilutive shares of common stock have been excluded from the
shares used to compute historical and unaudited pro forma net loss per
share in each period because their inclusion would be antidilutive;
- the unaudited pro forma basic and diluted net loss per share during the
periods presented is computed by dividing the net loss by the sum of the
weighted average shares outstanding plus the weighted average number of
shares that will be outstanding upon the automatic conversion of all
shares of outstanding preferred stock, excluding the Series D preferred
stock, into common stock;
- the assumed conversion of the preferred stock has an antidilutive effect
on the unaudited pro forma basic and diluted net loss per share;
- the sale of the Series D preferred stock will result in a charge to net
loss applicable to common stockholders of approximately $5,000,000 based
upon the difference between the purchase price of the Series D preferred
stock and the fair market value of the Series D preferred stock at the
date of commitment; and
- the issuance of warrants to purchase 500,000 shares of our common stock
at a weighted average exercise price of $3.22 per share to two business
development partners will result in a charge of approximately $2,300,000
over the period to be benefited.
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<PAGE> 26
The following table is a summary of our consolidated balance sheet data:
- on an actual basis;
- on an unaudited pro forma basis, as of December 31, 1999, to reflect the
automatic conversion of all of our outstanding shares of preferred stock,
excluding the Series D preferred stock, into common stock, which will
occur upon the closing of this offering; and
- on an unaudited pro forma as adjusted basis, as of December 31, 1999, to
reflect the sale of shares of common stock at an assumed initial
offering price of $ per share in this offering, after deducting the
underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------
AS OF PRO FORMA
DECEMBER 31, 1998 ACTUAL PRO FORMA AS ADJUSTED
----------------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents........... $31,505 $29,235,014 $29,235,014 $
Working capital..................... 41,090 26,672,434 26,672,434
Total assets........................ 91,298 30,282,811 30,232,811
Redeemable convertible preferred
stock............................. -- 36,668,233 --
Total stockholders' equity
(deficit)......................... 77,049 (9,080,936) 27,587,297
</TABLE>
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<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the consolidated financial statements
and the notes to those statements appearing elsewhere in this prospectus.
OVERVIEW
We provide a convenient and secure Internet service that enables our
members to receive, review, pay and organize all of their bills online through a
single web site. Since our inception in September 1998, we have focused
primarily on developing our proprietary technology, planning and developing our
web site, and building our operations infrastructure. After conducting a pilot
program during the first half of 1999, we began offering our service to the
general public in July 1999.
We generate revenues from members' subscriptions to our service. Following
a period of free service for new members, we bill members on a monthly basis and
recognize revenues as subscriptions are utilized. Initially, trial members
received 12 months of free service. Currently, new members receive three months
of free service. A member may cancel a subscription at any time with no fee for
any period following cancellation and no cancellation penalty. We charge the
costs related to our service to cost of revenues, as incurred. Beginning in
2000, we have entered into agreements with business development partners that
generally include revenue sharing arrangements. We will generally recognize all
revenues from members derived through our business development partners in the
same manner as revenues from our directly acquired members. The expenses that we
incur for revenue sharing fees paid to our business development partners will be
recognized as sales and marketing expense.
Our operating costs have increased significantly since our inception due
to, among other things, start up activities, sales and marketing expenses,
hiring of personnel and building our technology infrastructure. As of December
31, 1999, we had an accumulated deficit of $9.5 million. We expect to continue
to incur significant losses from operations for the foreseeable future, and the
rate and amount at which such losses will be incurred may increase significantly
from current levels as we increase expenditures for advertising, marketing and
other promotional activities, further develop and expand our service, hire
additional personnel and increase our business development activities.
In connection with this offering, we determined that options granted in
June 1999 and November 1999 contained a compensatory element which should be
recorded in our consolidated financial statements. With respect to these
options, the difference between the fair market value of the common stock and
the exercise price on the date of grant of the option will be amortized as
compensation expense over the vesting period of the option. Deferred
compensation associated with such options amounted to approximately $78,000 for
the year ended December 31, 1999. Of this amount, approximately $9,000 was
charged to operations in 1999 and the balance of $69,000 will be amortized over
the vesting periods of the applicable options through 2004. In addition, in
February 2000, we granted options to purchase 291,441 shares at a weighted
average exercise price of $3.77 per share, and we will record compensation
expense over the vesting period of the options, which generally is four years.
In February 2000, in connection with agreements with two of our business
development partners, we issued warrants for an aggregate of 500,000 shares of
common stock at a weighted average exercise price of $3.22 per share. We will
record a charge of approximately $2.3 million to the statement of operations
over the period to be benefited.
In March 2000, we entered into an agreement to sell 2,500,000 shares of
Series D preferred stock at a price of $4.00 per share for an aggregate purchase
price of $10.0 million. The agreement is subject to approval by the Office of
the Comptroller of the Currency or other applicable regulatory authority. In
connection with the sale, we will record a charge against net loss applicable to
common stockholders of approximately $5.0 million upon closing, which charge
relates to the difference between the amount paid for the preferred stock and
the fair market value of such shares at the date of the commitment.
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<PAGE> 28
We also may issue warrants to purchase 100,000 shares of common stock at an
exercise price of $5.00 per share in connection with a patent license. We will
be required to account for the fair market value of such warrants over the
period to be benefited.
CONSOLIDATED RESULTS OF OPERATIONS
Because we did not begin to offer our service to the general public until
July 1999, we do not believe that our 1999 and 1998 results are comparable.
Period from Inception (September 16, 1998) to December 31, 1998 and Year Ended
December 31, 1999
Revenues. Revenues are derived from recurring, monthly subscription fees
charged to our members. We had no revenues in 1998, since our service was not
introduced to the general public until 1999. Revenues were $10,000 in 1999.
Cost of Revenues. Cost of revenues principally consists of compensation
and related costs for personnel associated with the provision of our service and
customer support and, to a lesser extent, rent for our operations center, and
postage, handling and collateral costs. We had no cost of revenues in 1998. Cost
of revenues was $774,000 in 1999. A significant portion of our cost of revenues
related to the start up of our service and free services provided to new members
following the introduction of our service to the general public in July 1999. We
expect that cost of revenues will increase significantly in future periods as we
increase our member base. In addition, we plan to lease additional facilities
for operations, which will also increase cost of revenues.
Research and Development. Research and development expenses principally
consist of compensation and related expenses for personnel involved in software
engineering, graphic design and other related activities. Research and
development expenses were $880,000 in 1999 and $69,000 in 1998. The increase in
1999 was due primarily to costs associated with hiring additional personnel.
These expenses reflect the ongoing development and expansion of our service. We
believe that research and development expenditures will increase significantly
as we continue to hire personnel and make technological and other improvements
to our service.
Sales and Marketing. Sales and marketing expenses principally consist of
advertising, marketing and other promotional expenditures and costs relating to
personnel involved in our business development and marketing activities. Sales
and marketing expenses were $7.0 million in 1999 and $9,000 in 1998. The
increase in expenditures in 1999 reflects the launch of our advertising and
promotional campaigns, and the addition of personnel in our sales and marketing
departments. We expect our sales and marketing expenses to increase in future
periods as we increase promotion of the Paytrust service and brand. We also
expect to incur commissions and other payments to business development partners
and other third parties in the future as a result of our co-branding and
co-marketing agreements.
General and Administrative. General and administrative expenses
principally consist of compensation and related expenses for executive,
financial and administrative personnel and outside professional fees. General
and administrative expenses were $997,000 in 1999 and $47,000 in 1998. In 1999,
we hired additional management and administrative personnel, and incurred
professional fees and other infrastructure costs to support our corporate
growth. We expect our general and administrative expenses to increase in future
periods as we continue to expand our management and administrative
infrastructure.
Interest Income, Net. Interest income principally represents income from
our cash and cash equivalents, which were principally derived from the sale of
our Series A, B and C preferred stock during 1999. Interest income, net was
$143,000 in 1999 and $1,000 in 1998.
QUARTERLY RESULTS OF OPERATIONS
Because we did not begin to offer our service to the general public until
July 1999, we do not believe our quarterly results are comparable. The following
table presents unaudited consolidated quarterly statements of operations for
each of our four most recent quarters ended December 31, 1999. This
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<PAGE> 29
information has been prepared on the same basis as the audited consolidated
financial statements and in management's opinion, includes all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the unaudited information for the periods presented. This
information should be read in conjunction with our audited consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus. The results of operations for any quarter are not necessarily
indicative of results that may be expected for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999 DECEMBER 31, 1999
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues................................. $ -- $ -- $ 49 $ 10,220
Cost and expenses:
Cost of revenues....................... 5,062 35,854 112,951 620,276
Research and development............... 45,250 171,241 206,173 457,167
Sales and marketing.................... 30,372 176,380 3,402,328 3,373,515
General and administrative............. 94,295 186,520 266,894 448,889
--------- --------- ----------- -----------
Operating loss....................... (174,979) (569,995) (3,988,297) (4,889,627)
Interest income, net..................... 3,654 26,253 43,363 69,959
--------- --------- ----------- -----------
Net loss................................. (171,325) (543,742) (3,944,934) (4,819,668)
Accretion of preferred stock to
redemption value....................... 7,777 11,660 11,660 11,660
--------- --------- ----------- -----------
Net loss applicable to common
stockholders........................... $(179,102) $(555,402) $(3,956,594) $(4,831,328)
========= ========= =========== ===========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES.
Since inception, we have financed our operations primarily through private
sales of preferred stock, which, through December 31, 1999, raised net proceeds
of $37.0 million. As of December 31, 1999, we had approximately $29.2 million in
cash and cash equivalents. These amounts are invested in money market funds and
interest bearing bank accounts.
Net cash used in operating activities was $6.8 million in the year ended
December 31, 1999 and $130,000 in the period from inception to December 31,
1998. Net cash used in operating activities for each of these periods consisted
of net losses offset by depreciation and amortization, as well as increases to
accounts payable and accrued expenses.
Net cash used in investing activities was $1.0 million in the year ended
December 31, 1999 and $38,000 in the period from inception to December 31, 1998.
Net cash used in investing activities in each of the periods presented resulted
primarily from capital expenditures for computer and office equipment.
Net cash provided by financing activities was $37.0 million in the year
ended December 31, 1999 and $200,000 in the period from inception to December
31, 1998. Net cash provided by financing activities in 1999 principally reflects
the net proceeds from the sales of preferred stock.
Since inception, we have incurred significant losses and, as of December
31, 1999, had an accumulated deficit of $9.5 million. For the year ended
December 31, 1999, our net loss was $9.5 million. We intend to continue to
invest heavily in further development of our business. As a result, we believe
that we will incur substantial operating losses for the foreseeable future, and
that the rate at which such losses will be incurred will increase significantly
from current levels. Our ability to achieve profitability will depend on our
ability to substantially increase and retain membership in our service and
increase operating efficiencies. There can be no assurance that we will be able
to generate sufficient revenues or realize efficiencies sufficient to enable us
to achieve or sustain profitability in the future.
We anticipate that the net proceeds from this offering, together with our
available funds, will be sufficient to fund our operations for the next 12
months. However, unanticipated expenditures for the
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<PAGE> 30
development of our brand and services, expansion of our sales and marketing
organizations, acceleration of infrastructure growth and other uses could
require us to seek additional funds at an earlier time. See "Risk Factors -- If
we cannot obtain additional financing when needed, we may not be able to fund
the growth of our business."
Our exposure to market risk is limited to interest rate sensitivity, which
is affected by changes in the general level of United States interest rates. We
have invested the proceeds of our preferred stock sales in money market funds
and interest bearing bank accounts. We intend to invest the net proceeds of this
offering, pending their use, principally in short-term, investment-grade
securities. Because our investments will be short-term, we believe that we are
not subject to any material market risk exposure.
Because we began building our infrastructure in 1998, we took steps
designed to ensure that purchased hardware and software were Year 2000
compliant. To date, we have not experienced Year 2000 issues with regard to our
internal systems or with regard to any third party systems. Our expenditures
relating to Year 2000 compliance have not been material. Despite the fact that
the Year 2000 has commenced and we have experienced no problems to date, we
cannot assure that the risks posed by Year 2000 issues will not adversely affect
our business in the future, either as a result of unanticipated difficulties
related to our own systems or to third parties.
29
<PAGE> 31
BUSINESS
OVERVIEW
The Paytrust service enables our members to receive, review, pay and
organize all of their bills online through a single, convenient, secure web
site. Our members receive bill notifications and reminders via e-mail rather
than physical mail, and they can review their bill information from anywhere
they have access to the Internet. Unlike the limited online payment services
typically offered by banks, we offer a comprehensive bill management solution.
Using our proprietary technology, we can deliver 100% of a member's bills
online. We can issue payments directly from any check writing account designated
by a member, provide information that enables a member to balance his checkbook
and provide data that a member can download into his personal financial
management software. We believe that our service can substantially reduce the
time, effort and frustration involved in traditional paper-based bill
management.
The principal features of our service include the following:
- Members can receive, review, pay and organize 100% of their bills online
through paytrust.com.
- We send e-mails to alert members when a bill arrives, is about to become
overdue or does not arrive when expected.
- Members control the entire payment process and can view or print an image
of their actual bill, not just a summarization.
- Members can instruct us to pay automatically recurring monthly bills,
such as utility bills, without requiring approval each time, or requiring
approval only if the bill exceeds a preset dollar limit.
- We provide comprehensive customer service designed to provide assistance
for enrolling in and using our service, and even generating payment
transactions over the telephone.
- We respect our members' privacy and security -- we do not sell
advertising on our web site or personal information regarding our members
to third parties, and we have a comprehensive security program.
Following a six month pilot program, we launched the Paytrust service to
the general public in July 1999. Our service's total member base has grown to
approximately 15,131 as of February 25, 2000, an increase of approximately 9,800
from October 31, 1999. Through January 31, 2000, we have paid over 205,000 bills
for our members. For the month ended January 2000, members increased by 2,366,
and the total number of bills paid was approximately 74,000. This compares with
1,928 new members and approximately 52,000 bills paid for the month ended
December 1999. According to Media Metrix, Paytrust.com was among the top 75
marketing/corporate web sites for reach and unique visitors in October, November
and December 1999.
We offer our service directly on our web site, and will be offering our
service on a co-branded basis through the web sites of business development
partners. We have recently launched a co-branded service with one of these
partners and anticipate that, during 2000, we will launch our service through
the web sites of our other current partners. Our partners include large consumer
billers, financial institutions, and online financial sites and portals. We have
recently entered into business development partnerships with American Express,
GE Financial Assurance Holdings and NextCard, and are also seeking to enter into
additional business development partnerships. We believe that business
development partnerships with consumer-based companies are important to our
success because they provide us access to large numbers of potential members at
an acquisition cost per member that is substantially less than is available
through direct marketing. We believe that our partners can benefit from the
ability to introduce our co-branded service to their customers without the
expenditure of the time and resources necessary to develop an in-house service.
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<PAGE> 32
In addition to our co-branding relationships with our business development
partners, we have arrangements under which co-marketing partners promote the
Paytrust service through a link on their web sites. We currently have such
arrangements with Dell and Money.Net.
We are also pursuing arrangements with companies that can deliver bill
information to us electronically. We are currently developing the capability to
receive electronic bills directly from billers, and these arrangements may help
us encourage billers to adopt electronic billing and may provide us with
revenues in connection with our processing of electronic bills. Moreover, we
believe that the increased adoption of electronic billing may, over the long
term, reduce costs related to paper bill processing, both for billers and for
us.
We believe our comprehensive online bill management service, ease of use of
our service, our business development partnerships, our early entry into the
market, and the strength of the Paytrust brand provide us with significant
competitive advantages.
MARKET OPPORTUNITY
Limitations of Traditional Paper Bill Delivery and Payment
Traditional paper-based bill delivery and payment involves the following
steps:
- the biller transfers its internal electronic records to paper by printing
the bill, physically inserts the bill into an envelope and mails it;
- the consumer handles multiple paper bills, writes checks for each,
records the payments in his checkbook and returns the bills via mail
service;
- the billers must then manually open the payment envelope, remove the
check and remittance stub and process the payment; and
- after payment, the consumer typically receives an account statement with
cancelled checks and, utilizing this information, balances his checkbook.
Each of these steps can be cumbersome and time consuming. In addition,
paper-based bill delivery and payment can result in lost mail, late charges for
forgotten bills and errors in check writing, resulting in significant expense
for the biller and a source of frustration for the consumer. We believe that the
disadvantages inherent in paper-based billing are particularly apparent to
persons who have gained proficiency in online communications. For example,
e-mail has become widely used by millions of persons, yet most, if not all, of
their billing information arrives on paper through traditional mail delivery.
The Internet and Online Bill Delivery and Payment
The Internet is a significant global medium enabling millions of people to
share information and conduct business electronically. International Data
Corporation estimates that there were 70 million Internet users in the United
States at the end of 1998 and anticipates that this number will grow to
approximately 179 million by the end of 2003. In light of the widespread use of
the Internet as a medium for communication and commerce, we believe that our
service represents a meaningful development in the use of the Internet for
consumer convenience. While a significant number of Internet users are
conducting financial transactions online, there is substantial potential for
growth in online bill delivery and payment. Ovum Group has estimated that
electronic deliveries of bills will increase from 300 million in 1999 to 32.8
billion in 2005 and electronic payments of bills will increase from 600 million
in 1999 to 40.4 billion in 2005. As a result, we believe there is a significant
market potential for our service. We believe that an increasing number of
consumers will subscribe to online bill delivery and payment services as they
become aware of the convenience that online bill payment offers and as they
become more comfortable with conducting financial transactions over the
Internet.
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<PAGE> 33
Limitations of Other Online Services
Many online bill delivery and payment services are limited and inconvenient
and have not received widespread commercial acceptance.
- Traditional Online Bill Payment. Many banks offer consumers the ability
to issue payments electronically, either through personal financial
management software or the banks' web sites. Most banks have outsourced
these services to third party providers. These services are limited
because they do not include bill delivery, but only handle bill payment.
The consumer must handle receipt and review of bills, and enter the
clerical information necessary to initiate payment.
- Direct Bill Presentation Services. Direct bill presentment services
involve delivery by billers of their billing information to the consumer
from their own Internet site or a dedicated site managed by a billing
service provider. Billers use this procedure to maintain control of the
billing process and their relationships with the customer. The
disadvantage of this approach is that consumers must deal with the
inconvenience of accessing multiple web sites, user interfaces and
payment methods to pay all of their bills. Moreover, even if a consumer
is willing to access a variety of web sites, a significant portion of
most consumers' bills are not currently available online.
- Electronic Bill Consolidators. Electronic bill consolidators are third
party processors, including some banks, that collect on their network
billing information from a number of billers for delivery to the
consumer. While the use of electronic bill consolidators should reduce
the inconvenience to the consumer inherent in direct bill delivery, the
utility of electronic bill processors is limited because they can present
only electronic bills and not paper bills. Therefore, a significant
portion of most consumers' bills are not currently available online. In
addition, most electronic bill consolidators do not post electronic bills
of billers that are not on the consolidator's network.
The delivery and payment of bills requires the combination of capabilities
currently performed by a number of different types of organizations, and there
currently is no dominant provider of a unified service. Billers can present only
their own billing content, banks can provide payment services only to their own
customers, and electronic bill consolidators are dependent on billers both
joining their networks and providing electronic bills. We believe that the
limitations of existing paper-based methods and these online bill delivery
services, combined with the large and recurring nature of bill payment demand,
offer a substantial opportunity for our consumer-focused service.
Moreover, as evidenced by the outsourcing of online bill payment services
by most banks, we believe that many billers, banks and others will look to a
third party solution for bill delivery and payment. We believe that the
technological challenges to creating "in-house" bill delivery and payment
services, particularly in light of significant time-to-market competitive
pressures, will make our service particularly attractive to potential business
development partners.
THE PAYTRUST SOLUTION
Our comprehensive bill management solution enables our members to receive,
review, pay and organize all of their bills online through the paytrust.com web
site. Key features of our service include:
- Complete Presentment. We can deliver 100% of our members' bills online.
- Ease of Use. Our web site offers a convenient interactive environment
that enables our members to quickly review and pay their bills.
- Flexible Review. Members control the entire review process and can view
or print an image of their actual bill, not just a summarization.
- Convenient Payment. Members can approve and pay their bills online on a
single web site with funds from their existing check writing accounts at
banks and other financial institutions.
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<PAGE> 34
- E-Mail Alerts. We send e-mails to alert members when a bill arrives, is
about to become overdue or does not arrive when expected, each of which
can help our members to avoid late charges and missed payments.
- Customized Payment. Members can instruct us to pay automatically
recurring monthly bills, such as utility bills, without requiring
approval each time, or requiring approval only if the bills exceed a
preset dollar limit.
- Billing History. Members may view online a history of all bills paid
through Paytrust during the prior 12 months. Members may also obtain CD
ROMs containing their payment history.
- Customer Service. We offer call-in telephone support, 24 hours a day,
seven days a week from our customer service staff, and maintain a rapid
e-mail response system, both provided by in-house support specialists.
- Personal Financial Management Tools. Our SmartBalance feature combines a
member's bank account information with her payment activity on the
Paytrust Bill Center to enable the member to balance her checkbook.
- Compatibility with Personal Financial Management Software. Our service
enables members to download data to personal financial management
software, including Quicken and Microsoft Money.
- Strong Privacy Policy. We do not sell advertising or personal
information regarding our members to third parties.
- Comprehensive Security Program. We have a comprehensive program to
protect the security of our web site and our members' confidential
information, including modern encryption and password protection methods
and periodic third party ethical hacks, as well as physical security
policies, including employee background checks.
We believe that our business development partners can benefit from the
ability to introduce our co-branded service to their customers without
expenditure of the time and resources necessary to develop an in-house service.
In addition, our partners can derive additional revenue opportunities, including
revenue sharing arrangements with us, and provide more value-added services to
their customers.
We are further developing our solution to enable billers to reduce their
costs related to paper-based billing by delivering bills to us electronically.
We believe that, for billers, electronic billing through our web site can reduce
their costs, provide access to numerous online bill payers and reduce the need
to develop bill payment capabilities on their web sites. We have entered into an
agreement with billserv.com, Inc., a provider of software that assists billers
in issuing electronic bills, under which we will process electronic bills for
billserv.com's customers. This arrangement may help us encourage billers to
adopt electronic billing and may provide us with revenues in connection with our
processing of electronic bills. Moreover, we believe that the increased adoption
of electronic billing may, over the long term, reduce costs related to
paper-bill processing.
We are designing our electronic bill capability to accept electronic bill
information in several bill delivery formats. At the option of the biller, our
electronic bill processing will either receive and present the entire bill, or
receive only summary information and maintain links back to the biller's web
site for additional information.
STRATEGY
Our objective is to be the leading provider to consumers of online services
for receiving, reviewing, paying and organizing bills. The key elements of our
strategy are:
Increase Our Membership Base
We believe that establishing a large membership base is critical to the
long term success of our business. A large membership base can provide a
substantial competitive advantage over other market
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<PAGE> 35
entrants, allow for operational efficiencies and make electronic bill delivery
more cost effective for billers. Moreover, we believe that the inconvenience for
a member to switch from one provider to another will provide a barrier to entry
to the industry, particularly if one or a few providers attain a dominant
position in the industry. We intend to increase our membership by:
- expanding our consumer marketing efforts;
- adding business development partners;
- regularly enhancing customer service; and
- expanding our service offering.
Market Aggressively
We believe that an integrated marketing and promotional campaign will be
critical to educate consumers about our comprehensive bill management service.
Moreover, an effective marketing campaign can be helpful in attracting potential
business development partners to consider us as a provider of bill delivery and
payment services to their customers on a co-branded basis. Our business
development agreements require that our business development partners
prominently display our name and logo with the phrase "Powered by Paytrust" on
their web sites. We believe that building the brand awareness of our service
through these measures is critical to attracting and expanding our customer
base.
Acquire Members Through Business Development Partnerships
We intend to increase our membership base by continuing to enter into
agreements with business development partners that offer us an opportunity to
benefit from the relationship the partners have built with their existing
customers, provide access to large numbers of potential members and reduce
member acquisition costs. We have recently entered into business development
relationships with American Express, GE Financial Assurance Holdings and
NextCard, among others.
Increase Use of Electronic Processing
We believe that the costs of processing paper bills are far greater than
costs relating to transmission of electronic bills. Therefore, we are developing
the capability to receive electronic bills and will aggressively seek to
encourage billers to accelerate conversion from paper billing to electronic
billing. We intend to continue to seek to enter into agreements with bill
content partners to accelerate the conversion from paper to electronic billing.
Regularly Enhance Customer Service
We believe that providing superior customer service is essential,
especially in a business such as ours that is entrusted to execute personal
financial transactions. Consequently, we are committed to providing superior
in-house customer service and regularly enhancing such service through both
technological upgrades and personnel training.
THE PAYTRUST BILL CENTER
The Paytrust Bill Center is offered directly from our web site. It is
designed to be a user-friendly, informative and personalized location that
enables our members efficiently to receive, review, pay and organize their bills
online. We present members' bills in a manner that helps them quickly identify
the status of their bills and effect payment. Our web site is compatible with
recent versions of Microsoft Internet Explorer, Netscape (AOL) Navigator, and
the Microsoft Internet browser currently supplied to AOL subscribers. It is
designed to support home users with dial-up Internet access and provides
acceptable performance over 28.8K connections.
In connection with some of our business development partnerships, our
service will be co-branded and delivered through the partner's web site. The
core features of a partner's web site will be substantially the
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same as our web site, although a partner may choose not to offer some features
of our service. The appearance of a partner's web site can be modified to
conform to a partner's style guidelines.
Demonstration and Tutorial
A visitor to our web site can review pertinent information about our
service, including a comprehensive interactive demonstration that explains and
illustrates the elements and use of our service through a structured tour.
Without needing to subscribe, the visitor develops an understanding of our user-
friendly format and procedures.
Enrollment
We have designed our signup system to easily convert subscribers into
active members while obtaining the necessary financial data to initiate their
account. To enroll, the subscriber clicks through to a page that requests basic
personal information. If a subscriber has concerns about providing this
information online, we can deliver a signup pack in the mail or provide direct
telephone contact with one of our in-house customer service representatives.
Subscribers can mail or fax to Paytrust a signed acceptance page and a voided
check to complete the enrollment process.
Bill Notification
We send e-mails to our members when new bills are received, when payment
due dates approach, and if a regularly occurring bill does not arrive. The
member can click on a hyperlink on the e-mail to access the Paytrust login page.
Bill information presented on the summary page includes due date, biller name,
total due, minimum due and aggregate total dollar amounts due for all
outstanding bills. The member has a number of bill management options, including
viewing complete bill detail, printing bills or notices, or sorting bills by
several useful criteria.
Bill Payment
The member can provide specific payment instructions such as payment date,
amount to be paid and check writing account from which payment is made. A member
may also choose from other functions such as automatic payment for recurring
bills. Until 3:00 p.m. Eastern Time on the date the payment is scheduled, the
member can change the amount or date of payment, or can cancel a payment.
SmartBalance
Our SmartBalance feature combines a member's bank statement activity with
the member's payment activity on the Paytrust Bill Center, automatically
providing updated account balance information for a member's account or
accounts. With the member's authorization, we access the member's statement
activity from the online site of the member's bank or other financial
institution. To protect a member's privacy, we do not retain a member's password
or PIN number. The member must provide this information each time the
SmartBalance feature is used.
Compatibility with Financial Software
Members can download their Paytrust payment data to personal financial
management software such as Quicken or Microsoft Money, or to a spreadsheet
format that can be imported into Excel.
PAYTRUST OPERATIONS
Our services are delivered through four functional areas:
- Paytrust Bill Center;
- Bill Content Acquisition;
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<PAGE> 37
- Information Aggregation; and
- Payment Generation.
Paytrust Bill Center
The Internet-based Paytrust Bill Center is the focal point for all
interactions with Paytrust members. This is the heart of the Paytrust operation
and is designed, built and managed by Paytrust. Our service is also provided
through the web site of one of our business development partners, and we
anticipate that our service will be offered on a co-branded basis on the web
sites of our current business development partners during 2000. Both our web
site and the co-branded web sites are supported by the other functional areas of
our operations.
Bill Content Acquisition
Once a member has identified his billers, we contact those billers directly
to arrange for paper bills to be forwarded to our nearest post office box. Our
Bill Content Acquisition converts bill information into formats used by the
Paytrust Bill Center by scanning standard paper bills. We are also developing
the capability to retrieve billing information directly from biller web sites
and receive electronic bills directly from billers or electronic bill
consolidators. The formatted bill content is delivered to the Paytrust Bill
Center, where the member is notified via e-mail that a new bill has arrived and
is available for review and payment.
Paper Bills. After a member authorizes her billers to route bills to us,
the member's paper bills are forwarded to our operations center. The billing
information is then captured through a multi-stage process where the envelopes
are opened, coded and fed through high-speed scanners. The scanners capture a
full image of the paper bill and use optical character recognition software to
extract summary information such as bill amount and due date. Quality checks and
exceptions processing are performed to further ensure accuracy. The member's
bills are physically stored at our operations center for three months after they
are input into the system, then shredded.
Retrieval of Information from Billers' Web Sites. For billers who maintain
electronic bills information on their web sites, we are developing the
capability to access these bills at their web sites and import them into our
system. We intend to include this feature in our service during 2000.
Electronic Bills. We are developing technology to receive directly from
billers information transmitted in the various industry-standard electronic bill
presentation formats. These formats include the OFX standard (supported by
Microsoft, CheckFree and Intuit), the Gold standard (supported by IBM and
Integrion) and the announced IFX 'unified' standard. We will use bill content
providers to convert the biller's output into a format recognized by the
Paytrust internal processing systems. Paytrust electronic bill processing will
support either the receipt of an entire bill electronically or the receipt of
only summary information, while maintaining links to the biller's web site for
more detailed information.
Information Aggregation
Our Information Aggregation enables our members to use the SmartBalance
feature to help calculate their current cash position. Information Aggregation
retrieves and gathers member-specific information from a variety of web sites,
such as online banking web sites, for presentation to the member through the
Paytrust Bill Center. In the case of online banking web sites, recent bank
statement activity is retrieved and combined with the member's payment
information from the Paytrust Bill Center to enable the member to balance her
checkbook.
Payment Generation
Payment Generation issues payments authorized by the member directly from
the member's existing check writing account. For paper payments, we print and
mail checks from our operations center. We can include an image of the biller's
remittance stub physically attached to paper checks we mail, which
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provides the biller information needed to process the payment. For electronic
payments, this system initiates automated clearinghouse (ACH) transactions using
a bank to issue transactions into the ACH network to deliver funds remittance
information to billers. Currently, we use electronic bill payment only for
payment of our member fees. See "Risk Factors -- Our business may be limited by
an outstanding patent, and we could be subject to costly patent infringement
claims."
BUSINESS DEVELOPMENT PARTNER RELATIONSHIPS
We view business development partners as important because they provide
access to large numbers of potential members, offer us an opportunity to benefit
from the relationships they have built with their customers and reduce our
member acquisition costs. To enter into effective business development partner
relationships, it is necessary for us to convince potential partners that they
can realize meaningful benefits from the provision of our service to their
customers. We believe our partners can utilize their relationships with us to
derive additional revenue opportunities, including revenue-sharing arrangements
with us, and provide more value-added services to their customers.
Our business development agreements contemplate that our business
development partners will participate in the preparation and distribution of
promotional material relating to the co-branded web site on which our service is
offered to their customers. In addition, these agreements require that our
business development partners prominently display our name and logo with the
phrase "Powered by Paytrust" on their web sites.
We have recently entered into agreements with the companies listed below,
with whom we are currently implementing business development relationships
designed to increase our member base:
- American Express
- GE Financial Assurance Holdings
- NextCard
- OnMoney.com
- RewardsPlus
To date, we have initiated our service on the OnMoney.com web site. We
anticipate that our service will be introduced on the other partners' web sites
during 2000.
MARKETING
We have implemented a direct marketing and business development strategy
designed to increase our member base and strengthen the Paytrust brand name. We
focus our marketing efforts on consumer adoption of our service. Our direct
marketing campaigns are comprised of co-marketing, mass-media advertising,
online affiliate programs and referral programs.
Co-Marketing. We have arrangements whereby our co-marketing partners offer
the Paytrust service to their customers through a link on their web sites. We
pay our co-marketing partners a commission for each new subscriber who accesses
our web site through the partners' web sites. We currently have such
arrangements with Dell and Money.Net.
Mass-Media Advertising. We began radio advertising in selected
metropolitan markets in July 1999 and have plans to institute print advertising
in a number of daily newspapers. Following the offering, we plan to expand our
advertising campaign to television and to institute direct mail campaigns. We
also will seek to enter into arrangements with major billers to enclose inserts
promoting the Paytrust service with their paper bills.
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Online Affiliate Program. We introduced an online affiliate program in
September 1999. Through the program, other web site hosts earn a commission for
each new subscriber who accesses our web site through the affiliate's site and
becomes a paying member.
Referral Programs. We are actively promoting our Tell-A-Friend referral
program. Under the program, which was launched in August 1999, a Paytrust member
receives one free month of service for every new member referred to Paytrust.
SECURITY
Our service involves the use of confidential personal information of our
members. We have taken several steps to protect the security and confidentiality
of our members' information.
We use Qwest Communications for web site hosting, while maintaining a
backup environment in our Princeton, New Jersey facility. Strict information
access and physical site security policies are enforced.
The Paytrust web site is hosted on a secure server. The interactive
demonstrations of the Paytrust service, biller and partner program information
and general corporate information are transmitted using standard Internet
hypertext transfer protocol (HTTP). New subscriber information is transmitted
using secure socket layer (SSL) encryption. Subscriber access to the bill
presentment and payment service is both encrypted and password protected. We
have also been certified by VeriSign, a provider of authentication and
validation services, as a VeriSign secure site.
We arrange for third party ethical hacks on a regular basis as well as
internal hacks designed to identify weaknesses in our systems. We have recently
instituted background checks for our new employees.
PRIVACY
We have a strong commitment to our members' privacy, and we make our
privacy policy publicly available. We do not sell advertising or personal
information regarding our members to third parties. We are a member of the
TRUSTe Privacy Program. TRUSTe is an independent, non-profit organization that
promulgates Internet privacy standards.
CUSTOMER SERVICE
We are committed to providing superior customer service to our members
through our in-house staff. Customer service representatives are available for
support 24 hours a day, seven days a week. In addition, we maintain a rapid
e-mail response system. Our customer service is designed to provide assistance
regarding all aspects of our service, including assistance in enrollment and in
the use of our service by our members. If a member wishes to execute a
transaction at a time the member does not have access to the Internet, our
customer service staff can process transactions using member instructions given
over the telephone. With a member's authorization, representatives can access a
member's account while communicating with the member, analyze account activity
or status and process bill updates or authorizations.
COMPETITION
The online bill presentation and payment market is new, rapidly evolving
and intensely competitive. We expect that competition will further intensify in
the future. At present, there are at least two other companies that directly
compete with us by offering online bill delivery and payment services,
PayMyBills.com and Cyberbills/StatusFactory. Intuit has recently announced an
intention to initiate a competitive service. In addition, there are at least two
electronic bill processors that act as an intermediary between billers and
consumers, CheckFree and TransPoint (who have recently announced plans for
CheckFree to acquire TransPoint). In addition, Spectrum, a bank consortium
formed by Chase, Wells Fargo and First Union, has announced its intention to
provide similar intermediary electronic bill processing services. Online
consumer financial service providers also offer bill payment and limited bill
delivery services. Moreover, a number of banks and financial institutions offer
their customers online bill payment services.
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In addition to competing with online bill delivery and payment vendors,
electronic bill processors and banks and financial institutions for market
share, we also compete with traditional bill payment methods, including
paper-based methods. We believe that the principal competitive factors in our
market include:
- convenience and ease of use;
- customer service;
- price;
- consumer trust and security; and
- brand recognition.
We believe that the scope of our bill delivery and payment features,
coupled with the consumer-oriented nature of our service, provide us with
competitive advantages. However, although no competitor has established a
dominant position, many of our competitors are much larger, have much greater
financial resources and have more experience in electronic bill delivery and
payment. If we do not compete effectively, our financial performance will suffer
and our long-term viability will be threatened.
GOVERNMENT REGULATION
We believe that we are not a bank or other form of depository institution
that is required to be chartered or licensed or subject to ongoing regulation by
federal and/or state agencies that regulate depository institutions, such as
banks, thrifts and credit unions. Most states presently regulate the "money
services business," which has traditionally included "money transmitters,"
"check cashers," "wire transferors" and "check sellers." Recently, a few states
have added "bill payers" as an additional category of business requiring an
application and/or licensing. The regulation of money services businesses
typically entails the posting of a bond and the maintenance of minimum net worth
requirements. While our present activities do not require that we do so, we have
determined to apply for a "money transmitter" license under New Jersey law. We
will be required to post a surety bond in the minimum amount of $100,000 and
maintain a minimum net worth of at least $100,000 in order to receive this
license. It is possible that we will become subject to licensing or registration
requirements in additional states, or regulation at the federal level. Such
regulation or supervision could subject us to additional administrative burdens,
restrictions on the manner in which we do business, the prohibition or
limitation of certain kinds of business, minimum capital requirements, the
posting of bonds, and the payment of special assessments or fees. Our failure or
inability to obtain a required license or qualification could impede our ability
to provide our service in affected jurisdictions. If we become subject to
financial institution regulations, our business could become more expensive to
operate.
We are subject to laws and regulations relating to commercial transactions
generally. We are also subject to certain laws and regulations which are
intended to protect consumers. The Electronic Fund Transfer Act provides a basic
framework establishing the rights, liabilities, and responsibilities of
participants in electronic fund transfer systems relating to consumer accounts.
An "electronic fund transfer" includes, among other things, point-of-sale
transfers, automatic teller machine transactions, direct deposits or withdrawal
of funds, and transfers initiated by telephone. Specifically excluded are
transfers of funds originated by check, either in paper form or through an
electronic terminal. Neither the Electronic Fund Transfer Act nor Regulation E,
which interprets that law, specifically address bill payment services such as
ours. At such time as we initiate electronic bill payment, we may become subject
to the Electronic Fund Transfer Act and Regulation E provisions governing
electronic fund transfer service providers that do not hold customer accounts.
These provisions provide for various disclosures and the maintenance of error
resolution procedures. In some instances, we may also be subject to provisions
relating to pre-authorized electronic transfers, including obtaining customer
pre-authorization and providing certain notices.
We are also subject to federal privacy law provisions set forth in the
recently enacted Gramm-Leach-Bliley Act. These provisions require disclosure of
our privacy policy when we establish a customer relationship, which is
consistent with our present practice. This law may limit the ability of
financial
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services organizations to share confidential information about consumers with
third parties. Because we do not contemplate entering into such third-party
sharing arrangements, we do not believe that this law will adversely affect our
business.
Federal, state and local laws and regulations may be adopted in the future
to address issues such as:
- pricing;
- online content regulation;
- privacy;
- taxation; and
- the characteristics and quality of online products and services.
New laws or regulations relating to the Internet could have a material and
adverse effect on our business, financial condition and results of operations.
For more information, see "Risk Factors -- Our business could be subject to
financial institution regulation, which could make our business more expensive
to operate."
Because we are an Internet company, it is unclear in which jurisdictions we
are actually conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines and penalties
and could result in our inability to enforce agreements in that jurisdiction.
For more information, see "Risk Factors -- Government regulation of the Internet
may add to our operating costs."
INTELLECTUAL PROPERTY
We regard the protection of our intellectual property rights to be
important. We rely on a combination of patent, copyright, trademark, service
mark and trade secret restrictions and contractual provisions to protect our
intellectual property rights. We require employees and independent contractors
to enter into confidentiality and invention assignment agreements and require
some employees to enter into non-competition agreements. The contractual
provisions and the other steps we have taken to protect our intellectual
property may not prevent misappropriation of our technology or deter third
parties from developing similar or competing technologies.
We have applied for United States trademark registration on Paytrust,
Paytrust.com, SmartBalance, "Pay Your Bills in Nanoseconds" and our floating
check design. We have also applied for European trademark registration on
Paytrust.
We have filed a patent application in the United States with respect to
certain features of our Paytrust service relating to conversion of paper
documents to electronic format for presentation of information online and
imaging remittance stubs for billers. We cannot assure that this patent will be
issued, or that, even if issued, this patent will adequately protect our
technology or processes or otherwise result in commercial advantages to us.
There is also significant uncertainty regarding the applicability to the
Internet of existing laws regarding matters such as property ownership,
copyrights and other intellectual property rights. The vast majority of these
laws were adopted prior to the advent of the Internet and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies.
For further information, see "Risk Factors -- Our proprietary rights may
not be fully protected and we may be subject to intellectual property
infringement claims by others."
We are aware of U.S. Patent No. 5,956,700 relating to electronic bill
presentment and payment services owned by Midwest Payment Systems. Although the
Midwest patent principally involves electronic bill receipt and payment
services, its scope could be broader and may extend to non-electronic bill
payment services such as ours. We are currently developing our capability to
receive electronic bills. Our future profitability will depend, in significant
part, on our ability to increase the percentage of bills we receive
electronically and our ability to make payments electronically on behalf of our
members. If we
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conduct electronic bill presentment and payment services without obtaining a
license from Midwest, we could infringe the Midwest patent. We are, however,
conducting a search for prior art relevant to the validity, enforceability and
scope of the Midwest patent. We have entered into a non-binding letter agreement
under which we will license Midwest's patent in exchange for a warrant to
purchase 100,000 shares of our common stock at an exercise price of $5.00 per
share and an annual license fee of $25,000. However, any license would be
subject to negotiation of definitive terms. If we do not obtain a license from
Midwest, we face the risk that Midwest could initiate a patent infringement
lawsuit against us claiming that our business practices infringe their patent.
Such a lawsuit would likely cause us to incur significant expenses in defending
against the claim and could lead to an injunction, damages or the need to make
royalty payments, any of which could adversely affect our business, financial
condition and results of operations. In addition, our ability to remit payments
to third party billers electronically is currently limited by contractual
provisions with one of our business development partners relating to this
patent. See "Risk Factors -- Our business may be limited by an outstanding
patent, and we could be subject to costly patent infringement claims."
EMPLOYEES
As of February 19, 2000, we had 88 employees and 78 temporary personnel. Of
our employees, 25 are engaged in operations, 19 are engaged in research and
development, 14 are engaged in customer service, 16 are engaged in sales and
marketing and 14 are engaged in administration, human resources and legal
affairs. All of our temporary personnel are engaged in operations. None of our
employees are represented by a collective bargaining agreement, and we believe
that we have good relations with our employees.
FACILITIES
We lease all of our facilities and believe our current facilities are
adequate to meet our needs for the foreseeable future. We believe additional or
alternative facilities can be leased to meet our future needs on commercially
reasonable terms.
The following table describes our facilities:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE USE TERM OF LEASE
- -------- -------------- ------------------- ------------------------------
<S> <C> <C> <C>
Princeton (West Windsor
Township), New Jersey....... 7,800 Principal corporate Expires September 2004 with no
offices renewal option
Lawrenceville, New Jersey..... 50,000* Operations Expires January 2005 with
five-year renewal option
Herndon, Virginia............. 200 Sales office Expires August 2000 with
one-year renewal option
</TABLE>
- ---------------
* We currently occupy 2,000 square feet. Under our lease, an additional 18,000
square feet will be ready for occupancy by May 31, 2000; an additional 15,000
square feet will be available for occupancy no later than June 30, 2000; and
the remaining 15,000 square feet will be available for occupancy no later than
November 30, 2000.
We intend to open facilities in other locations to accommodate the
expansion of our operations and provide additional system backup capabilities.
LEGAL PROCEEDINGS
We may, from time to time, become a party to various legal proceedings in
the ordinary course of business. These claims, even if without merit, could
cause us to expend significant financial and managerial resources, which could
adversely affect our business operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth specific information regarding our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Edward G. McLaughlin................. 34 Chief Executive Officer and Director
Flint A. Lane........................ 33 Chairman of the Board, President and Chief Operating
Officer
John A. Yapaola...................... 40 Executive Vice President, Business Development
Kenneth W. Zeng...................... 33 Chief Financial Officer, Secretary and Treasurer
Lawrence R. Greenberg................ 33 Chief Technology Officer
David S. Fortney..................... 35 Chief Development Officer
Edward J. Yocum, Jr. ................ 34 Vice President and General Counsel
Brion B. Applegate(a)................ 46 Director
Pierric D. Beckert(b)................ 33 Director
R. Bradford Burnham(b)............... 45 Director
John L. Connolly(a).................. 48 Director
Gary E. Rieschel(a).................. 43 Director
</TABLE>
- ---------------
(a) Member of the audit committee
(b) Member of the compensation committee
Each executive officer serves at the discretion of our board of directors,
subject to the terms of the employment agreements described below under
"Employment and Change in Control Agreements."
Following this offering, our certificate of incorporation will divide our
board of directors into three classes, with each director serving for a
three-year term. will be in the class of directors with a term
ending at the annual meeting of stockholders held in 2001. will
be in the class of directors with a term ending at the annual meeting of
stockholders held in 2002. will be in the class of directors with
a term ending at the annual meeting of stockholders in 2003. To the extent there
is an increase in the number of directors, we will distribute the additional
directorships so that, as nearly as possible, each class will consist of an
equal number of directors.
Under a voting agreement among all of the current stockholders that
terminates upon the completion of this offering, the holders of Series A
preferred stock have designated one director, the holders of Series B preferred
stock have designated two directors, the holders of Series C preferred stock
have designated two directors, the holder of the Series D preferred stock may
designate one director if the Series D preferred stock is issued and the holders
of common stock have designated two directors. Mr. Connolly has been designated
by the holders of Series A preferred stock, Messrs. Burnham and Applegate have
been designated by the holders of Series B preferred stock, Messrs. Beckert and
Rieschel have been designated by the holders of Series C preferred stock, and
Messrs. Lane and McLaughlin have been designated by the holders of common stock.
Edward G. McLaughlin is our co-founder and has served as a director since
our inception. Mr. McLaughlin has been our Chief Executive Officer since June
1999 and was our President from January 1999 to June 1999. From July 1995 until
October 1998, Mr. McLaughlin held various positions, most recently as Executive
Vice President of Marketing, at Logic Works, Inc., a provider of relational
database modeling and design, which was acquired by Platinum Technology, Inc. in
May 1998. From 1992 to July 1995, Mr. McLaughlin was Director of Information
Tools at Actium Corporation, a systems integration company. From 1987 to 1992,
Mr. McLaughlin was Manager of EDI (Electronic Data Interchange) Services at
Information and Financial Services, Inc., a software and services company. Mr.
McLaughlin holds a B.S. in Economics from the Wharton School, University of
Pennsylvania.
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Flint A. Lane is our co-founder and has served as our Chief Operating
Officer and a director since our inception, our President since June 1999 and
our Chairman of the Board since June 1999. From January 1999 to June 1999, Mr.
Lane served as our Vice President, Secretary and Treasurer. From March 1996 to
September 1998, Mr. Lane held various positions, most recently as Executive Vice
President of Research and Development, at Logic Works. From March 1995 to
February 1996, Mr. Lane served as Laboratory Manager of the New York, New York
facility of Platinum Technology. From 1990 to March 1995, Mr. Lane served as
Vice President of Development of BrownStone Solutions Inc., a provider of
enterprise repository software. Prior to 1990, Mr. Lane was employed by Arthur
Andersen LLP. Mr. Lane holds a B.S. in Computer Science from Rensselaer
Polytechnic Institute.
John A. Yapaola has served as our Executive Vice President, Business
Development since June 1999. From June 1996 to June 1999, he was Vice President
of the Americas for The Fantastic Corporation, a developer of broadband
technology. From 1994 to May 1996, Mr. Yapaola was Vice President of Sales at
Logic Works. From 1992 to 1994, Mr. Yapaola held senior management positions at
Parametric Technology Corporation, a provider of integrated product development
and lifecycle management software solutions. Mr. Yapaola holds a B.S. in
Marketing from St. Peter's College.
Kenneth W. Zeng, CPA, has served as our Chief Financial Officer since
January 2000 and joined us as Vice President, Finance in April 1999. Since June
1999, he has also been our Secretary and Treasurer. From September 1998 to March
1999, Mr. Zeng was Vice President of Finance and Administration at Nettech
Systems, Inc., a provider of middleware software as part of a wireless
communication system. From July 1995 to July 1998, Mr. Zeng held various
corporate finance positions at Logic Works, including, most recently,
Controller. Prior to joining Logic Works, Mr. Zeng was an Audit Manager at Ernst
& Young LLP, where he worked for seven years. Mr. Zeng holds a B.A. in Business
Administration from Saint Bonaventure University.
Lawrence R. Greenberg has served as our Chief Technology Officer since
October 1999. From July 1999 until joining us, Mr. Greenberg served as Chief
Operating Officer at Acolyte Systems, Inc., a developer of wireless programmable
lighting systems. From 1993 through July 1999, Mr. Greenberg served as Chief
Information Officer at Princeton eCom Corporation, an electronic commerce
company. Mr. Greenberg holds a B.A. in Psychology from Rutgers University.
David S. Fortney has served as our Chief Development Officer since February
2000. From January 1997 until joining us, Mr. Fortney served as Chief
Development Officer at Integrion Financial Network LLC, a provider of internet
banking and bill payment infrastructure to financial institutions. From 1994 to
January 1997, Mr. Fortney served as Senior Vice President, Strategic Technology
Group, of NationsBank Corp. Mr. Fortney holds a B.S. in Mathematics from the
University of North Carolina and an M.S. in Operations Research from Stanford
University.
Edward J. Yocum, Jr. has served as our Vice President and General Counsel
since February 2000. Mr. Yocum was an attorney with Morgan, Lewis & Bockius LLP,
New York, New York, from March 1996 until joining us, and an attorney with
Shearman & Sterling, New York, New York, from 1990 through March 1996. Mr. Yocum
has concentrated his practice in the areas of corporate finance and mergers and
acquisitions. Mr. Yocum holds a B.B.A. from Temple University and a J.D. from
Villanova University School of Law.
Brion B. Applegate has served as our director since May 1999. He is the
Managing General Partner of Spectrum Equity Investors III, L.P. and the Managing
General Partner of Spectrum Equity Investors, a venture capital firm, which he
co-founded in 1993. Prior to forming Spectrum, he was a General Partner of funds
managed by Burr, Egan, Deleage & Co., a venture capital firm, from 1982 to 1993.
Mr. Applegate serves as a director of Network Access Solutions, Inc. and Tut
Systems, Inc. Mr. Applegate holds a B.S. from Colgate University and an M.B.A.
from Harvard Business School.
Pierric D. Beckert has served as our director since November 1999. He has
served as Senior Vice President of Interactive Investments, a division of
American Express Relationship Services and part of American Express Travel
Related Services Company, Inc. since January 2000. From December 1998 to
43
<PAGE> 45
January 2000, Mr. Beckert served as Vice President of Interactive Enterprise
Development, a division of American Express Relationship Services. From August
1996 to December 1998, Mr. Beckert served as the Director of Interactive New
Business Development within American Express Relationship Services. From 1994 to
1996, Mr. Beckert was a director of the Customer Information Management group
within American Express Travel Related Services. Mr. Beckert serves as a
director of Exactis.com, Inc. Mr. Beckert received an M.A. from the Ecole
Nationale de la Statistique et de l'Administration Economique.
R. Bradford Burnham has served as our director since May 1999. He is a
Manager of Venture Management LLC, a venture capital firm operating funds
including AT&T Venture Fund II, LP, Special Partners Fund, LP and Special
Partners Fund International, LP. Prior to joining Venture Management LLC in
1993, he was founder and Chief Executive Officer of Echo Logic. Prior to that
time, Mr. Burnham held a variety of sales and marketing positions at AT&T, most
recently as Director of Business Development for AT&T Computer Systems. Mr.
Burnham serves as a director of Audible, Inc. and MediConsult, Inc. Mr. Burnham
holds a B.A. from Wesleyan University.
John L. Connolly has served as our director since February 1999 and has
served as the President of Aralia Technology Partners, LP, a venture capital
firm, since its inception in February 1999. Prior to that time, Mr. Connolly
served in various capacities at Actium Corporation, Actium Technology, Inc. and
Actium Tools, Inc., all information technology consulting companies, from 1992
until those companies were acquired by Modis Professional Services in March
1998. Mr. Connolly served as President of both Actium Corporation and Actium
Tools from February 1995 to March 1998 and as Chief Operating Officer of Actium
Technology from March 1998. Mr. Connolly holds a B.S. in accounting and an
M.B.A. from Philadelphia College of Textiles and Science.
Gary E. Rieschel has served as our director since November 1999. He is the
Executive Managing Director of SOFTBANK Venture Capital, a venture capital firm.
Since joining SOFTBANK in January 1996, he has led the firm's venture capital
activities in the United States. Mr. Rieschel served as Senior Vice President,
Marketing at nCUBE from 1995 until joining SOFTBANK and as Director, Worldwide
Channels at Cisco Systems, Inc. from 1993 to 1994. Mr. Rieschel is a member of
SOFTBANK Corporation's Global Executive Board and Investment Committee. Mr.
Rieschel serves as a director of Preview Systems Inc. and Net2Phone, Inc. Mr.
Rieschel holds a B.A. in biology from Reed College and an M.B.A. from Harvard
Business School.
BOARD COMMITTEES
The audit committee of the board of directors reviews our internal
accounting procedures and consults with and reviews the services provided by our
independent accountants. The audit committee currently consists of Brion B.
Applegate, John L. Connolly and Gary E. Rieschel.
The compensation committee of the board of directors reviews and recommends
to the board of directors the compensation and benefits of all of our executive
officers and establishes and reviews general policies relating to compensation
and benefits of our employees. The compensation committee currently consists of
Pierric D. Beckert and R. Bradford Burnham.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding compensation for 1999, other than the grant of options,
were made by the entire board of directors, which included Edward G. McLaughlin,
our Chief Executive Officer, and Flint A. Lane, our Chairman of the Board,
President and Chief Operating Officer.
DIRECTOR COMPENSATION
We reimburse our directors for travel and lodging expenses in connection
with attendance at board and committee meetings. We may determine to provide
compensation to our directors in the future.
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<PAGE> 46
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which a director derives an improper personal
benefit.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers, and may indemnify our other officers and
employees and other agents, to the fullest extent permitted by law. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity and certain other capacities, such as serving as a director of another
corporation at our request, regardless of whether the bylaws would permit
indemnification. We have purchased directors and officers liability insurance.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation we paid to our Chief
Executive Officer and our other executive officer whose salary and bonus
exceeded $100,000 in 1999. We call these persons "principal executive officers"
in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION --------------------
------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
--------------------------- ---- -------- -------- --------------------
<S> <C> <C> <C> <C>
Edward G. McLaughlin
Chief Executive Officer....................... 1999 $76,923 $50,000 442,500
Flint A. Lane
Chairman of the Board, President and Chief
Operating Officer............................. 1999 76,923 50,000 442,500
</TABLE>
45
<PAGE> 47
STOCK OPTION INFORMATION
OPTION GRANTS DURING LAST FISCAL YEAR
The following table provides information regarding stock options granted to
our principal executive officers during 1999. Except as noted below, all options
were granted at an exercise price equal to the fair market value of our common
stock on the date of grant, as determined by our board of directors.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBERS OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED OPTION TERM(1)
UNDERLYING TO EMPLOYEES IN EXERCISE PRICE ---------------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
- ---- --------------- ---------------- -------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward G. McLaughlin...... 398,253(2) 22.3% $2.03 12/21/09
44,247(3) 2.5 2.26 12/21/04
Flint A. Lane............. 398,253(2) 22.3 2.03 12/21/09
44,247(3) 2.5 2.26 12/21/04
</TABLE>
- ---------------
(1) The amounts in the 5% and 10% columns show hypothetical gains that could be
achieved if the options listed in the table were exercised at the end of the
option term. The gains are based on assumed rates of appreciation of five
percent and ten percent compounded annually from the date the options were
granted to the end of their term, assuming for the purposes of this table
only that the per share market price on the date of grant was equal to the
assumed initial public offering price of $ per share. In using these
assumptions, we do not intend to forecast future appreciation of our stock
price. Moreover, the potential realizable value shown does not take into
account federal or state income tax consequences of option exercises or
sales of appreciated stock.
(2) These options vest immediately on the first to occur of the valuation of our
company at an amount greater than $500,000,000 or the seventh anniversary of
the date of grant.
(3) These options were granted at an exercise price equal to 110% of the fair
market value of our common stock as determined by our board of directors on
the date of grant. These options vest immediately on the first to occur of
the valuation of our company at an amount greater than $500,000,000 or the
fifth anniversary of the date of grant.
FISCAL YEAR END OPTION VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by our principal
executive officers as of December 31, 1999. None of these executive officers
exercised options during 1999. We have calculated the value of in-the-money
options based on the assumed initial public offering price of $ per share.
<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>
Edward G. McLaughlin....................... -- 442,500 -- $
Flint A. Lane.............................. -- 442,500 --
</TABLE>
STOCK PLANS
1999 Equity Compensation Plan. Our equity compensation plan provides for
grants of incentive stock options, nonqualified stock options, and restricted
stock to our employees, advisors, consultants and non-employee directors. The
plan authorizes up to 6,667,523 shares of our stock for issuance under the terms
of the plan. After the consummation of this offering, no more than 300,000
shares in the aggregate
46
<PAGE> 48
may be granted to any individual in any calendar year. As of February 28, 2000,
options to purchase 2,059,657 options were outstanding under the plan. In
addition we have granted 40,000 shares of restricted stock in exchange for an
approximately $32,800 promissory note. No other type of grant was outstanding
under the plan. If options granted under the plan expire or are terminated for
any reason without being exercised, or if restricted stock is forfeited, the
shares of stock underlying the grants will again be available for purposes of
the plan.
General. The board of directors may amend or terminate the plan at any
time. However, the board of directors may not amend the plan without stockholder
approval if such approval is required in order for grants of incentive stock
options to meet the requirements of Section 422 of the Internal Revenue Code or
such approval is required in order to exempt compensation under the plan from
the deduction limit under Section 162(m) of the Internal Revenue Code.
Administration of the Plan. The Plan is administered by the compensation
committee of the board of directors, which will, among other things, determine
the terms and recipients of grants of options or restricted stock under the
plan.
Options. The exercise price of an incentive stock option must be equal to
or greater than the fair market value of our stock on the date the incentive
stock option is granted. The exercise price of a nonqualified stock option may
be equal to, greater than or less than the fair market value of our stock on the
date the nonqualified stock option is granted. The compensation committee will
determine the term of each option, up to a maximum ten year term. The term of an
incentive stock option granted to an employee who owns more than 10% of our
stock may not exceed five years from the date of grant.
Restricted Stock. The compensation committee may issue shares of stock to
participants subject to restrictions or no restrictions, as the compensation
committee determines. Unless the compensation committee determines otherwise,
during the restriction period, grantees will have the right to vote shares of
restricted stock and to receive dividends or other distributions, if any, paid
on such shares. If a grantee's employment or service terminates during the
restriction period or if any other conditions are not met, the restricted stock
will terminate as to all shares on which restrictions are still applicable,
unless the compensation committee determines otherwise.
Change of Control. Upon a change of control, as defined in the plan,
where we are not the surviving corporation or we survive only as a subsidiary of
another corporation, unless the compensation committee determines otherwise, all
outstanding options that are not exercised will be assumed by, or replaced with,
comparable options of the surviving corporation, and all outstanding restricted
stock will be converted to restricted stock of the surviving corporation.
Upon a change of control, the compensation committee may, but is not
required to:
- accelerate the vesting and exercisability of outstanding stock options
and cause the restrictions on restricted stock to lapse;
- require that grantees surrender their outstanding options in exchange for
payment by us, in cash or stock, as determined by the compensation
committee, in an amount equal to the amount by which the fair market
value of the shares of stock subject to the grantee's unexercised options
exceeds the exercise price of the options; or
- after giving grantees an opportunity to exercise their outstanding
options, terminate any or all unexercised options.
2000 Employee Stock Purchase Plan. We have adopted, effective upon the
date of this prospectus, an employee stock purchase plan. Under the purchase
plan, eligible employees will be provided an opportunity to purchase shares of
common stock generally through regular payroll deductions. The purchase plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code.
47
<PAGE> 49
Under the purchase plan, 500,000 shares of common stock are authorized for
issuance. Employees will be given an opportunity to purchase shares of common
stock during consecutive periods commencing on the date of this prospectus and
on the first trading day after the following November 30 and May 31, and the
right to purchase shares will expire on the last day of the period. The purchase
price of each share of stock during the initial purchase period will be the
lesser of the fair market value per share of our stock on the effective date of
the plan or 85% of the fair market value on the purchase date. Thereafter, the
purchase price of each share of stock under the purchase plan will be equal to
85% of the lesser of the fair market value per share of our stock on the start
date of the purchase period or on the date of purchase. The maximum number of
shares that an employee may purchase during a purchase period is 1,500 shares.
The purchase plan will terminate in ten years, unless it is terminated sooner by
our board of directors.
401(k) Plan. Our employees are eligible to participate in our 401(k) plan.
Under our 401(k) plan, employees may elect to make a salary reduction
contribution up to the lesser of 15% of eligible compensation or the statutorily
prescribed annual limit, which was $10,000 in 1999. The 401(k) plan is intended
to qualify under Section 401 of the Internal Revenue Code, so that the
contributions by our employees will be deductible when made and income earned on
plan contributions are not taxable to the employees until withdrawn. We do not
make matching or profit sharing contributions, although we may choose to do so
in the future.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
We have employment agreements with Edward G. McLaughlin, Flint A. Lane and
John A. Yapaola. Under their employment agreements, Messrs. McLaughlin and Lane
are each employed for a two year term ending May 28, 2001 at a base annual
salary of $100,000 plus a bonus, which for 1999 was $50,000, renewable for
successive one year terms unless either party gives a termination notice at
least 90 days prior to the end of the term. The compensation committee has
increased each of Messrs. McLaughlin's and Lane's salary to $175,000 for 2000.
In the event that we desire to terminate the agreements with either or both of
Messrs. McLaughlin and Lane without cause, we must continue to pay their base
salary for the greater of nine months or the remainder of the employment term.
Under Mr. Yapaola's employment agreement, he serves at the discretion of the
board of directors at a base annual salary of $100,000, plus a bonus, not to
exceed $500,000, based on the number of paying members that sign up for our
service through Mr. Yapaola's initiatives. Mr. Yapaola's base annual salary
increased to $125,000 for 2000. Mr. Yapaola is entitled to an annual
non-refundable advance of $50,000 on his bonus, paid on a biweekly basis. Mr.
Yapaola may be terminated without cause upon three months prior written notice.
In such an event, we must continue paying Mr. Yapaola an amount equal to 50
percent of his total annual compensation, including bonus earned to the date of
termination, in equal installments over a three month period. In addition, Mr.
Yapaola will have the right, for a 90 day period following termination without
cause, to purchase all of his vested options.
Our other executive officers, Kenneth W. Zeng, Lawrence R. Greenberg, David
S. Fortney and Edward J. Yocum, serve at the discretion of our board of
directors. Under their severance agreements, if we experience a change of
control, as defined in their agreements, and any of these officers is
involuntarily terminated within 18 months of such change of control, the
terminated officer shall receive a severance payment, payable over six months,
equal to 50 percent of base salary plus target bonus, in the case of Messrs.
Zeng, Fortney and Yocum, and equal to two months of base salary for every year
of service, up to a maximum of six months, in the case of Mr. Greenberg. In the
event any of these officers are involuntarily terminated within 18 months of a
change of control, all outstanding options held by the terminated officer
immediately accelerate and remain fully exercisable until the earlier of (a) the
expiration of the option term or (b) the expiration of a one year period
measured from the effective date of the involuntary termination.
48
<PAGE> 50
RELATED PARTY TRANSACTIONS
SALES OF COMMON STOCK TO EXECUTIVE OFFICERS
In October 1998, we sold 4,500,000 shares of common stock (as adjusted for
the subsequent merger of LM Holdings, Inc. with us) at a price of $0.02 per
share for an aggregate purchase price of $200,000 to each of Edward G.
McLaughlin, our Chief Executive Officer, and Flint A. Lane, our Chairman of the
Board, President and Chief Operating Officer.
In June 1999, we sold 200,000 shares of common stock to John A. Yapaola,
our Executive Vice President, Business Development, at a price of $0.82 per
share for an aggregate purchase price of $164,000. We loaned Mr. Yapaola
approximately $164,000 to purchase these shares. The loan bears interest at a
rate of 6.75% and is due and payable in full on June 14, 2002. We may accelerate
the maturity of the outstanding principal balance due on the loan in the event
Mr. Yapaola's employment with us is terminated at any time for any reason.
In October 1999, we sold 40,000 shares of common stock to Lawrence R.
Greenberg, our Chief Technology Officer, at a price of $0.82 per share for an
aggregate purchase price of $32,800. We loaned Mr. Greenberg approximately
$32,800 to purchase these shares. The loan bears interest at a rate of 6.75% and
is due and payable in full on October 25, 2002. We may repurchase these shares
at $0.82 per share if Mr. Greenberg's employment with us is terminated prior to
the first anniversary of our sale of the common stock to him. We may accelerate
the maturity of the outstanding principal balance due on the loan in the event
Mr. Greenberg's employment with us is terminated at any time for any reason.
PREFERRED STOCK PRIVATE PLACEMENTS
See "Principal Stockholders" for information regarding the management of
some of the entities listed below.
The holders of Series A, Series B and Series C preferred stock have
registration rights and the holder of Series D preferred stock will have
registration rights if the Series D preferred stock (or common stock issuable
upon conversion of the Series D preferred stock) is issued. See "Description of
Capital Stock -- Registration Rights." Each share of preferred stock will
convert into one share of common stock at the closing of this offering.
Series A Preferred Stock. In February 1999, we sold 1,000,000 shares of
Series A preferred stock and a five-year warrant to purchase 1,000,000 shares of
common stock to Aralia Technology Partners, LP for an aggregate purchase price
of $500,000. The exercise price of the warrant is $1.00 per share. John L.
Connolly, one of our directors, is an affiliate of Aralia Technology Partners.
Series B Preferred Stock. In May 1999, we sold an aggregate of 7,926,829
shares of Series B preferred stock at a price of $0.82 per share for an
aggregate purchase price of $6,500,000, as follows:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
INVESTOR SHARES PURCHASE PRICE
- -------- --------- --------------
<S> <C> <C>
AT&T Venture Fund II, LP*.................................. 1,451,220 $1,190,000
Special Partners Fund, LP*................................. 428,685 351,522
Special Partners Fund International, LP*................... 2,388,388 1,958,478
Spectrum Equity Investors III, L.P.**...................... 3,353,658 2,750,000
Nassau Holdings, Inc. ..................................... 304,878 250,000
--------- ----------
7,926,829 $6,500,000
========= ==========
</TABLE>
- ---------------
* R. Bradford Burnham, one of our directors, is affiliated with these entities.
** Brion B. Applegate, one of our directors, is affiliated with this entity.
49
<PAGE> 51
Series C Preferred Stock. In November 1999, we sold an aggregate of
13,274,338 shares of Series C preferred stock at a price of $2.26 per share for
an aggregate purchase price of $30,000,002, as follows:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
INVESTOR SHARES PURCHASE PRICE
- -------- ---------- ---------------
<S> <C> <C>
SOFTBANK Technology Ventures, V, L.P.*.................... 5,079,293 $11,479,202
SOFTBANK Technology Ventures Advisors Fund V, L.P.*....... 139,115 314,400
SOFTBANK Technology Ventures Entrepreneurs Fund V,
L.P.*................................................... 91,327 206,399
American Express Travel Related Services Company,
Inc.**.................................................. 1,769,912 4,000,001
GE Capital Equity Investments, Inc. ...................... 1,327,434 3,000,001
The Goldman Sachs Group, Inc. ............................ 442,478 1,000,000
TWP Paytrust Investors.................................... 221,239 500,000
Tailwind Capital Partners, L.P. .......................... 221,239 500,000
AT&T Venture Fund II, LP.................................. 752,036 1,699,601
Special Partners Fund, LP................................. 222,667 503,227
Special Partners Fund International, LP................... 1,237,686 2,797,170
Spectrum Equity Investors III, L.P.***.................... 1,555,090 3,514,503
Spectrum III Investment Managers' Fund, L.P............... 15,708 35,500
Nassau Holdings, Inc...................................... 88,495 199,999
Gary M. Lauder............................................ 88,495 199,999
Noel Rahn................................................. 22,124 50,000
---------- -----------
13,274,338 $30,000,002
========== ===========
</TABLE>
- ---------------
* Gary E. Rieschel, one of our directors, is affiliated with these entities.
** Pierric D. Beckert, one of our directors, is affiliated with this entity.
*** Spectrum Equity Investors III, L.P. paid $2,500,000 of the purchase price
through cancellation of a promissory note issued earlier in November 1999.
See Note 5 to the Consolidated Financial Statements.
The limited partners of Tailwind Capital Partners, L.P. and the partners of
TWP Paytrust Investors are employees of Thomas Weisel Partners LLC, one of the
representatives of the underwriters. See "Underwriting."
Series D Preferred Stock. In March 2000, we entered into an agreement to
sell an aggregate of 2,500,000 shares of Series D preferred stock at a price of
$4.00 per share for an aggregate purchase price of $10,000,000 to Citicorp
Electronic Commerce, Inc. This agreement is subject to approval by the Office of
the Comptroller of the Currency or other applicable regulatory authority. If
such approval is subject to restrictions or conditions, they must be
satisfactory to us. If the Series D preferred stock is issued prior to
consummation of the offering, it will convert into 2,500,000 shares of common
stock upon the consummation of the offering. If the necessary regulatory
approval is received following the consummation of the offering, we will issue
2,500,000 shares of common stock. If the Series D preferred stock is issued, the
holder will have the right to designate one director.
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<PAGE> 52
FEBRUARY 1999 SALES OF COMMON STOCK
In February 1999, we sold an aggregate of 200,000 shares of common stock at
a price of $0.50 per share for an aggregate purchase price of $100,000, as
follows:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
INVESTOR SHARES PURCHASE PRICE
- -------- --------- --------------
<S> <C> <C>
Betsy Cook.................................................. 70,000 $ 35,000
Margret M. Page............................................. 40,000 20,000
Seth M. Lane................................................ 20,000 10,000
Jason J. Lane............................................... 20,000 10,000
Terrence M. Sullivan........................................ 20,000 10,000
Louise M. Petrone........................................... 20,000 10,000
Marylou H. McLaughlin....................................... 10,000 5,000
------- --------
200,000 $100,000
======= ========
</TABLE>
Betsy Cook is the mother-in-law of Edward G. McLaughlin, our Chief
Executive Officer; Margret M. Page is the mother-in-law of Flint A. Lane, our
Chairman of the Board, President and Chief Operating Officer; Seth M. Lane and
Jason J. Lane are Flint A. Lane's brothers; Terrence M. Sullivan is Flint A.
Lane's step-father; Louise M. Petrone is Edward G. McLaughlin's sister and
Marylou H. McLaughlin is Edward G. McLaughlin's mother. In connection with these
sales, each of the purchasers signed a voting agreement giving each of Flint A.
Lane and Edward G. McLaughlin the power to vote their shares. The voting
agreements terminate on the date of this prospectus.
AGREEMENT WITH AMERICAN EXPRESS
In November 1999, we entered into a Service Provision and Hosting Agreement
with American Express. The agreement provides, among other things, that we will
offer an American Express-branded version of our service with a "Powered by
Paytrust" tagline to American Express cardmembers. We are responsible for all
aspects of web site development, customer enrollment, customer service, bill
aggregation, bill delivery and bill payment for these customers. We will receive
at least a specified minimum monthly amount per member, subject to an increase
based upon the actual price charged by American Express to its customers for the
service. Under the agreement, we have agreed to promote American Express as the
"Official Card of Paytrust.com" on the Paytrust web site. In connection with
providing the co-branded service to American Express customers, we must comply
with detailed requirements with respect to customer service, privacy and
security. The term of the agreement is for a period of two years, subject to
early cancellation in the event of the breach by either party of the agreement,
the insolvency of either party, the sale of all or substantially all of the
assets or 25% of the stock (except in connection with a public offering) by us
or the failure of the American Express-branded web site to function for a period
of 48 consecutive hours. American Express may terminate the agreement if we
enter into the business of providing financial services or products similar to
those offered by American Express. During the six-month period following
termination of the agreement, American Express has the right to have us assist
in transferring the co-branded service to another company. In connection with
this agreement, American Express purchased 1,769,912 shares of Series C
preferred stock for $4,000,001. American Express owned approximately 5.6% of our
outstanding capital stock prior to this offering. Pierric D. Beckert, a director
of the Company, is the senior vice president of Interactive Investments, a
division of American Express Relationship Services, part of American Express
Travel Related Services Company, Inc. The terms of the agreement were negotiated
at arms length.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of December 31, 1999, and as
adjusted to reflect the sale of common stock by us for the following persons:
- our principal executive officers;
- each director;
- each stockholder known by us to own beneficially more than 5% of our
common stock; and
- all executive officers and directors as a group.
Percentage ownership in the following table is based on 31,641,167 shares
of common stock outstanding as of December 31, 1999. Percentage ownership
assumes the automatic conversion of all shares of preferred stock outstanding as
of December 31, 1999 (which does not include the Series D preferred stock -- See
"Related Party Transactions -- Preferred Stock Private Placements -- Series D
Preferred Stock") into shares of common stock, which will occur upon the closing
of this offering. Following this offering, there will be shares of
common stock outstanding, exclusive of common shares issuable upon conversion of
the Series D preferred stock.
We have determined beneficial ownership in the table in accordance with the
rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by any person and the percentage ownership of that
person, we have deemed shares of common stock subject to options or warrants
held by that person that are currently exercisable or will become exercisable
within 60 days of December 31, 1999 and all options that will be exercisable
upon completion of the offering, to be outstanding. However, we have not deemed
these shares to be outstanding for computing the percentage ownership of any
other person. To our knowledge, except as set forth in the footnotes below, each
stockholder identified in the table, either alone or together with such person's
spouse, possesses sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by such stockholder. The address of
each of the principal executive officers and directors is c/o Paytru$t, Inc., 29
Emmons Drive, Building B, Princeton, New Jersey 08540.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------
OWNED BEFORE OFFERING AFTER OFFERING
------------ --------------- --------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Edward G. McLaughlin(1)(2)........................... 4,700,000 14.8% %
Flint A. Lane(1)(3).................................. 4,700,000 14.8
John L. Connolly(4).................................. 2,000,000 6.1
R. Bradford Burnham(5)............................... 6,480,682 20.5
Brion B. Applegate(6)................................ 4,924,456 15.6
Gary E. Rieschel(7).................................. 5,309,735 16.8
Pierric D. Beckert(8)................................ 1,769,912 5.6
All directors and executive officers as a group (9
total)............................................. 29,884,785 94.4
OTHER 5% STOCKHOLDERS
AT&T Venture Fund II, LP(9).......................... 6,480,682 20.5% %
SOFTBANK Technology Ventures V, L.P.(10)............. 5,309,735 16.8
Spectrum Equity Investors III, L.P.(11).............. 4,924,456 15.6
Aralia Technology Partners, LP(12)................... 2,000,000 6.1
American Express Travel Related Services Company,
Inc.(13)........................................... 1,769,912 5.6
</TABLE>
- ---------------
(1) Includes 200,000 shares owned by Betsy Cook, Margret M. Page, Seth M. Lane,
Jason J. Lane, Terrence M. Sullivan, Louise M. Petrone and Marylou H.
McLaughlin, as to which Flint A. Lane and Edward G. McLaughlin share voting
power under voting agreements. The voting agreements will
52
<PAGE> 54
terminate on the date of this prospectus, as will the beneficial ownership
by Edward G. McLaughlin and Flint A. Lane of such shares. As a result, the
number of shares beneficially owned by each of Mr. McLaughlin and Mr. Lane
will decrease to 4,500,000 shares on the consummation of the offering.
(2) Includes 300,000 shares held by a trust for the benefit of Mr. McLaughlin's
family.
(3) Includes 200,000 shares held by a trust for the benefit of Mr. Lane's
family.
(4) Includes 1,000,000 shares and a fully exercisable warrant to purchase
1,000,000 shares of common stock, each held by Aralia Technology Partners,
LP. Mr. Connolly is the President of Aralia Technology Partners, LP and in
that capacity, Mr. Connolly shares voting and investment power with other
personnel of Aralia Technology Partners, LP with respect to these shares.
(5) Includes 2,203,256 shares held by AT&T Venture Fund II, LP, 3,626,074
shares held by Special Partners Fund International, LP and 651,352 shares
held by Special Partners Fund, LP. Mr. Burnham is a Manager of Venture
Management Services, LLC, a venture capital firm operating funds including
AT&T Venture Fund II, LP, Special Partners Fund, LP and Special Partners
Fund International, LP. In that capacity, Mr. Burnham shares voting and
investment power with other personnel of Venture Management Services, LLC
with respect to these shares.
(6) Includes 4,875,212 shares held by Spectrum Equity Investors III, L.P. and
49,244 shares held by Spectrum III Investment Managers' Fund, L.P. Mr.
Applegate is the Managing General Partner of Spectrum Equity Investors III,
L.P. and the Managing General Partner of Spectrum Equity Investors and in
those capacities, shares voting and investment power with other personnel
of Spectrum Equity Investors, III, L.P. and Spectrum III Investment
Managers' Fund with respect to the voting and investment power over these
entities' respective shares.
(7) Includes 5,079,293 shares held by SOFTBANK Technology Ventures V, L.P.,
139,115 shares held by SOFTBANK Technology Ventures Advisors Fund V, L.P.
and 91,327 shares held by SOFTBANK Technology Ventures Entrepreneurs Fund
V, L.P. Mr. Rieschel is the Executive Managing Director of SOFTBANK Venture
Capital and in that capacity, shares voting and investment power with other
personnel of SOFTBANK Venture Capital with respect to these shares.
(8) Includes 1,769,912 shares held by American Express Travel Related Services
Company, Inc. Mr. Beckert is the Senior Vice President of Interactive
Investments, a division of American Express Relationship Services, part of
American Express Travel Related Services Company, Inc. and in that
capacity, Mr. Beckert shares voting and investment power with other
personnel of American Express Travel Related Services Company, Inc. with
respect to these shares.
(9) Represents 2,203,256 shares held by AT&T Venture Fund II, LP, 3,626,074
shares held by Special Partners Fund International, LP and 651,352 shares
held by Special Partners Fund, LP. See note 5. The address of AT&T Venture
Fund II, LP is 295 North Maple Avenue, Basking Ridge, New Jersey 07920.
(10) Represents 5,079,293 shares held by SOFTBANK Technology Ventures V, L.P.,
139,115 shares held by SOFTBANK Technology Ventures Advisors Fund V, L.P.
and 91,327 shares held by SOFTBANK Technology Ventures Entrepreneurs Fund
V, L.P. See note 7. The address of SOFTBANK Technology Ventures, L.P. is
200 West Evelyn Avenue, Suite 200, Mountain View, California 94043.
(11) Represents 4,908,708 shares held by Spectrum Equity Investors III, L.P. and
49,244 shares held by Spectrum III Investment Managers' Fund, L.P. See note
6. The address of Spectrum Equity Investors, III, L.P. is 333 Middlefield
Road, Suite 200, Menlo Park, California 94025.
(12) See Note 4. The address of Aralia Technology Partners, L.P. is P.O. Box
219, Gwynedd, Pennsylvania 19436.
(13) See Note 8. The address of American Express Travel Related Services
Company, Inc. is Three World Financial Center, New York, New York 10285.
53
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
Upon consummation of this offering, our authorized capital stock will
consist of 105,000,000 shares, consisting of 100,000,000 shares of common stock,
par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value
$0.0001 per share. As of February 29, 2000, we had issued and outstanding:
- 31,641,167 shares of common stock;
- options to purchase 2,059,657 shares of common stock at a weighted
average exercise price of $1.76 per share, of which options to purchase
57,800 shares were exercisable; and
- warrants to purchase 1,500,000 shares of common stock at a weighted
average exercise price of $1.74 per share.
Information in this prospectus gives effect to the automatic conversion of
all outstanding shares of our Series A, Series B and Series C preferred stock
into 22,201,167 shares of common stock upon the consummation of this offering,
but does not give effect to the conversion of the Series D preferred stock.
COMMON STOCK
Set forth below is information concerning the rights underlying our common
stock:
Voting:
- One vote for each share held of record on all matters submitted to a vote
of stockholders;
- No cumulative voting rights;
- Election of directors by plurality of votes cast; and
- All other matters are determined by majority of the votes cast, except as
otherwise required by law.
Dividends:
- Subject to preferential dividend rights of outstanding shares of
preferred stock, common stockholders are entitled to receive ratably
declared dividends; and
- The board of directors may only declare dividends out of legally
available funds.
Additional Rights:
- Subject to preferential liquidation rights of outstanding shares of
preferred stock, common stockholders are entitled to receive ratably net
assets (available after payment of debts and other liabilities) upon our
liquidation, dissolution or winding up;
- No preemptive rights;
- No subscription rights;
- No redemption rights;
- No sinking fund rights; and
- No conversion rights.
The rights and preferences of common stockholders are subject to the rights
of any class of preferred stock we may issue in the future.
PREFERRED STOCK
Upon the consummation of this offering, our certificate of incorporation
will authorize the issuance of 5,000,000 shares of preferred stock with
designations, rights and preferences as may be determined from time to time by
the board of directors. Accordingly, our board of directors is empowered,
without
54
<PAGE> 56
stockholder approval, to issue preferred stock with dividends, liquidation,
voting or other rights that could adversely affect the voting power or other
rights of the holders of common stock. In the event of issuance, the preferred
stock could be used as a method of preventing a change in control. Following
this offering, no shares of preferred stock will be issued or outstanding, and
we have no present plans to issue any shares of preferred stock.
WARRANTS
As of February 29, 2000, there were warrants outstanding to purchase
1,500,000 shares of common stock at a weighted average exercise price of $1.74
per share. A warrant to purchase 1,000,000 shares of common stock may be
exercised until February 2004. Warrants to purchase 500,000 shares of common
stock may be exercised until February 2005. We have entered into a non-binding
letter agreement to issue warrants to purchase 100,000 shares at an exercise
price of $5.00 per share in connection with a proposed patent license. See
"Business -- Intellectual Property."
OPTIONS
As of February 29, 2000, options to purchase 2,059,657 shares were
outstanding at a weighted average exercise price of $1.76 per share, of which
options to purchase 57,800 shares were exercisable; an additional 4,567,866
shares have been reserved for issuance under our 1999 equity compensation plan.
See "Management -- Stock Plans."
REGISTRATION RIGHTS
The holders of 22,201,167 shares of common stock that will be outstanding
after this offering (exclusive of 2,500,000 shares of Series D preferred stock
that may be issued -- see "Related Party Transactions -- Preferred Stock Private
Placements -- Series D Preferred Stock") are entitled to require us to register
the sales of their shares under the Securities Act, under the terms of an
agreement between us and the holders of these securities. Subject to limitations
specified in this agreement, these registration rights include the following:
- an unlimited number of piggyback registration rights that require us to
register sales of a holder's shares when we undertake a public offering,
subject to the discretion of the managing underwriter of the offering to
decrease the amount that holders may register;
- two demand registration rights per year that holders may exercise no
sooner than 180 days after our initial public offering, which require us
to register sales of a holder's shares, subject to the discretion of our
board of directors to delay the registration; and
- an unlimited number of rights to require us to register sales of shares
on Form S-3, a short form of registration statement permitted to be used
by some companies, which holders may exercise if they request
registration of the sale of more than $500,000 of common stock following
the time we first qualify for the use of this form of registration with
the Securities and Exchange Commission.
In addition to the registration rights of the holders described above,
Flint A. Lane, our Chairman of the Board, President and Chief Operating Officer,
and Edward G. McLaughlin, our Chief Executive Officer, hold the same piggyback
registration rights as to the 9,000,000 shares held by them as those described
above.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions. These registration
rights terminate as to a holder's shares when that holder may sell those shares
under Rule 144(k) of the Securities Act.
55
<PAGE> 57
ANTI-TAKEOVER PROVISIONS
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates acquisitions of some Delaware corporations. In general, Section
203 prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person becomes an interested stockholder, unless:
- the corporation's board of directors approved the business combination or
the transaction in which the person became an interested stockholder
prior to the date the person attained this status;
- upon consummation of the transaction that resulted in the person becoming
an interested stockholder, the person owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers and some types of employee stock plans; or
- at or subsequent to the date the person became an interested stockholder,
the corporation's board of directors approved the business combination,
and the stockholders, by the affirmative vote of 66 2/3% of the
outstanding voting stock not owned by the interested stockholder,
authorized the transaction at an annual or special meeting of
stockholders.
A "business combination" generally includes a merger, asset or stock sale
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with the person's affiliates and associates, owns 15% or more of a corporation's
voting stock.
Certificate Of Incorporation And Bylaw Provisions
Upon the closing of this offering, our certificate of incorporation and
bylaws, each as amended, will divide our board of directors into three classes
as nearly equal in size as possible, with each class serving a three-year term.
The terms are staggered, so that approximately one-third of the board of
directors is to be elected each year. The classification of the board of
directors could have the effect of making it more difficult for a third party to
acquire control of us, because it would typically take more than a year for a
majority of the stockholders to elect a majority of our board of directors. In
addition, our certificate of incorporation and bylaws will provide that any
action required or permitted to be taken by our stockholders at an annual or
special meeting may be taken only if it is properly brought before the meeting,
and may not be taken by written action in lieu of a meeting. The bylaws will
also provide that special meetings of the stockholders may be called only by the
board of directors, the Chairman of the Board, the President or the Chief
Executive Officer. Under our bylaws, stockholders wishing to propose business to
be brought before a meeting of stockholders or to nominate a person for election
as a director will be required to comply with various advance notice
requirements. Any of these provisions could make it more difficult for a third
party to acquire control of us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
56
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, could adversely affect
the market price of our common stock.
Upon consummation of this offering, we will have outstanding
shares of common stock. Of these shares, the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless they are purchased by our
affiliates, as that term is defined in Rule 144 under the Securities Act. The
remaining outstanding shares of common stock will be restricted
securities, as that term is defined in Rule 144, and may be sold only if
registered or under an exemption from registration such as is available by
compliance with the conditions of Rule 144 under the Securities Act. Holders of
31,201,167 shares of common stock (exclusive of 2,500,000 shares of common stock
issuable upon conversion of Series D preferred stock that may be issued -- see
"Related Party Transactions -- Preferred Stock Private Placement -- Series D
Preferred Stock") will also have registration rights enabling them to cause us
to register their shares under the Securities Act. See "Description of Capital
Stock -- Registration Rights." In connection with this offering, we, our
executive officers and directors and all of our stockholders have agreed that we
and they will not sell, offer or contract to sell any shares of common stock
without the prior written consent of Lehman Brothers, Inc. and Thomas Weisel
Partners LLC for a period of 180 days after the date of this prospectus. See
"Underwriting." After giving effect to the lock-up agreements, the restricted
securities will be eligible for sale under Rule 144 as indicated below:
<TABLE>
<CAPTION>
NUMBER OF SHARES/ DATE OF AVAILABILITY FOR RESALE INTO
% OF TOTAL OUTSTANDING PUBLIC MARKET
---------------------- ------------------------------------
<S> <C>
- --------------------- 180 days after the date of this prospectus due to an
agreement all of our stockholders have with the
underwriters. However, the underwriters can waive
this restriction and allow these stockholders to sell
their shares at any time, subject to the applicable
conditions of Rule 144.
- --------------------- Thereafter.
</TABLE>
The foregoing discussion does not give effect to the exercise of stock
options that may occur.
After the completion of this offering, we intend to file a Registration
Statement on Form S-8 under the Securities Act to register 7,127,523 shares of
common stock reserved for issuance under our employee benefit plans, including
2,059,657 shares of common stock subject to options outstanding on February 28,
2000. Shares issued upon exercise of options granted under our 1999 equity
compensation plan prior to the date of this prospectus may also be sold under
Rule 701, which permits the sale of such shares by persons who are not our
affiliates, subject only to the manner of sale requirements of Rule 144 for
persons who are not our affiliates, and by persons who are our affiliates
subject to the public information, volume limitations and manner of sale
provisions and reporting requirements of Rule 144.
57
<PAGE> 59
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Thomas Weisel Partners LLC, SoundView
Technology Group, Inc. and Fidelity Capital Markets (a division of National
Financial Services Corporation) are acting as representatives, have each agreed
to purchase from us the respective number of shares of common stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Lehman Brothers Inc.........................................
Thomas Weisel Partners LLC..................................
SoundView Technology Group, Inc.............................
Fidelity Capital Markets (a division of National Financial
Services Corporation).....................................
-------
Total..................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, then
all of the shares of common stock which the underwriters have agreed to purchase
under the underwriting agreement must be purchased. The conditions contained in
the underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
adverse change in the financial markets and that we deliver to the underwriters
customary closing documents.
The following table shows the per share and total public offering prices,
the underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. The underwriting discount in our offering is calculated
as seven percent of the initial price of the shares of common stock to be sold
in the offering. The underwriting discount was determined by reference to the
underwriters' experience with transactions of this type and companies in similar
industries and through discussions between the underwriters and our management.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' overallotment option.
<TABLE>
<CAPTION>
TOTAL
----------------------------
PER SHARE NO EXERCISE FULL EXERCISE
--------- ----------- -------------
<S> <C> <C> <C>
Public offering price............................ $ $ $
Underwriting discount............................
Proceeds before expenses to us...................
</TABLE>
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.
We have granted to the underwriters an option to purchase up to an
aggregate of additional shares of common stock, exercisable
solely to cover over-allotments, if any, at the public offering price less the
underwriting discounts and commissions shown on the cover page of this
prospectus. The underwriters may exercise this option at any time until 30 days
after the date of the underwriting agreement. If this option is exercised, each
underwriter will be committed, so long as the conditions of the
58
<PAGE> 60
underwriting agreement are satisfied, to purchase a number of additional shares
of common stock proportionate to the underwriter's initial commitment as
indicated in the second preceding table and we will be obligated, under the
over-allotment option, to sell the shares of common stock to the underwriters.
We have agreed that, without the prior consent of Lehman Brothers Inc. and
Thomas Weisel Partners LLC for a period of 180 days from the date of this
prospectus, we will not directly or indirectly, offer, sell or otherwise dispose
of any shares of common stock or any securities which may be converted into or
exchanged for any such shares of common stock other than issuances of securities
under our employee benefit plans and shares issuable upon the exercise of
options and warrants, or enter into any swap or similar agreement that
transfers, in whole or in part, the economic risk of ownership of the common
stock. All of our executive officers, directors and stockholders have agreed
under lock-up agreements that, subject to some exceptions, without the prior
written consent of Lehman Brothers Inc. and Thomas Weisel Partners LLC, they
will not, directly or indirectly, offer, sell or otherwise dispose of any shares
of common stock or any securities that they may own, or later acquire, or which
may be converted into or exchanged for any such shares for the period ending 180
days after the date of this prospectus. See "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives of the underwriters and us. In determining the initial public
offering price of the common stock, the representatives considered among other
things:
- the prevailing market conditions,
- our historical performance and capital structure,
- estimates of our business potential and earning prospects,
- an overall assessment of our management, and
- the consideration of the above factors in relation to market valuation of
companies in related businesses.
We will list our common stock for quotation on the Nasdaq National Market
under the symbol "PAYT."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933, and to contribute to payments that
the underwriters may be required to make for these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
59
<PAGE> 61
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
Thomas Weisel Partners LLC, one of the underwriters, was organized and
registered as a broker-dealer in December 1998. Since December 1998, Thomas
Weisel Partners LLC has been named as a lead or co-manager on 131 filed public
offerings of equity securities, of which 97 have been completed, and has acted
as a syndicate member in an additional 64 public offerings of equity securities.
The limited partners of Tailwind Capital Partners, L.P. and the partners of TWP
Paytrust Investors are employees of Thomas Weisel Partners LLC. Tailwind Capital
Partners and TWP Paytrust Investors each purchased 221,239 shares of Series C
preferred stock in November 1999 for an aggregate purchase price of $500,000
each.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary technology.
A prospectus in electronic format is being made available on an Internet
web site maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on web sites
maintained by each of these dealers. Other than the prospectus in electronic
format, the information on Wit Capital's web site and any information contained
on any other web site maintained by Wit Capital is not part of the prospectus or
the registration statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or any underwriter in its capacity as
underwriter, and should not be relied upon by investors.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to shares of common stock to our members
who express an interest in purchasing these shares. The sale of these shares
will be made by Wit Capital. Purchases of the reserved shares will be made
through an account at Wit Capital in accordance with Wit Capital's procedures
for opening an account and transacting in securities. Any of these reserved
shares not purchased by our members will be offered by the underwriters to the
public on the same terms as the other shares.
In addition to the shares being reserved by Wit Capital for sale to our
members, we have requested that the underwriters reserve up to percent of
the shares of common stock for sale, at the initial public offering price, to
directors, officers, employees and other individuals designated by us. As a
result, the number of shares of common stock available for sale to the general
public in the offering will be reduced to the extent these individuals and
entities purchase the directed shares. Any directed shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
60
<PAGE> 62
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Morgan, Lewis & Bockius LLP, Princeton, New Jersey and Philadelphia,
Pennsylvania. Legal matters will be passed upon for the underwriters by
O'Melveny & Myers LLP, New York, New York.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission. This prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement. Some information is omitted from this prospectus in accordance with
the rules of the Securities and Exchange Commission, and you should refer to the
Registration Statement and its exhibits. Upon completion of this offering, we
will be required to file annual quarterly and other information with the
Securities and Exchange Commission. You may review a copy of the Registration
Statement and any other documents filed with the Securities and Exchange
Commission at the Securities and Exchange Commission's public reference room in
Washington, D.C., and at the Securities and Exchange Commission's regional
offices in Chicago, Illinois and New York, New York. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our Securities and Exchange Commission
filings and the Registration Statement can also be reviewed by accessing the
Securities and Commission's Internet site at http://www.sec.gov.
61
<PAGE> 63
PAYTRU$T, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Paytru$t, Inc.:
We have audited the accompanying consolidated balance sheets of Paytru$t,
Inc. (a Delaware corporation) and subsidiary as of December 31, 1998 and 1999,
and the related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' equity (deficit) and cash flows for the period
from inception (September 16, 1998) to December 31, 1998 and for year ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paytru$t, Inc. and
subsidiary as of December 31, 1998 and 1999, and the results of their operations
and their cash flows the period from inception (September 16, 1998) to December
31, 1998 and for the year ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 22, 2000
F-2
<PAGE> 65
PAYTRU$T, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
----------------------- EQUITY
1998 1999 DECEMBER 31, 1999
--------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 31,505 $29,235,014
Accounts receivable, net of allowance for doubtful
accounts of $240.................................. -- 5,671
Prepaid expenses and other........................... 23,834 74,655
--------- -----------
Total current assets.............................. 55,339 29,315,340
PROPERTY AND EQUIPMENT, net............................ 31,626 771,349
DEPOSITS............................................... 4,333 146,122
--------- -----------
$ 91,298 $30,232,811
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable..................................... $ -- $ 1,371,876
Accrued expenses..................................... 14,249 1,271,030
--------- -----------
Total current liabilities......................... 14,249 2,642,906
--------- -----------
DEFERRED RENT LIABILITY................................ -- 2,608
--------- -----------
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.0001
par value 2,000,000 shares authorized, none and
1,000,000 issued and outstanding at December 31, 1998
and 1999, redemption and liquidation value of
$500,000............................................. -- 296,974 $ --
--------- ----------- -----------
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.0001
par value 8,000,000 shares authorized, none and
7,926,829 issued and outstanding at December 31, 1998
and 1999, redemption and liquidation value of
$6,500,000........................................... -- 6,469,109 --
--------- ----------- -----------
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.0001
par value 13,500,000 share authorized, none and
13,274,338 issued and outstanding, at December 31,
1998 and 1999, redemption and liquidation value of
$30,000,000.......................................... -- 29,902,150 --
--------- ----------- -----------
COMMITMENTS and CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value, 9,000,000 and
40,000,000 shares authorized at December 31, 1998
and 1999, 9,000,000, 9,440,000 and 31,641,167
shares issued and outstanding at December 31,
1998, 1999 and pro forma, respectively............ 900 944 3,164
Additional paid-in capital............................. 199,100 467,151 37,323,606
Warrant................................................ -- 233,199 233,199
Stock subscription receivable.......................... -- (196,800) (196,800)
Deferred compensation.................................. -- (69,226) (69,226)
Accumulated deficit.................................... (122,951) (9,516,204) (9,706,646)
--------- ----------- -----------
Total stockholders' equity (deficit).............. 77,049 (9,080,936) $27,587,297
--------- ----------- ===========
$ 91,298 $30,232,811
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 66
PAYTRU$T, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM INCEPTION
(SEPTEMBER 16, 1998) YEAR ENDED
TO DECEMBER 31, 1998 DECEMBER 31, 1999
-------------------- -----------------
<S> <C> <C>
REVENUES................................................. $ -- $ 10,269
COST AND EXPENSES:
Cost of revenues....................................... -- 774,143
Research and development............................... 68,646 879,831
Sales and marketing.................................... 8,518 6,982,595
General and administrative............................. 46,962 996,598
--------- -----------
Operating loss...................................... (124,126) (9,622,898)
INTEREST INCOME, net..................................... 1,175 143,229
--------- -----------
NET LOSS................................................. (122,951) (9,479,669)
ACCRETION OF PREFERRED STOCK TO REDEMPTION VALUE......... -- 42,757
--------- -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS............... $(122,951) $(9,522,426)
========= ===========
BASIC AND DILUTED NET LOSS PER SHARE..................... $ (0.01) $ (1.02)
========= ===========
PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE
(UNAUDITED)............................................ $ (0.01) $ (0.59)
========= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING USED
IN BASIC AND DILUTED PER SHARE
CALCULATION............................................ 9,000,000 9,290,626
========= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING USED
IN PRO FORMA BASIC AND DILUTED PER SHARE
CALCULATION (UNAUDITED)................................ 9,000,000 16,180,278
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 67
PAYTRU$T, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDER'S EQUITY(DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE ---------------------------------------------------------
CONVERTIBLE COMMON ADDITIONAL STOCK
PREFERRED STOCK PAID-IN SUBSCRIPTION
STOCK SHARES AMOUNT CAPITAL WARRANT RECEIVABLE
----------- --------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Incorporation on September 16, 1998....... $ -- -- $ -- $ -- $ -- $ --
Sale of Common stock...................... -- 9,000,000 900 199,100 -- --
Net loss.................................. -- -- -- -- -- --
----------- --------- ---- --------- -------- ---------
Balance at December 31, 1998.............. -- 9,000,000 900 199,100 -- --
Conversion from S to C corporation........ -- -- -- (129,173) -- --
Sale of Common stock, net of offering
expenses................................ -- 440,000 44 295,909 -- (196,800)
Issuance of Common stock warrant.......... (233,199) -- -- -- 233,199 --
Sale of Series A redeemable convertible
Preferred stock, net of offering
expenses................................ 487,416 -- -- -- -- --
Sale of Series B redeemable convertible
Preferred stock, net of offering
expenses................................ 6,469,109 -- -- -- -- --
Sale of Series C redeemable convertible
Preferred stock, net of offering
expenses................................ 29,902,150 -- -- -- -- --
Issuance of Common stock options for
services rendered....................... -- -- -- 23,047 -- --
Accretion of Preferred stock to redemption
value................................... 42,757 -- -- -- -- --
Deferred compensation..................... -- -- -- 78,268 -- --
Amortization of deferred compensation..... -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- --
----------- --------- ---- --------- -------- ---------
Balance at December 31, 1999.............. $36,668,233 9,440,000 $944 $ 467,151 $233,199 $(196,800)
=========== ========= ==== ========= ======== =========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------
TOTAL
DEFERRED ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY(DEFICIT)
------------ ----------- ---------------
<S> <C> <C> <C>
Incorporation on September 16, 1998....... $ -- $ -- $ --
Sale of Common stock...................... -- -- 200,000
Net loss.................................. -- (122,951) (122,951)
-------- ----------- -----------
Balance at December 31, 1998.............. -- (122,951) 77,049
Conversion from S to C corporation........ -- 129,173 --
Sale of Common stock, net of offering
expenses................................ -- -- 99,153
Issuance of Common stock warrant.......... -- -- 233,199
Sale of Series A redeemable convertible
Preferred stock, net of offering
expenses................................ -- -- --
Sale of Series B redeemable convertible
Preferred stock, net of offering
expenses................................ -- -- --
Sale of Series C redeemable convertible
Preferred stock, net of offering
expenses................................ -- -- --
Issuance of Common stock options for
services rendered....................... -- -- 23,047
Accretion of Preferred stock to redemption
value................................... -- (42,757) (42,757)
Deferred compensation..................... (78,268) -- --
Amortization of deferred compensation..... 9,042 -- 9,042
Net loss.................................. -- (9,479,669) (9,479,669)
-------- ----------- -----------
Balance at December 31, 1999.............. $(69,226) $(9,516,204) $(9,080,936)
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 68
PAYTRU$T, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM INCEPTION
(SEPTEMBER 16, 1998) YEAR ENDED
TO DECEMBER 31, 1998 DECEMBER 31, 1999
-------------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................... $(122,951) $(9,479,669)
Adjustments to reconcile net loss to net cash used in
operating activities --
Compensation element of stock options grants........ -- 32,089
Depreciation and amortization....................... 2,086 104,328
Increase in assets and liabilities --
Accounts receivable............................... -- (5,671)
Prepaid expenses and other........................ (23,834) (50,821)
Accounts payable.................................. -- 1,371,876
Accrued expenses.................................. 14,249 1,259,389
--------- -----------
Net cash used in operating activities............. (130,450) (6,768,479)
--------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment.................... (33,712) (844,051)
Deposits............................................... (4,333) (141,789)
--------- -----------
Net cash used in investing activities............. (38,045) (985,840)
--------- -----------
FINANCING ACTIVITIES:
Net proceeds from issuance of Common stock............. 200,000 99,153
Net proceeds from issuance of Preferred stock.......... -- 36,858,675
--------- -----------
Net cash provided by financing activities......... 200,000 36,957,828
--------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................ 31,505 29,203,509
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... -- 31,505
--------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 31,505 $29,235,014
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ -- $ 7,534
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 69
PAYTRU$T, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
Background
Paytru$t, Inc. (the "Company"), formerly Secure Commerce Services, Inc.,
was incorporated on September 16, 1998 as LM Holdings, Inc. (the "Parent"). On
January 22, 1999, the Parent was merged with and into the Company. The Company
operates an online bill presentation, payment and management service for
consumers.
Liquidity
Since inception, the Company has incurred significant losses and as of
December 31, 1999 had an accumulated deficit of $9,516,204. For the year ended
December 31, 1999, the Company's net loss was $9,479,669. The Company intends to
continue to invest heavily in further development of its business. As a result,
the Company believes that it will incur substantial operating losses for the
foreseeable future, and that the rate at which such losses will be incurred will
increase significantly from current levels. In order to make the investments
necessary to expand its business, the Company plans to raise capital through
sales of Preferred stock and/or an initial public offering ("IPO") of its Common
stock. If not successfully completed, the Company would need to scale back or
delay certain marketing activities. Management believes that their available
funds plus the proceeds from additional financings or savings from cost
rationalization measures will be sufficient to fund operations for the next 12
months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Secure
Commerce Corp., the Company's wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments consisting of purchases
with an original maturity of three months or less to be cash equivalents. As of
December 31, 1999, such equivalents consisted primarily of money market funds.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets. Computer
equipment, office furniture and office equipment are depreciated primarily over
an estimated useful life of three years. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful lives of the
improvements.
F-7
<PAGE> 70
PAYTRU$T, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, prepaid expenses and other
current assets, accounts payable and accrued expenses are reflected in the
accompanying consolidated financial statements at fair value due to the
short-term nature of these instruments.
Revenue Recognition
The Company's revenues are derived from member subscription agreements,
which are billed on a monthly basis. Revenue is recognized as the subscriptions
are utilized. New members generally receive a period of free service. The costs
related to such service are charged to cost of revenues as incurred.
Research and Development
Research and development expenses consist of software engineering, graphic
design and other related activities. These amounts are charged to expense as
incurred.
Sales and Marketing Expense
Sales and marketing expenses consist primarily of advertising costs. Such
costs are charged to expense as incurred in accordance with Statement of
Position ("SOP") 93-7, "Reporting on Advertising Costs." Such costs were $0 and
$5,314,487 for the period from inception (September 16, 1998) to December 31,
1998 and for the year ended December 31, 1999, respectively.
Income Taxes
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes." Under SFAS No. 109, the liability method
is used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using enacted
tax rates that are expected to be in effect when the differences reverse. Prior
to January 22, 1999, the Company was a S Corporation for Federal and State
income tax purposes and, accordingly, the losses were passed through to the
stockholders. On January 22, 1999, in connection with the Company's sale of
Series A Preferred stock, the S Corporation was merged with and into Paytru$t,
Inc.
Net Loss Per Common Share
The Company has presented net loss per share pursuant to SFAS No. 128,
"Earnings Per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin ("SAB") No. 98 "Computation of Earnings Per Share." Under
the provisions of SFAS No. 128 and SAB No. 98, basic loss per share is computed
by dividing net loss applicable to common stockholders by the weighted average
number of Common shares outstanding during the period. Diluted loss per share is
computed by dividing net loss applicable to common stockholders by the weighted
average number of common shares and dilutive potential common share equivalents
outstanding during the period. Dilutive loss per share has not been presented
since the inclusion of all potential Common stock equivalents would be
anti-dilutive.
The Company issued a warrant to purchase 1,000,000 shares of Common stock
for $1.00 per share and 1,768,216 options to purchase Common stock with a
weighted average exercise price of $1.43 per share (Note 6). Such options and
warrants were excluded from the calculation of basic and diluted net loss per
share, as their inclusion would be anti-dilutive.
F-8
<PAGE> 71
PAYTRU$T, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Stock-Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock options.
Under APB Opinion No. 25, stock compensation is based on the difference, if any,
on the date of grant between the estimated fair value of the Company's Common
stock and the exercise price. The Company has adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," which
requires compensation expense to be disclosed on the fair value of the options
granted at the date of the grant. The Company accounts for stock options issued
to non-employees in accordance with SFAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other
than Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
(Note 6).
Internally Developed Software
The American Institute of Certified Public Accountants Accounting Standards
Executive Committee recently issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software, and is effective for fiscal years beginning after December
15, 1998. The statement also requires that costs related to the preliminary
project stage and post implementation/operations stage in an internal-use
computer software development project be charged to expense as incurred. The
Company has complied with the provisions of SOP 98-1 during the year ended
December 31, 1999. The adoption of SOP 98-1 did not have a material impact on
the Company's financial position or results of operations.
Pro Forma Stockholders' Equity and Basic and Diluted Loss Per Share
In connection with the Company's contemplated IPO, all shares of Preferred
stock will be converted into Common stock (Note 5). Pro forma stockholders'
equity and basic and diluted loss per share give effect to such conversion as of
and for the year ended December 31, 1999.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
------- ---------
<S> <C> <C>
Computer equipment and software........................ $33,712 $ 752,459
Office equipment and furniture......................... -- 82,031
Leasehold improvements................................. -- 43,273
------- ---------
33,712 877,763
Less: Accumulated depreciation......................... (2,086) (106,414)
------- ---------
$31,626 $ 771,349
======= =========
</TABLE>
Depreciation and amortization expense was $2,086 and $104,328 for the
period from inception (September 16, 1998) to December 31, 1998 and for the year
ended December 31, 1999, respectively.
F-9
<PAGE> 72
PAYTRU$T, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
------- ----------
<S> <C> <C>
Marketing costs....................................... $ -- $ 879,122
Professional fees..................................... -- 220,834
Payroll and related costs............................. 14,249 171,074
------- ----------
$14,249 $1,271,030
======= ==========
</TABLE>
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY:
Preferred Stock
During 1999, the Company sold 1,000,000 shares of Redeemable Convertible
Series A Preferred stock ("Series A Preferred"), 7,926,829 shares of Redeemable
Convertible Series B Preferred stock ("Series B Preferred") and 13,274,338
shares of Redeemable Convertible Series C Preferred stock ("Series C Preferred")
for net proceeds of $487,416, $6,469,109 and $29,902,150, respectively. In
November 1999, the Company entered into a subordinated unsecured convertible
promissory note agreement with an investor for $2,500,000, bearing interest at
10.0% annually. During the same month, this note was converted into 1,106,194
shares of Series C Preferred at the same price and under the same terms as the
aforementioned sale of Series C Preferred.
Each holder of outstanding shares of Preferred stock is entitled to the
number of votes equal to the number of shares of Common stock into which the
shares of Preferred stock are convertible. At the option of the stockholder,
each share of Preferred stock is convertible into Common stock by dividing the
original purchase price by the conversion price in effect at the time of
conversion. Additionally, the Preferred stock is automatically convertible into
shares of Common stock upon the earlier of an IPO resulting in at least
$20,000,000 of gross proceeds to the Company at a minimum price of $7.00 per
share or written consent of holders of at least 70% of the outstanding shares of
Preferred stock.
If the Company declares or pays any dividends to holders of Common stock,
the Company is deemed to have declared dividends with respect to holders of
Series A Preferred in the amount that would have been paid had all shares of
Series A Preferred been converted into Common stock. Holders of Series B
Preferred and Series C Preferred are entitled to receive non-cumulative
dividends at an annual rate of $.0574 and $.1582, respectively, if declared by
the board of directors, upon a liquidation or upon a redemption.
In the event of a liquidation, dissolution, or winding up of the Company,
holders of Preferred stock have preference over holders of Common stock in
regards the distribution of assets of the Company. Holders of Preferred stock
will be entitled to be paid out an amount equal to their respective original
purchase price from available assets plus all declared but unpaid dividends. In
the event the available assets are insufficient to pay the holders of Preferred
stock the full amount to which they are entitled, the holders of the Preferred
stock shall share ratably in the distribution of available assets in proportion
to the respective amounts to which they would otherwise be entitled. After such
payments have been made in full, holders of Preferred stock and Common stock
will share the remaining available assets, if any, on a pro rata basis, with the
amount distributable computed on the basis of the number of shares of Common
stock which would be held by holders of Preferred stock if immediately prior to
the liquidation all the shares of Preferred stock had been converted into shares
of Common stock; provided, that, the holders of Series A Preferred, Series B
Preferred and Series C Preferred receive distributions only until such holders
have received up to a total of $1.50 per share, $2.46 per share and $6.78 per
share, respectively.
F-10
<PAGE> 73
PAYTRU$T, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At any time after November 23, 2004, the holders of two-thirds of the
outstanding shares of Series A Preferred and Series B Preferred, and the holders
of a majority of the outstanding shares of Series C Preferred will have the
right, respectively, to require the Company to redeem their shares of Preferred
stock. The redemption price is equal to the original purchase price, plus any
declared but unpaid dividends on such shares.
Common Stock
In October 1998, the Company sold 9,000,000 shares of Common stock at
approximately $0.02 per share, resulting in proceeds of $200,000. During 1999,
the Company sold 200,000 shares of Common stock for $0.50 per share, resulting
in proceeds of $100,000. In addition, the Company entered into recourse loans
with two employees to purchase 240,000 of such shares of Common stock for an
aggregate price of $196,800. These loans were recorded as a stock subscription
receivable in the accompanying consolidated balance sheet and are interest
bearing at an annual rate of 6.75%.
Warrant
In connection with issuing shares of Series A Preferred, the Company issued
a warrant to an investor to purchase 1,000,000 shares of Common stock at an
initial exercise price of $1.00 per share, which is immediately exercisable. The
Company valued the warrant using the Black-Scholes pricing model, applying an
expected life of five years, a weighted average risk-free rate of 4.8%, an
expected dividend yield of zero percent, a volatility of 70% and a deemed value
of Common stock of $0.50 per share. The estimated value of the warrant,
$233,199, was recorded as an offset to the proceeds of the Series A Preferred
issuance.
6. STOCK OPTIONS:
The Company has adopted the 1999 Equity Compensation Plan (the "Plan")
effective January 1, 1999. The Plan provides for the granting of incentive and
nonqualified stock options and restricted stock to directors, officers,
consultants and employees of the Company. The board of directors determines the
number of options to be granted and the option purchase price in accordance with
the terms of the Plan. Vesting is established by the board of directors and
generally occurs 25% per year from the vest date. Option terms are determined by
the board of directors, but generally expire ten years from the date of grant.
Information with respect to options under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES EXERCISE
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES (PER SHARE)
---------- --------- -----------
<S> <C> <C> <C>
Balance, December 31, 1998...................... -- -- $ --
Authorized.................................... 3,667,523 -- --
Granted....................................... (1,769,216) 1,769,216 1.43
Canceled...................................... 1,000 (1,000) 0.25
---------- --------- -----
Balance, December 31, 1999...................... 1,899,307 1,768,216 $1.43
========== ========= =====
</TABLE>
The weighted average remaining contractual life of all options outstanding
at December 31, 1999 is 9.76 years. The total number of shares available for
grant under the Plan as of December 31, 1999 is 1,859,307, which includes 40,000
shares of restricted stock granted to an employee (Note 5).
F-11
<PAGE> 74
PAYTRU$T, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information relating to the Plan at December
31, 1999 based upon each exercise price:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -----------------------
EXERCISE WEIGHTED AVERAGE WEIGHTED WEIGHTED
- -------- REMAINING CONTRACTUAL AVERAGE AVERAGE
PRICES NUMBER LIFE(YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
- -------- --------- --------------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$0.25 40,000 9.06 $0.25 10,000 $0.25
0.50 180,000 9.29 0.50 10,000 0.50
0.55 318,000 9.46 0.55 -- --
0.82 204,716 9.70 0.82 15,000 0.82
1.71 62,050 9.87 1.71 -- --
2.03 874,956 9.97 2.03 10,000 2.03
2.26 88,494 9.97 2.26 -- --
--------- ----- ------ -----
1,768,216 $1.43 45,000 $0.89
--------- ----- ------ -----
</TABLE>
For purposes of SFAS No. 123 disclosure requirements, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model using the following assumptions for options granted during
1999: weighted average risk-free interest rate of 6.27%; expected average
weighted life of 6 years; dividend yield of zero; volatility of 70%. The
weighted average fair value of each option granted during 1999 was $0.96. Had
the compensation cost of these options been recorded for the year ended December
31, 1999, the Company's net loss would have increased by approximately $44,000.
In connection with the contemplated IPO, the Company determined that
options to purchase 375,050 shares of Common stock contained a compensatory
element. The Company recorded deferred compensation of $78,268 which is being
charged to expense over the vesting periods of the related options. In 1999, the
Company granted options to purchase 20,000 shares of common stock to
non-employees in exchange for consulting services. The Company has recorded
$23,047 in sales and marketing expense for the year ended December 31, 1999
related to these options.
7. INCOME TAXES:
The provision for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Current:
Federal................................................... $ --
State..................................................... --
-----------
--
-----------
Deferred:
Federal................................................... 2,919,435
State..................................................... 849,221
-----------
3,768,656
Valuation Allowance......................................... (3,768,656)
-----------
$ --
===========
</TABLE>
F-12
<PAGE> 75
PAYTRU$T, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes are determined based upon the estimated future tax effects
of differences between the financial statements and income tax basis of assets
and liabilities given the provisions of the enacted tax laws.
The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Statutory federal income tax rate (benefit)................. (34.0)%
State income taxes, net of federal tax benefit.............. (5.9)%
Operating losses and other items not currently deductible,
no tax benefit............................................ 39.9%
-----
--%
=====
</TABLE>
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Net operating loss carryforwards............................ $ 3,944,051
Accruals and reserves not currently deductible.............. 75,608
Research and development credit carryforwards............... 15,577
Book/tax difference of property and equipment............... 14,090
-----------
Net deferred tax asset.................................... 4,049,326
Deferred tax valuation allowance............................ (4,049,326)
-----------
Net deferred tax asset.................................... $ --
===========
</TABLE>
Due to the uncertain realization of the deferred tax asset, the Company has
provided a full valuation allowance at December 31, 1999. The Company has a net
operating loss carryforward of $9,507,162 which begins to expire in 2019. The
Tax Reform Act of 1986 contains provisions that may limit the net operating loss
carryforwards available in any given year in the event of significant changes in
ownership. In 1999, such a change occurred and future net operating losses will
be subject to annual limitations.
8. COMMITMENTS AND CONTINGENCIES:
Commitments
The Company has operating leases for certain equipment and office space
through 2004. Rent expense for the period from inception (September 16, 1998) to
December 31, 1998, and for the year ended December 31, 1999, was $4,567 and
$64,199, respectively. Remaining minimum lease payments under the leases as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 348,114
2001........................................................ 341,218
2002........................................................ 157,366
2003........................................................ 160,047
2004........................................................ 104,333
2005 and thereafter......................................... --
----------
$1,111,078
==========
</TABLE>
F-13
<PAGE> 76
PAYTRU$T, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 2000, the Company entered into a lease for additional office
space through January 2005. Annual minimum lease payments under this lease are
$730,580 in 2000, $796,992 in 2001 through 2004, and $66,416 in 2005.
Employment Agreements:
The Company has entered into employment agreements with two of its officers
which provide for minimum annual salary levels of $100,000 (to be reviewed
annually by the board of directors) as well as bonus compensation to be
determined by the board of directors. The agreements have an initial term that
expires on May 28, 2001.
9. RETIREMENT SAVINGS PLAN:
In 1999, the Company established a defined contribution 401(k) retirement
savings plan, which covers substantially all employees. Employees become
eligible to participate in the plan 30 days from their first day of employment.
Employees may elect to contribute up to 15% of their annual compensation up to
the maximum allowable under the Internal Revenue Code. The Company, at its
discretion, may match employee contributions. The Company did not make any
discretionary contributions in 1999.
F-14
<PAGE> 77
INSIDE BACK COVER
Architectural diagram that illustrates how the Paytrust Operations Center
connects billers to consumers.
The Diagram is titled "Paytrust Bill Management Services." It contains
three columns. The heading for the column on the left is "Billers." Beneath the
Billers heading are six blocks labeled "Paper Bill," "Electronic Bill," "Bank
Activity," "Customer Care," "Paper Check" and "Electronic Payment." The heading
for the center column is "Paytrust Operations Center." Beneath that heading are
four blocks. The first block represents Paytrust Bill Acquisition and contains
the words "Scan" and "Convert." The second block represents Paytrust Information
Aggregation and contains the words "Aggregate" and "Link". The third block
represents Paytrust Payment Generation and contains the words "Print" and
"Transmit." The fourth block represents the Paytrust Bill Center. The heading
for the third column is "Consumers." Beneath that column is an oval representing
the "Paytrust Subscriber."
<PAGE> 78
[WORLD GLOBE WATERMARK]
Shares
[PAYTRUST LOGO]
PAYTRU$T, INC.
Common Stock
---------------------------
PROSPECTUS
, 2000
---------------------------
Joint Lead Managers and Bookrunners
LEHMAN BROTHERS THOMAS WEISEL PARTNERS LLC
---------------------------
WIT SOUNDVIEW
FIDELITY CAPITAL MARKETS
a division of National Financial Services Corporation
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee, the NASD fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $15,180
NASD fee.................................................... 6,250
Nasdaq National Market listing fee..........................
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Blue Sky fee................................................ 5,000
Miscellaneous............................................... *
-------
Total....................................................... $
=======
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law ("DGCL"), a
corporation has the power to indemnify directors and officers under certain
prescribed circumstances and subject to certain limitations against certain
costs and expenses, including attorneys' fees actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which any of them is a party by reason of
being a director or officer of the corporation if it is determined that the
director or officer acted in accordance with the applicable standard of conduct
set forth in such statutory provision. Article VII of the registrant's Amended
and Restated Bylaws, to be in effect upon consummation of the offering of the
securities to which this registration statement relates, provides that the
registrant will indemnify any officer or director who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was (or to the extent
permitted under Delaware law, has agreed to be) a director, officer, employee or
agent of the registrant, or is or was serving (or, to the extent permitted under
Delaware law, has agreed to serve) at the request of the registrant as a
director, officer, employee or agent of another entity, against certain
liabilities, costs and expenses. Article VII further permits the registrant to
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the registrant, or is or was serving at the request of the
registrant as a director, officer, employee or agent of another entity, against
any liability asserted against such person and incurred by such person in any
such capacity or arising out of his status as such, whether or not the
registrant would have the power to indemnify such person against such liability
under the DGCL. The registrant maintains directors' and officers' liability
insurance.
Under Section 8 of the Underwriting Agreement, the Underwriters will be
obligated, under certain circumstances, to indemnify directors and officers of
the registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
II-1
<PAGE> 80
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, the registrant has sold the following securities:
1. In October 1998, we sold 4,500,000 shares of common stock (as
adjusted for the subsequent merger of LM Holdings, Inc. with the company)
to each of Flint A. Lane and Edward G. McLaughlin for an aggregate
consideration of $200,000.
2. In February 1999, the registrant issued 1,000,000 shares of Series
A preferred stock and a warrant to purchase 1,000,000 shares of common
stock to one investor for $500,000.
3. In February 1999, the registrant issued 200,000 shares of common
stock to seven individuals for an aggregate consideration of $100,000.
4. In May 1999, the registrant issued 7,926,829 shares of Series B
preferred stock to five investors for an aggregate consideration of
$6,500,000.
5. In June 1999, the registrant issued 200,000 shares of common stock
to an employee for a note in the amount of approximately $164,000.
6. In October 1999, the registrant issued 40,000 shares of common
stock to an employee for a note in the amount of approximately $32,800.
7. In November 1999, the registrant issued a $2,500,000 convertible
promissory note to an investor for $2,500,000.
8. In November 1999, the registrant issued 13,274,338 shares of Series
C preferred stock to 16 investors for an aggregate consideration of
$30,000,002, including conversion of the $2,500,000 convertible promissory
note referred to in item 7.
9. In February 2000, the registrant issued a warrant to purchase
150,000 shares of common stock to a business development partner in
connection with the execution of a business development agreement.
10. In February 2000, the registrant issued warrants to purchase
350,000 shares of common stock to a business development partner in
connection with the execution of a business development agreement.
11. In March 2000, the registrant agreed to issue 2,500,000 shares of
Series D preferred stock to one investor for $10,000,000 subject to
approval of the transaction by the Office of the Comptroller of the
Currency or other applicable regulatory authority.
12. Since inception, the registrant has granted options to purchase an
aggregate of 2,059,657 shares of common stock to a number of its employees,
directors and consultants. No consideration was received by the registrant
upon grant of any such options.
The issuances of the above securities, other than as described in item 12,
were made in reliance on the exemption from registration provided under Section
4(2) of the Securities Act as transactions by an issuer not involving any public
offering. The recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to, or for sale in connection with, any distribution thereof and
appropriate legends were affixed to the share certificates, warrants and options
issued in such transactions. In addition, certain issuances to employees
described in Items 5, 6 and 12 were made in reliance on the exemption from
registration under the Securities Act provided under Section 3(b) of the
Securities Act and Rule 701 thereunder. There were no underwriters employed in
connection with any of the transactions set forth above in this Item 15. See
"Related Party Transactions" in the prospectus for further information.
II-2
<PAGE> 81
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The exhibits filed as part of this registration statement
are set forth below.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1(a) Registrant's Amended and Restated Certificate of
Incorporation (to be replaced by Exhibit 3.1(c) upon the
closing of this offering).
3.1(b) Registrant's Certificate of Amendment of Amended and
Restated Certificate of Incorporation.
3.1(c) Form of Registrant's Amended and Restated Certificate of
Incorporation (to be effective upon the closing of this
offering).
3.2(a) Registrant's Bylaws (to be replaced by Exhibit 3.2(b) upon
the closing of this offering).
3.2(b)* Form of registrant's Amended and Restated Bylaws (to be
effective upon the closing of this offering).
4.1 Second Amended and Restated Registration Rights Agreement
dated November 23, 1999.
5.1* Opinion of Morgan, Lewis & Bockius LLP as to the legality of
the securities being registered.
10.1*+ Service Provision and Hosting Agreement between American
Express Travel Related Services Company, Inc. and the
registrant dated November 24, 1999.
10.2(a) Lease between the registrant and Commerce Center at
Princeton LLC dated June 2, 1999.
10.2(b) First Amendment to Lease between the registrant and Commerce
Center at Princeton LLC dated August 27, 1999.
10.3 Lease between the registrant and J&B Realty Associates,
L.L.C. dated January 21, 2000.
10.4* Registrant's 1999 Equity Compensation Plan, as amended and
restated.
10.5* Registrant's 2000 Employee Stock Purchase Plan.
10.6(a) Employment Agreement between the registrant and Edward G.
McLaughlin dated February 4, 1999.
10.6(b) Amendment to Employment Agreement between the registrant and
Edward G. McLaughlin dated May 28, 1999.
10.7(a) Employment Agreement between the registrant and Flint A.
Lane dated February 4, 1999.
10.7(b) Amendment to Employment Agreement between the registrant and
Flint A. Lane dated May 28, 1999.
10.8 Employment Agreement between the registrant and John A.
Yapaola dated May 8, 1999.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (included in opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (included on signature page of this
registration statement).
27.1 Financial Data Schedule for the year ended December 31,
1999.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions of this Exhibit.
Omitted portions have been filed separately with the Securities and Exchange
Commission.
(b) Financial Statement Schedules. Financial statement schedules have been
omitted because they are inapplicable or are not required under applicable
provisions of Regulation S-X, or because the information that would otherwise be
included in such schedules is contained in the registrant's financial statements
or notes thereto.
II-3
<PAGE> 82
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rules 424(b)(1) or
(4) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Princeton, State of New
Jersey, on February 28, 2000.
PAYTRU$T, INC.
By: /s/ FLINT A. LANE
------------------------------------
Flint A. Lane
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Edward G.
McLaughlin, Flint A. Lane and Kenneth W. Zeng, and each of them, as his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this registration statement
(including post-effective amendments) and any and all additional registration
statements pursuant to Rule 462(b) under the Securities Act of 1933 in
connection with or related to the offering contemplated by this registration
statement and its amendments and to file the same, with all exhibits thereto and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them or
their substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
Dated: February 28, 2000 /s/ EDWARD G. MCLAUGHLIN
-----------------------------------------------------
Edward G. McLaughlin
(Principal Executive Officer)
Dated: February 28, 2000 /s/ FLINT A. LANE
-----------------------------------------------------
Flint A. Lane
Director
Dated: February 28, 2000 /s/ KENNETH W. ZENG
-----------------------------------------------------
Kenneth W. Zeng
(Principal Financial and Accounting Officer)
Dated: February 28, 2000 /s/ JOHN L. CONNOLLY
-----------------------------------------------------
John L. Connolly
Director
Dated: February 28, 2000 /s/ R. BRADFORD BURNHAM
-----------------------------------------------------
R. Bradford Burnham
Director
</TABLE>
II-5
<PAGE> 84
<TABLE>
<S> <C>
Dated: February 28, 2000 /s/ BRION B. APPLEGATE
-----------------------------------------------------
Brion B. Applegate
Director
Dated: February 28, 2000 /s/ GARY E. RIESCHEL
-----------------------------------------------------
Gary E. Rieschel
Director
Dated: February 28, 2000 /s/ PIERRIC D. BECKERT
-----------------------------------------------------
Pierric D. Beckert
Director
</TABLE>
II-6
<PAGE> 1
EXHIBIT 3.1(a)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SECURE COMMERCE SERVICES, INC.
Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware (the "GCL"), as amended, the undersigned, being the president
of Secure Commerce Services, Inc., does hereby certify:
1. The name of the corporation is Secure Commerce Services, Inc. The
date of filing of the original Certificate of Incorporation of the corporation
was January 22, 1999, and the date of filing of the Amended and Restated
Certificate of Incorporation of the corporation was May 28, 1999.
2. The text of the Amended and Restated Certificate of Incorporation is
hereby restated and further amended and supplemented to read as follows:
FIRST: NAME: The name of the corporation (herein referred to as the
"CORPORATION") is SECURE COMMERCE SERVICES, INC.
SECOND: REGISTERED OFFICE AND AGENT: The address of the registered
office of the Corporation in the State of Delaware is 1209 Orange Street, in the
City of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: PURPOSES: The nature of the business of the Corporation is to
engage in any lawful acts or activities for which corporations may be organized
under the General Corporation Law of the State of Delaware and to possess and
exercise all of the powers and privileges granted under such law and the other
laws of the State of Delaware.
FOURTH: AUTHORIZED CAPITAL: The total number of shares of all classes
of stock that the Corporation shall have authority to issue is 63,500,000
divided into two (2) classes, (i) the first class consisting of 40,000,000
shares of common stock, $.0001 par value per share (the "COMMON STOCK"), or an
aggregate par value of $4,000 and (ii) the second class consisting of 23,500,000
shares of preferred stock, $0.001 par value per share (the "PREFERRED STOCK"),
or an aggregate par value of $2,350, all of which are designated in series as
set forth below.
The following is a statement of the powers, privileges and rights, and
the qualifications, limitations or restrictions thereof, in respect of each
class of capital stock of the Corporation.
<PAGE> 2
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of shares of Common Stock are subject to, and qualified by, the rights of the
holders of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at each meeting of stockholders of the Corporation (and written
actions in lieu of meetings) with respect to any and all matters presented to
the stockholders of the Corporation for their action or consideration. There
shall be no cumulative voting and at any meeting held for the purpose of
electing directors, the presence in person or by proxy of the holders of a
majority of the shares of Common Stock then outstanding shall constitute a
quorum of the Common Stock for the purpose of electing directors by holders of
the Common Stock. The holders of Common Stock shall not vote as a separate class
on increases or decreases in the number of authorized shares of Common Stock,
but shall instead vote together with the Preferred Stock as a class on such
increase or decrease.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as, if and when determined by the Board
of Directors and approved by the holders of 70% of the shares of Preferred Stock
in accordance with Section B.4 hereof and subject to any preferential dividend
rights of any then outstanding Preferred Stock.
4. LIQUIDATION. Upon the voluntary or involuntary liquidation, sale,
merger, consolidation, dissolution or winding up of the Corporation, holders of
shares of Common Stock will be entitled to receive all assets of the Corporation
available for distribution to its stockholders, subject to any preferential
rights of any then outstanding Preferred Stock.
B. PREFERRED STOCK.
The Preferred Stock shall have the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations.
1. DESIGNATION OF THE SERIES; RANK.
(a) 2,000,000 shares of such Preferred Stock shall be
designated as "Series A Convertible Preferred Stock"
(the "SERIES A PREFERRED STOCK"). The issuance price
of the Series A Preferred Stock shall be $0.50 per
share (the "ORIGINAL SERIES A PURCHASE PRICE"). The
Series A Preferred Stock shall rank pari passu to the
Series B Preferred Stock and the Series C Preferred
Stock (each as defined below) and senior to the
Common Stock and any other capital stock of the
Corporation ranking junior to the Series A Preferred
Stock as to dividends and upon liquidation,
dissolution or winding up. The date on which the
first share of Series A Preferred Stock was issued
shall hereinafter be referred to as the "ORIGINAL
SERIES A ISSUE DATE".
2
<PAGE> 3
(b) 8,000,000 shares of such Preferred Stock shall be
designated as "Series B Convertible Preferred Stock"
(the "SERIES B PREFERRED STOCK"). The issuance price
of the Series B Preferred Stock shall be $0.82 per
share (the "ORIGINAL SERIES B PURCHASE PRICE"). The
Series B Preferred Stock shall rank pari passu to the
Series A Preferred Stock and Series C Preferred Stock
(as defined below) and senior to the Common Stock and
any other capital stock of the Corporation ranking
junior to the Series B Preferred Stock as to
dividends and upon liquidation, dissolution or
winding up. The date on which the first share of
Series B Preferred Stock was issued shall hereinafter
be referred to as the "ORIGINAL SERIES B ISSUE DATE".
(c) 13,500,000 shares of such Preferred Stock shall be
designated as "Series C Convertible Preferred Stock"
(the "SERIES C PREFERRED STOCK"). The issuance price
of the Series C Preferred Stock shall be $2.26 per
share (the "ORIGINAL SERIES C PURCHASE PRICE"). The
Series C Preferred Stock shall rank pari passu to the
Series A Preferred Stock and Series B Preferred Stock
and senior to the Common Stock and any other capital
stock of the Corporation ranking junior to the Series
C Preferred Stock as to dividends and upon
liquidation, dissolution or winding up. The date on
which the first share of Series C Preferred Stock was
issued shall hereinafter be referred to as the
"ORIGINAL SERIES C ISSUE DATE".
(d) The Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock shall hereinafter
be collectively referred to as the "PREFERRED STOCK".
2. DIVIDENDS.
(a) If the Corporation's board of directors declares or the
Corporation pays any dividends with respect to the Common Stock (whether payable
in cash, securities or other property except for dividends payable solely in
shares of Common Stock), the Corporation shall be deemed to have declared with
respect to all shares of Series A Preferred Stock outstanding, and the
Corporation shall pay to each holder of shares of Series A Preferred Stock,
dividends in an amount equal to the product of (i) the amount of dividends so
declared or paid with respect to each share of Common Stock and (ii) the number
of shares of Common Stock (including fractions thereof) issuable upon conversion
of the shares of Series A Preferred Stock held by such holder on the record for
such dividend with respect to the Common Stock.
(b) Holders of Series B Preferred Stock shall be entitled to
receive, out of funds legally available therefor, dividends at the rate per
annum of $0.0574 per share (the "SERIES B DIVIDENDS") to be paid (a) when and if
declared by the Board of Directors, (b) upon a Liquidation (as defined below),
or (c) upon a redemption of the Series B Preferred Stock pursuant to Section B.7
hereof. Series B Dividends shall be non-cumulative. No dividends may be declared
and/or paid with respect to the Common Stock until all Series B Dividends have
been paid in full. The Series B Dividends shall rank pari passu with the Series
C Dividends (as defined below). In addition to Series B Dividends, the Series B
Preferred Stock shall rank pari
3
<PAGE> 4
passu in any dividends declared with respect to the Common Stock. If the
Corporation's board of directors declares or the Corporation pays any dividends
with respect to the Common Stock (whether payable in cash, securities or other
property except for dividends payable solely in shares of Common Stock), the
Corporation shall be deemed to have declared with respect to all shares of
Series B Preferred Stock outstanding, and the Corporation shall pay to each
holder of shares of Series B Preferred Stock, dividends in an amount equal to
the product of (i) the amount of dividends so declared or paid with respect to
each share of Common Stock and (ii) the number of shares of Common Stock
(including fractions thereof) issuable upon conversion of the shares of Series B
Preferred Stock held by such holder on the record for such dividend with respect
to the Common Stock.
(c) Holders of Series C Preferred Stock shall be entitled to
receive, out of funds legally available therefor, dividends at the rate per
annum of $0.1582 per share (the "SERIES C DIVIDENDS") to be paid (a) when and if
declared by the Board of Directors, (b) upon a Liquidation (as defined below),
or (c) upon a redemption of the Series C Preferred Stock pursuant to Section B.7
hereof. Series C Dividends shall be non-cumulative. No dividends may be declared
and/or paid with respect to the Common Stock until all Series C Dividends have
been paid in full. The Series C Dividends shall rank pari passu with the Series
B Dividends. In addition to Series C Dividends, the Series C Preferred Stock
shall rank pari passu in any dividends declared with respect to the Common
Stock. If the Corporation's board of directors declares or the Corporation pays
any dividends with respect to the Common Stock (whether payable in cash,
securities or other property except for dividends payable solely in shares of
Common Stock), the Corporation shall be deemed to have declared with respect to
all shares of Series C Preferred Stock outstanding, and the Corporation shall
pay to each holder of shares of Series C Preferred Stock, dividends in an amount
equal to the product of (i) the amount of dividends so declared or paid with
respect to each share of Common Stock and (ii) the number of shares of Common
Stock (including fractions thereof) issuable upon conversion of the shares of
Series C Preferred Stock held by such holder on the record for such dividend
with respect to the Common Stock.
(d) Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as, if and when determined by the Board
of Directors and approved by the holders of Preferred Stock in accordance with
Section B.4 hereof and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation,
an Acquisition Event (as defined in Section 3(d) below), dissolution or winding
up of the Corporation (a "LIQUIDATION"), before any distribution of assets shall
be made to the holders of Common Stock, the holder of each share of Series A
Preferred Stock then outstanding shall be entitled (if it does not elect to
convert its shares of Preferred Stock into Common Stock pursuant to Section B.5
below) to be paid out of the assets of the Corporation available for
distribution to its stockholders (the "AVAILABLE ASSETS") an amount equal to the
Original Series A Purchase Price (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares of Series A Preferred Stock) plus all
declared but
4
<PAGE> 5
unpaid dividends on such share (such amount being referred to as the "SERIES A
LIQUIDATION PREFERENCE"); the holder of each share of Series B Preferred Stock
then outstanding shall be entitled to be paid out of the Available Assets an
amount equal to the Original Series B Purchase Price (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares of Series B Preferred Stock) plus
all declared but unpaid dividends on such share (such amount being referred to
as the "SERIES B LIQUIDATION PREFERENCE"); and the holder of each share of
Series C Preferred Stock then outstanding shall be entitled to be paid out of
the Available Assets an amount equal to the Original Series C Purchase Price
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares of
Series C Preferred Stock) plus all declared but unpaid dividends on such share
(such amount being referred to as the "SERIES C LIQUIDATION PREFERENCE"). If
upon any such Liquidation, the Available Assets shall be insufficient to pay the
holders of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock the full amount to which they shall be entitled, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock and any class or series of stock ranking on liquidation
on a parity with the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall share ratably in the distribution of the
Available Assets in proportion to the respective amounts that would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(b) After the payments set forth in Section 3(a) have been
made in full, the holders of Common Stock and the holders of Preferred Stock
shall share the remaining Available Assets on a pro rata basis, with the amount
distributable computed on the basis of the number of shares of Common Stock
which would be held by such holders of Preferred Stock if immediately prior to
the Liquidation all of the shares of the Preferred Stock had been converted into
shares of Common Stock; provided, that, the holders of Series A Preferred Stock
shall receive distributions pursuant to Sections 3(a) and 3(b) only until each
holder of Series A Preferred Stock shall have received a total of $1.50 per
share (as appropriately adjusted for any stock split, stock dividend, split-up,
recapitalization, merger, consolidation, business combination or the like); the
holders of Series B Preferred Stock shall receive distributions pursuant to
Sections 3(a) and 3(b) only until each holder of Series B Preferred Stock shall
have received a total of $2.46 per share (as appropriately adjusted for any
stock split, stock dividend, split-up, recapitalization, merger, consolidation,
business combination or the like); and the holders of Series C Preferred Stock
shall receive distributions pursuant to Sections 3(a) and 3(b) only until each
holder of Series C Preferred Stock shall have received a total of $6.78 per
share (as appropriately adjusted for any stock split, stock dividend, split-up,
recapitalization, merger, consolidation, business combination or the like).
(c) Nothing set forth in Section 3(b) above is intended to
restrict the distribution that would be received by a holder of Preferred Stock
if, prior to payment pursuant to this Section B.3, such holder elected to
convert its shares of Preferred Stock into Common Stock pursuant to Section B.5
below.
(d) The merger, reorganization or consolidation of the
Corporation into or with another corporation (except if the Corporation is the
surviving entity) or other similar
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transaction or series of related transactions in which 50% or more of the voting
power of the Corporation is disposed or in which the stockholders of the
Corporation immediately prior to such merger, reorganization or consolidation
own less than 50% of the Corporation's voting power immediately after such
merger, reorganization or consolidation, or the sale of all or substantially all
the assets of the Corporation (any such event an "ACQUISITION EVENT"), shall be
deemed to be a Liquidation for purposes of this Certificate of Incorporation,
unless the holders of 70% of the then outstanding shares of Preferred Stock,
acting together as a single class, elect otherwise by giving written notice
thereof to the Corporation at least three days before the effective date of such
event. The amount deemed distributed for purposes of determining the Liquidation
Preference for the holders of shares of Preferred Stock upon any Acquisition
Event shall be the cash or the value of the property, rights or securities
distributed to such holders by the acquiring person, firm or other entity. The
value of such property, rights or other securities shall be determined in good
faith by the Board of Directors of the Corporation, including a majority of the
Preferred Directors, including at least one Series B Director and one Series C
Director.
(e) Written notice of such Liquidation, stating a payment
date, the Liquidation Preference and the place where said Liquidation Preference
shall be payable, shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex, not
less than 20 days prior to the payment date stated therein, to the holders of
record of the Preferred Stock, such notice to be addressed to each such holder
at its address as shown by the records of the Corporation.
4. VOTING.
(a) Each holder of outstanding shares of Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Preferred Stock held of record by such holder are
convertible (as adjusted from time to time pursuant to Section B.5 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law and by the provisions of Subsection B.4(b) or B.4(c) below,
the holders of shares of Preferred Stock shall vote together with the holders of
Common Stock as a single class.
(b) (i) Effective with the date of filing of this Amended and
Restated Certificate of Incorporation the Board of Directors shall consist of
seven (7) directors. The holders of the shares of Series C Preferred Stock,
exclusively and as a separate class, shall be entitled to elect two (2)
directors of the Corporation (the "SERIES C PREFERRED DIRECTORS"). The holders
of the shares of Series B Preferred Stock, exclusively and as a separate class,
shall be entitled to elect two (2) directors of the Corporation (the "SERIES B
PREFERRED DIRECTORS"). The holders of the shares of Series A Preferred Stock,
exclusively and as a separate class, shall be entitled to elect one (1) director
of the Corporation (the "SERIES A PREFERRED DIRECTOR" and together with the
Series B Preferred Directors and the Series C Preferred Directors, the
"PREFERRED DIRECTORS"). The holders of record of the shares of Common Stock,
exclusively and as a separate class, shall be entitled to elect two (2)
directors of the Corporation.
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(ii) At any meeting held for the purpose of electing
directors, the presence in person or by proxy of the holders of two-thirds (2/3)
of the shares of Series A Preferred Stock then outstanding shall constitute a
quorum of the Series A Preferred Stock for the purpose of electing the Series A
Preferred Director and for all such votes upon which the holders of shares of
Series A Preferred Stock vote as a single class. A vacancy in any directorship
filled by the holders of the Series A Preferred Stock shall be filled only by
vote or written consent in lieu of a meeting of the holders of Series A
Preferred Stock.
(iii) At any meeting held for the purpose of electing
directors, the presence in person or by proxy of the holders of two-thirds (2/3)
of the shares of Series B Preferred Stock then outstanding shall constitute a
quorum of the Series B Preferred Stock for the purpose of electing the Series B
Preferred Directors and for all such votes upon which the holders of shares of
Series B Preferred Stock vote as a single class. A vacancy in any directorship
filled by the holders of the Series B Preferred Stock shall be filled only by
vote or written consent in lieu of a meeting of the holders of Series B
Preferred Stock.
(iv) At any meeting held for the purpose of electing
directors, the presence in person or by proxy of the holders of two-thirds (2/3)
of the shares of Series C Preferred Stock then outstanding shall constitute a
quorum of the Series C Preferred Stock for the purpose of electing the Series C
Preferred Directors and for all such votes upon which the holders of shares of
Series C Preferred Stock vote as a single class. A vacancy in any directorship
filled by the holders of the Series C Preferred Stock shall be filled only by
vote or written consent in lieu of a meeting of the holders of Series C
Preferred Stock.
(c) The Corporation shall not, without first obtaining the
written consent or affirmative vote of the holders of at least 70% of the then
outstanding shares of Series A Preferred Stock, given in writing or by vote at a
meeting, consenting or voting, as the case may be, separately as a class:
(i) authorize or issue any other class or series of stock on
parity with or senior to the Series A Preferred Stock or take other actions
materially affecting the rights, powers or privileges of the Series A Preferred
Stock;
(ii) increase the authorized number of shares of the Series
A Preferred Stock or any other class of preferred stock of the Corporation; or
(iii) amend this Section B.4(c).
For the purposes of this Section B.4(c), without limiting the generality of the
foregoing, the creation, authorization or issuance of any class or series of
capital stock with preference or priority over the Series A Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series A Preferred Stock.
(d) The Corporation shall not, without first obtaining the
written consent or affirmative vote of the holders of at least 70% of the then
outstanding shares of Series B
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Preferred Stock, given in writing or by vote at a meeting, consenting or voting,
as the case may be, separately as a class:
(i) authorize or issue any other class or series of stock on
parity with or senior to the Series B Preferred Stock or take other actions
materially affecting the rights, powers or privileges of the Series B Preferred
Stock;
(ii) increase the authorized number of shares of the Series
B Preferred Stock or any other class of preferred stock of the Corporation; or
(iii) amend this Section B.4(d).
For the purposes of this Section B.4(d), without limiting the generality of the
foregoing, the creation, authorization or issuance of any class or series of
capital stock with preference or priority over the Series B Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series B Preferred Stock.
(e) The Corporation shall not, without first obtaining the
written consent or affirmative vote of the holders of at least 70% of the then
outstanding shares of Series C Preferred Stock, given in writing or by vote at a
meeting, consenting or voting, as the case may be, separately as a class:
(i) authorize or issue any other class or series of stock on
parity with or senior to the Series C Preferred Stock or take other actions
materially affecting the rights, powers or privileges of the Series C Preferred
Stock;
(ii) increase the authorized number of shares of the Series
C Preferred Stock or any other class of preferred stock of the Corporation; or
(iii) amend this Section B.4(e).
For the purposes of this Section B.4(e), without limiting the generality of the
foregoing, the creation, authorization or issuance of any class or series of
capital stock with preference or priority over the Series C Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series C Preferred Stock.
(f) The Corporation shall not, without first obtaining the
written consent or affirmative vote of the holders of at least 70% of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, given in writing or by vote at a meeting, consenting
or voting, as the case may be, together as a class:
(i) amend, alter or repeal any provision of the Certificate
of Incorporation or the By-Laws of the Corporation that affects the Preferred
Stock, except with respect to those subjects reserved for voting by series, as
provided in Sections 4(b) through 4(e), above;
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(ii) merge with or into or consolidate with any other
corporation (except if the Corporation is the surviving entity) or enter into
any other similar transaction or series of related transactions in which 50% or
more of the voting power of the Corporation is disposed of, or all or
substantially all of the assets of the Corporation are sold;
(iii) effectuate a liquidation, dissolution or winding up of
the Corporation, including but not limited to a Liquidation;
(iv) repurchase shares of the Corporation's capital stock
except for unvested shares purchased from former employees at a price not
exceeding the price at which such former employees purchased such shares;
(v) effectuate a reclassification or recapitalization of the
outstanding capital stock of the Corporation;
(vi) change the authorized number of members of the Board of
Directors from seven (7);
(vii) declare or pay any dividend, other than as set forth
in this Certificate of Incorporation; or
(viii) increase or decrease the number of authorized shares
of Common Stock.
5. OPTIONAL CONVERSION. The holders of shares 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 and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing the Original Purchase Price by the Conversion Price
(as defined below) in effect at the time of conversion. The conversion price at
which shares of Common Stock shall be deliverable upon conversion of Preferred
Stock without payment of additional consideration by the holder thereof (the
"CONVERSION PRICE") shall initially be $0.50 in the case of the Series A
Preferred Stock, $0.82 in the case of the Series B Preferred Stock and $2.26 in
the case of Series C Preferred Stock. Such initial Conversion Price, and the
rate at which shares of Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below.
Upon a Liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on Liquidation to the
holders of shares of Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the shares of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Whether or not a holder would otherwise be
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entitled to a fractional share shall be determined on the basis of the total
number of shares of Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(c) Mechanics of Conversion.
(i) In order for a holder of shares of Preferred Stock to
convert shares of Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Preferred Stock at
the office of the transfer agent for the shares of Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney-in-fact duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date (the
"CONVERSION DATE"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver to such holder of shares of Preferred Stock,
or to his or its nominees, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled, together with
cash in lieu of any fraction of a share. If the number of shares of Preferred
Stock represented by the certificates for the Preferred Stock submitted for
conversion shall be greater than the number of shares of Preferred Stock being
converted, the Corporation shall, when delivering the shares of Common Stock
upon any such conversion, issue and deliver to the holder thereof a new
certificate representing the number of shares of Preferred Stock which shall not
have been converted. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date. Other than as set forth in Section B.6 below, if
the conversion is in connection with an underwritten offer of securities
registered pursuant to the Securities Act of 1933, as amended (the "SECURITIES
ACT"), the conversion may, at the option of any holder tendering shares of
Preferred Stock for conversion, be conditioned upon the closing of the sale of
securities pursuant to such offering, in which event the person entitled to
receive the Common Stock issuable upon such conversion of the shares of
Preferred Stock shall not be deemed to have converted such shares of Preferred
Stock until immediately prior to the closing of such sale of securities.
(ii) The Corporation shall, at all times when the Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the shares of
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock. Before taking any action that would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the shares of Preferred
Stock, the Corporation will take any corporate action
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that may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Conversion Price. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, in addition to
such other remedies as shall be available to the holder of such shares of
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for, nor shall any payment be made of, any
declared and unpaid dividends on the shares of Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Preferred Stock that shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor. Any shares of Preferred Stock so
converted shall be retired and canceled and shall not be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to eliminate the authorized Preferred Stock or reduce the authorized
number thereof as may be appropriate accordingly.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Subsection
B.5(d), the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities (as defined below) or restricted stock, excluding rights, options or
warrants approved by the Board of Directors and issued in connection with: (1)
grants to purchase up to 1,974,807 shares of Common Stock (as adjusted for stock
splits, recapitalizations and similar events) to employees, directors or
consultants of the Corporation pursuant to a stock option plan or similar
compensation arrangement adopted by the Board of Directors; (2) equipment leases
approved by the Board of Directors, including at least a majority of the
Preferred Directors, including at least one Series B Director and one Series C
Director; (3) credit lines approved by the Board of Directors, including at
least a majority of the Preferred Directors, including at least one Series B
Director and one Series C Director; (4) strategic partnerships approved by the
Board of Directors, including at least a majority of the Preferred Directors,
including at least one Series B Director and one Series C Director, in an amount
such that rights, options and warrants granted related to such strategic
partnerships do not exceed 1,670,919 in the aggregate (as adjusted for stock
splits, recapitalizations and similar events); or (5) acquisitions approved by
the Board of Directors, including at least a majority of the Preferred
Directors, including at least one Series B Director and one Series C Director,
and any shares issued upon exercise of such options or warrants (such excluded
options, warrants and shares, the "RESERVED OPTION SHARES").
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(B) "ORIGINAL ISSUE DATE" shall mean the date on which a
share of Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subsection B.5(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than:
(I) shares of Common Stock issued or issuable upon conversion of shares
of Preferred Stock outstanding on the Original Issue Date of the Series C
Preferred Stock or issuable upon conversion of warrants outstanding on the
Original Issue Date of the Series C Preferred Stock;
(II) shares of Common Stock issued or issuable as a dividend or
distribution on Preferred Stock;
(III) the Reserved Option Shares; or
(IV) shares of Common Stock issued or issuable by reason of a dividend,
stock split, split-up or other distribution on shares of Common Stock excluded
from the definition of Additional Shares of Common Stock by the foregoing
clauses (I), (II) and (III) or this clause (IV).
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the shares of Preferred Stock are
convertible shall be made, by adjustment in the applicable Conversion Price
thereof, unless the Net Consideration Per Share (determined pursuant to
Subsection B.5(d)(v)) for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Share.
(iii) Issue of Options and Convertible Securities Deemed
Issue of Additional Shares of Common Stock. If the Corporation at any time or
from time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock (as
set forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that in any such case in which Additional
Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the
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exercise of such Options or conversion or exchange of such Convertible
Securities and, upon the expiration of any such Option or the termination of any
such right to convert or exchange such Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be increased to the Conversion
Price that would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
Common Stock issuable thereunder shall no longer be deemed to be outstanding;
and
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities, provided that no readjustment pursuant to this clause
(B) shall have the effect of increasing the Conversion Price to an amount that
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Subsection B.5(d)(iii)), without consideration
or for a Net Consideration Per Share less than the Conversion Price in effect on
the date of and immediately prior to such issue, then and in such event, the
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest tenth of a cent) determined by multiplying the
Conversion Price by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock that the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at the Conversion Price in effect prior to such issue; and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; provided that, for the purpose of this
Subsection B.5(d)(iv), (I) all shares of Common Stock issuable upon conversion
of shares of Preferred Stock outstanding immediately prior to such issue shall
be deemed to be outstanding, and (II) immediately after any Additional Shares of
Common Stock are deemed issued pursuant to Subsection B.5(d)(iii), such
Additional Shares of Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of this
Subsection B.5(d), the "NET CONSIDERATION PER SHARE" shall mean the per share
consideration received by the Corporation for the issue of any Additional Shares
of Common Stock and shall be computed as follows:
(A) Cash and Property: Such consideration shall:
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(I) insofar as it consists of cash, be computed at the aggregate of cash
received by the Corporation, excluding amounts paid or payable for accrued
interest or dividends;
(II) insofar as it consists of property other than cash, be computed at
the fair market value thereof at the time of such issue, as determined in good
faith by the Board; and
(III) in the event Additional Shares of Common Stock are issued together
with other shares or securities or other assets of the Corporation for
consideration that covers both, be the proportion of such consideration so
received, computed as provided in clauses (I) and (II) above, as determined in
good faith by the Board.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection B.5(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Adjustment for Combinations or Consolidation of Common
Stock. If, at any time after the Original Issue Date, the number of shares of
Common Stock outstanding are decreased by a combination of the outstanding
shares of Common Stock, then following the record date fixed for such
combination (or the date of such combination, if no record date is fixed), the
applicable Conversion Price shall be increased so that the number of shares of
Common Stock issuable on conversion of each share of Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares of Common Stock.
(vii) Adjustment for Stock Dividends, Splits, Etc. If the
Corporation shall at any time after the applicable Original Issue Date fix a
record date for the subdivision, split-up or stock dividend of shares of Common
Stock, then, following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such subdivision, split-up or
dividend (or the date of such subdivision, split-up or dividend, if no record
date is fixed), the Conversion Price shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be increased in proportion to such increase in outstanding
shares.
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(viii) Adjustment for Merger or Reorganization, etc. In case
of any consolidation, recapitalization or merger of the Corporation with or into
another corporation or the sale of all or substantially all of the assets of the
Corporation to another corporation (other than a subdivision or combination
provided for elsewhere in this Section B.5 and other than a consolidation,
merger or sale that is treated as a Liquidation pursuant to Section B.3), each
share of Preferred Stock shall thereafter be convertible into the kind and
amount of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable upon
conversion of such shares of Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors ) shall be made in the
application of the provisions in this Section B.5 set forth with respect to the
rights and interest thereafter of the holders of the shares of Preferred Stock,
to the end that the provisions set forth in this Section B.5 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the shares of Preferred Stock.
(e) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section B.5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
shares of Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section B.5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
shares of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property that then would
be received upon the conversion of the shares of Preferred Stock.
(g) Notice of Record Date. In the event:
(i) that the Corporation takes a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend) or any
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
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<PAGE> 16
(iii) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution thereon), or of
any consolidation or merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Preferred Stock, and shall cause to be
mailed to the holders of the Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least ten days prior
to the record date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
6. AUTOMATIC CONVERSION.
(a) Triggering Event. All outstanding shares of Preferred Stock
shall automatically convert to shares of Common Stock, at the then effective
Conversion Price pursuant to Section 5, upon the first to occur of: (i) the
consummation of an underwritten public offering pursuant to an effective
registration statement under the Securities Act, resulting in at least
$20,000,000 of gross proceeds to the Corporation, at a price of at least $7.00
per share (subject to adjustment for any stock splits, stock dividends,
combinations and other similar capitalizations affecting such shares); and (ii)
authorization of such conversion by written consent of the holders of at least
70% of the outstanding shares of Preferred Stock voting together as a class.
(b) No Further Action. In the case of an automatic conversion
pursuant to this Section B.6, the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, that the Corporation shall not
be obligated to issue to any holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such shares
of Preferred Stock are delivered either to the Corporation or any transfer agent
of the Corporation.
16
<PAGE> 17
(c) Surrender of Certificates; Retirement and Cancellation of
Converted Shares. All certificates evidencing shares of Preferred Stock that are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the date such certificates are so required to be
surrendered, be deemed to have been retired and canceled and the shares of
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.
7. REDEMPTION.
(a) At any time following the fifth anniversary of the
Original Issue Date of the first share of Series C Preferred Stock, (i) the
holders of two-thirds of the outstanding shares of the Series A and Series B
Preferred Stock shall have the right, and (ii) the holders of a majority of the
outstanding shares of Series C Preferred Stock shall have the right,
respectively, to require the Corporation to redeem shares of Preferred Stock as
described in this Section B.7 at the Redemption Price (as defined below) by
delivering written notice to the Corporation (a "REDEMPTION ELECTION"),
provided, however, that the Corporation shall not be required to make a
redemption not in accordance with the GCL.
(b) Upon the delivery of a Redemption Election, the
Corporation shall notify promptly all holders of shares of Preferred Stock in
writing (the "REDEMPTION NOTICE") of the delivery of the Redemption Election.
(c) The holders of shares of Series A and Series B
Preferred Stock or Series C Preferred Stock, as applicable, may elect to sell to
the Corporation all or a portion of their shares of Preferred Stock by
delivering written notice to the Corporation within 15 days after receipt of the
Redemption Notice. Subject to the provisions hereof, within 30 days thereafter,
the Corporation shall purchase, and all such electing holders of Preferred Stock
shall sell, the portion of such shares that the holders thereof have elected to
sell to the Corporation at a time and place mutually agreeable to the
Corporation and the holders of the Series A and Series B Preferred Stock or
Series C Preferred Stock, as applicable (the "REDEMPTION CLOSING"). The
Corporation shall notify all holders of Preferred Stock of the date and place of
the Redemption Closing at least seven days prior to the Redemption Closing.
(d) At the Redemption Closing, the holders of Preferred
Stock shall deliver to the Corporation certificates representing the shares of
Preferred Stock that they have elected to sell to the Corporation, and the
Corporation shall deliver to each such holder one-third of the Redemption Price
for each share of Preferred Stock to be sold to the Corporation by cashier's or
certified check or by wire transfer of immediately available funds to an account
designated by such holder. In addition, on each of the first and second
anniversaries of the Redemption Closing, the Corporation shall deliver to each
holder of Preferred Stock that delivered shares at the Redemption Closing,
one-third of the Redemption Price for each such share of Preferred Stock by
cashier's or certified check or by wire transfer of immediately available funds
to an account designated by such holder.
(e) The "REDEMPTION PRICE" of:
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<PAGE> 18
(i) a share of Series A Preferred Stock means the
amount equal to the Original Series A Purchase Price, plus any declared but
unpaid dividends on such share;
(ii) a share of Series B Preferred Stock means the
Original Series B Purchase Price plus any declared but unpaid dividends on such
share; and
(iii) a share of Series C Preferred Stock means the
Original Series C Purchase Price plus any declared but unpaid dividends on such
share.
FIFTH. BOARD OF DIRECTORS. In furtherance of and not in limitation
of powers conferred by statute, it further provided:
(1) Election of directors need not be by written ballot.
(2) The Board is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation subject to the provisions of the Fourth
Article, Section B.4 hereof.
SIXTH. LIMITATION ON LIABILITY. No director of the Corporation shall be
personally liable to the Corporation or to any stockholder of the Corporation
for monetary damages for breach of fiduciary duty as a director, provided that
this provision shall not limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
If the GCL or any other statute of the State of Delaware hereafter is
amended to authorize the further elimination or limitation of the liability of
directors of the corporation, then the liability of a director of the
corporation shall be limited to the fullest extent permitted by the statutes of
the State of Delaware, as so amended, and such elimination or limitation of
liability shall be in addition to, and not in lieu of, the limitation on the
liability of a director provided by the foregoing provisions of this Sixth
Article.
Any repeal of or amendment to this Sixth Article shall be prospective
only and shall not adversely affect any limitation on the liability of a
director of the corporation existing at the time of such repeal or amendment.
SEVENTH. To the extent permitted by law, the Corporation shall fully
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) (a "PROCEEDING") because such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees) ("EXPENSES"),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such Proceeding.
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<PAGE> 19
To the extent permitted by law, the Corporation may fully indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed Proceeding because such person is or was an
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against Expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such Proceeding.
The Corporation may advance Expenses incurred by a director or officer
in defending any Proceeding in advance of the final disposition of such
Proceeding upon the receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that such
director or officer is not entitled to indemnification. The Corporation may
advance Expenses incurred by an employee or agent in defending any Proceeding in
advance of the final disposition of such Proceeding upon such terms and
conditions, if any, as the Board deems appropriate.
EIGHTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
This Certificate of Incorporation was duly adopted in accordance with
Sections 242 and 245 of the GCL. In lieu of a meeting and vote thereat of the
stockholders, the stockholders of the Corporation adopted this Certificate of
Incorporation by written consent pursuant to Section 228 of the GCL.
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<PAGE> 20
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Incorporation to be signed by its
President this 22 day of November, 1999.
SECURE COMMERCE SERVICES, INC.
By: /s/ Flint A. Lane [SEAL]
---------------------------------
Name: Flint A. Lane
Title: President
<PAGE> 1
EXHIBIT 3.1(b)
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SECURE COMMERCE SERVICES, INC.
-------------------------
Under Sections 228 and 242 of the General Corporation Law
--------------------------
Secure Commerce Services, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"GCL"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held on February 23, 2000, adopted a resolution proposing and declaring
advisable the following amendment to the Amended and Restated Certificate of
Incorporation of said corporation:
RESOLVED, that subject to stockholder approval, Article First
of the Amended and Restated Certificate of Incorporation (the "Charter") of the
Company be amended to read as follows:
"FIRST: Name: The name of the corporation is Paytru$t, Inc."
SECOND: That in lieu of a meeting, the stockholders have given written
consent to said amendment in accordance with the provisions of Section 228 of
the GCL and written notice of the adoption of the amendment has been given as
provided in Section 228 of the GCL to every stockholder entitled to such notice.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 228 and 242 of the GCL.
IN WITNESS WHEREOF, this certificate of amendment of amended and
restated certificate of incorporation has been duly executed by the undersigned
this 24th day of February, 2000.
/s/ Flint A. Lane
-------------------------------
Name: Flint A.Lane
Title: President
<PAGE> 1
EXHIBIT 3.1(c)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PAYTRU$T, INC.
Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware (the "GCL"), as amended, the undersigned, being the president
of Paytru$t, Inc., does hereby certify:
1. The name of the corporation is Paytru$t, Inc. The corporation was
originally incorporated under the name Secure Commerce Services, Inc. The date
of filing of the original Certificate of Incorporation of the corporation was
January 22, 1999.
2. The text of the Amended and Restated Certificate of Incorporation,
as amended, is hereby restated and further amended and supplemented to read as
follows:
FIRST: NAME: The name of the corporation (herein referred to as the
"CORPORATION") is PAYTRU$T, INC.
SECOND: REGISTERED OFFICE AND AGENT: The address of the registered
office of the Corporation in the State of Delaware is 1209 Orange Street, in the
City of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: PURPOSES: The nature of the business of the Corporation is to
engage in any lawful acts or activities for which corporations may be organized
under the GCL and to possess and exercise all of the powers and privileges
granted under such law and the other laws of the State of Delaware.
FOURTH: AUTHORIZED CAPITAL: The total number of shares of all classes
of stock that the Corporation shall have authority to issue is 105,000,000
divided into two (2) classes, the first class consisting of 100,000,000 shares
of common stock, $.0001 par value per share (the "COMMON STOCK"), or an
aggregate par value of $15,000 and the second class consisting of 5,000,000
shares of preferred stock, $0.0001 par value per share (the "PREFERRED STOCK"),
or an aggregate par value of $500. The Corporation's board of directors is
hereby expressly authorized to provide by resolution or resolutions from time to
time for the issue of the Preferred Stock in one or more series, the shares of
each of which series may have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, as shall be permitted under the GCL and as shall be stated in the
resolution or resolutions providing for the issue of such stock adopted by the
board of directors pursuant to the authority expressly vested in the board of
directors hereby.
<PAGE> 2
FIFTH: DIRECTORS.
A. The business and affairs of the Corporation shall be managed by or
under the direction of a board of directors consisting of such total number of
authorized directors as shall be fixed by, or in the manner provided in, the
bylaws. The board of directors shall be divided into three classes, as nearly
equal in number as may be possible, one class to be originally elected for a
term ending upon the annual meeting of stockholders held in 2001, another class
to be originally elected for a term ending upon the annual meeting of
stockholders held in 2002 and another class to be originally elected for a term
ending upon the annual meeting of stockholders held in 2003. At each succeeding
annual meeting of stockholders beginning with the annual meeting of stockholders
held in 2001, successors to the class of directors whose term expires at such
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible. 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, incapacitation
or removal from office, and except as otherwise required by law.
B. Any director elected to fill a vacancy shall hold office for a term
expiring at the next annual meeting of stockholders at which the term of office
of the class to which such director has been elected expires, and until such
director's respective successor is elected, except in the case of the death,
resignation or removal of such director. A director may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors.
C. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of 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 term of this
certificate of incorporation applicable thereto and such directors so elected
shall not be divided into classes pursuant to this Fifth Article, in each case
unless expressly provided by such terms.
SIXTH: BYLAWS. In furtherance of and not in limitation of powers
conferred by statute, it is further provided that the Board is expressly
authorized to adopt, amend or repeal the Bylaws of the Corporation.
SEVENTH: LIMITATION ON LIABILITY. No director of the Corporation shall
be personally liable to the Corporation or to any stockholder of the Corporation
for monetary damages for breach of fiduciary duty as a director, provided that
this provision shall not limit the liability of a director (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
-2-
<PAGE> 3
If the GCL or any other statute of the State of Delaware hereafter is
amended to authorize the further elimination or limitation of the liability of
directors of the Corporation, then the liability of a director of the
Corporation shall be limited to the fullest extent permitted by the statutes of
the State of Delaware, as so amended, and such elimination or limitation of
liability shall be in addition to, and not in lieu of, the limitation on the
liability of a director provided by the foregoing provisions of this Article
Seventh.
Any repeal of or amendment to this Article Seventh shall be prospective
only and shall not adversely affect any limitation on the liability of a
director of the Corporation existing at the time of such repeal or amendment.
EIGHTH: INDEMNIFICATION. To the extent permitted by law, the
Corporation shall fully 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) (a
"PROCEEDING") because such person is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees) ("EXPENSES"), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
Proceeding.
To the extent permitted by law, the Corporation may fully indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed Proceeding because such person is or was an
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against Expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such Proceeding.
The Corporation may advance Expenses incurred by a director or officer
in defending any Proceeding in advance of the final disposition of such
Proceeding upon the receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that such
director or officer is not entitled to indemnification. The Corporation may
advance Expenses incurred by an employee or agent in defending any Proceeding in
advance of the final disposition of such Proceeding upon such terms and
conditions, if any, as the Board deems appropriate.
NINTH: ACTION BY STOCKHOLDERS. Effective immediately upon the
Corporation becoming subject to the periodic reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended, with respect to
any class of its capital stock:
A. No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Corporation may be taken without a
meeting; and
B. The power of the stockholders to consent in writing, in lieu of a
meeting, to the taking of any action is specifically denied.
-3-
<PAGE> 4
C. Special meetings of the stockholders of the Corporation may be
called only by the board of directors pursuant to a resolution adopted by a
majority of the total number of authorized directors, the chairman of the board
of directors, the president or the chief executive officer.
This Certificate of Incorporation was duly adopted in accordance with
Sections 242 and 245 of the GCL. In lieu of a meeting and vote thereat of the
stockholders, the stockholders of the Corporation adopted this Certificate of
Incorporation by written consent pursuant to Section 228 of the GCL.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Incorporation to be signed by its
President this ____ day of _________, 2000.
PAYTRU$T, INC.
By: ______________________________(SEAL)
Name: Flint A. Lane
Title: President
<PAGE> 1
EXHIBIT 3.2(a)
BYLAWS
OF
SECURE COMMERCE SERVICES, INC.
(A DELAWARE CORPORATION)
Adopted as of January 22, 1999
ARTICLE I
OFFICES AND FISCAL YEAR
SECTION 1.01. Registered Office.--The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware until otherwise established by resolution of the board of directors,
and a certificate certifying the change is filed in the manner provided by
statute.
SECTION 1.02. Other Offices.--The corporation may also have offices at
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. Fiscal Year.--The fiscal year of the corporation shall
end on the 31st of December in each year.
ARTICLE II
NOTICE - WAIVERS - MEETINGS
SECTION 2.01. Notice, What Constitutes.--Whenever, under the provisions
of the Delaware General Corporation Law ("GCL") or the certificate of
incorporation or of these bylaws, notice is required to be given to any director
or stockholder, it shall not be construed to mean personal notice, but such
notice may be given in writing, by mail or by telegram (with messenger service
specified), telex or TWX (with answerback received) or courier service, charges
prepaid, or by facsimile transmission to the address (or to the telex, TWX,
facsimile or telephone number) of the person appearing on the books of the
corporation, or in the case of directors, supplied to the corporation for the
purpose of notice. If the notice is sent by mail, telegraph or courier service,
it shall be deemed to be given when deposited in the United States mail or with
a telegraph office or courier service for delivery to that person or, in the
case of telex or TWX, when dispatched, or in the case of facsimile transmission,
when received.
<PAGE> 2
SECTION 2.02. Notice of Meetings of Board of Directors.--Notice of a
regular meeting of the board of directors need not be given. Notice of every
special meeting of the board of directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or facsimile transmission) or 48 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of notice
by first class mail) before the time at which the meeting is to be held. Every
such notice shall state the time and place of the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
board need be specified in a notice of the meeting.
SECTION 2.03. Notice of Meetings of Stockholders.--Written notice of
the place, date and hour of every meeting of the stockholders, whether annual or
special, shall be given to each stockholder of record entitled to vote at the
meeting not less than ten nor more than 60 days before the date of the meeting.
Every notice of a special meeting shall state the purpose or purposes thereof.
If the notice is sent by mail, it shall be deemed to have been given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at the address of the stockholder as it appears on the records of
the corporation.
SECTION 2.04. Waivers of Notice.
(a) Written Waiver.--Whenever notice is required to be given under any
provisions of the GCL or the certificate of incorporation or these bylaws, a
written waiver, signed by the person or persons entitled to the notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
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 of such meeting.
(b) Waiver by Attendance.--Attendance of a person at a meeting, either
in person or by proxy, shall constitute a waiver of notice of such meeting,
except where a person attends a meeting for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened.
SECTION 2.05. Exception to Requirements of Notice.
(a) General Rule.--Whenever notice is required to be given, under any
provision of the GCL or of the certificate of incorporation or these bylaws, to
any person with whom communication is unlawful, the giving of such notice to
such person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given.
(b) Stockholders Without Forwarding Addresses.--Whenever notice is
required to be given, under any provision of the GCL or the certificate of
incorporation or these bylaws, to any stockholder to whom (i) notice of two
consecutive annual meetings, and all notices of meetings or of the taking of
action by written consent without a meeting to such person during the period
2
<PAGE> 3
between such two consecutive annual meetings, or (ii) all, and at least two,
payments (if sent by first class mail) of dividends or interest on securities
during a 12 month period, have been mailed addressed to such person at his
address as shown on the records of the corporation and have been returned
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall be taken or held without notice to such person
shall have the same force and effect as if such notice had been duly given. If
any such person shall deliver to the corporation a written notice setting forth
the person's then current address, the requirement that notice be given to such
person shall be reinstated.
SECTION 2.06. Conference Telephone Meetings.--One or more directors may
participate in a meeting of the board, or of a committee of the board, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting.
ARTICLE III
MEETINGS OF STOCKHOLDERS
SECTION 3.01. Place of Meeting.--All meetings of the stockholders of
the corporation shall be held at the registered office of the corporation, or at
such other place within or without the State of Delaware as shall be designated
by the board of directors in the notice of such meeting.
SECTION 3.02. Annual Meeting.--The board of directors may fix and
designate the date and time of the annual meeting of the stockholders, and at
said meeting the stockholders then entitled to vote shall elect directors and
shall transact such other business as may properly be brought before the
meeting.
SECTION 3.03. Special Meetings.--Special meetings of the stockholders
of the corporation may be called at any time by the chairman of the board, a
majority of the board of directors, the president, or at the request, in
writing, of stockholders entitled to cast at least a majority of the votes that
all stockholders are entitled to cast at the particular meeting. At any time,
upon the written request of any person or persons who have duly called a special
meeting, which written request shall state the purpose or purposes of the
meeting, it shall be the duty of the secretary to fix the date of the meeting
which shall be held at such date and time as the secretary may fix, not less
than ten nor more than 60 days after the receipt of the request, and to give due
notice thereof. If the secretary shall neglect or refuse to fix the time and
date of such meeting and give notice thereof, the person or persons calling the
meeting may do so.
SECTION 3.04. Quorum, Manner of Acting and Adjournment.
(a) Quorum.--The holders of a majority of the shares entitled to vote,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders except as
3
<PAGE> 4
otherwise provided by the GCL, by the certificate of incorporation or by these
bylaws. If a quorum is not 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,
without notice other than announcement at the meeting, until a quorum is present
or represented. At any such adjourned meeting at which a quorum is present or
represented, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than 30 days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
(b) Manner of Acting.--Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. In all matters other than the
election of directors, the affirmative vote of the majority of shares present in
person or represented by proxy at the meeting and entitled to vote thereon shall
be the act of the stockholders, unless the question is one upon which, by
express provision of the applicable statute, the certificate of incorporation or
these bylaws, a different vote is required in which case such express provision
shall govern and control the decision of the question. The stockholders present
in person or by proxy at a duly organized meeting can continue to do business
until adjournment, notwithstanding withdrawal of enough stockholders to leave
less than a quorum.
SECTION 3.05. Organization.--At every meeting of the stockholders, the
chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
president, the vice presidents in their order of rank or seniority, a chairman
designated by the board of directors or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in the absence of the secretary, an assistant secretary, or in
the absence of the secretary and the assistant secretaries, a person appointed
by the chairman, shall act as secretary.
SECTION 3.06. Voting.
(a) General Rule.--Unless otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote, in person or by
proxy, for each share of capital stock having voting power held by such
stockholder.
(b) Voting and Other Action by Proxy.--
(1) A stockholder may execute a writing authorizing another
person or persons to act for the stockholder as proxy. Such execution
may be accomplished by the stockholder or the authorized officer,
director, employee or agent of the stockholder 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.
A stockholder may authorize another person or persons to act for the
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stockholder as proxy by transmitting or authorizing the transmission of
a telegram, cablegram, 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 if such telegram, cablegram or other means of electronic
transmission sets forth or is submitted with information from which it
can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder.
(2) No proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period.
(3) A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only so long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A proxy
may be made irrevocable regardless of whether the interest with which
it is coupled is an interest in the stock itself or an interest in the
corporation generally.
SECTION 3.07. Consent of Stockholders in Lieu of Meeting.--Any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the corporation by delivery to its
registered office in Delaware, 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. Every written consent shall bear the date
of signature of each stockholder who signs the consent and no written consent
shall be effective to take the corporate action referred to therein unless,
within 60 days of the earliest dated consent delivered in the manner required in
this section to the corporation, written consents signed by a sufficient number
of holders to take action are delivered to the corporation by delivery to its
registered office in Delaware, 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. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 3.08. Voting Lists.--The officer 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. The list shall be arranged in alphabetical order, showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least
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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 who is
present.
SECTION 3.09. Inspectors of Election.
(a) Appointment.--All elections of directors shall be by written
ballot, unless otherwise provided in the certificate of incorporation; the vote
upon any other matter need not be by ballot. In advance of any meeting of
stockholders the board of directors may appoint inspectors, who need not be
stockholders, to act at the meeting. If inspectors are not so appointed, the
chairman of the meeting may, and upon the demand of any stockholder or his proxy
at the meeting and before voting begins shall, appoint inspectors. The number of
inspectors shall be either one or three, as determined, in the case of judges
appointed upon demand of a stockholder, by stockholders present entitled to cast
a majority of the votes which all stockholders present are entitled to cast
thereon. No person who is a candidate for office shall act as an inspector. In
case any person appointed as an inspector fails to appear or fails or refuses to
act, the vacancy may be filled by appointment made by the board of directors in
advance of the convening of the meeting, or at the meeting by the chairman of
the meeting.
(b) Duties.--If inspectors are appointed, they shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum and the authenticity,
validity and effect of proxies, shall receive votes or ballots, shall hear and
determine all challenges and questions in any way arising in connection with the
right to vote, shall count and tabulate all votes, shall determine the result,
and shall do such acts as may be proper to conduct the election or vote with
fairness to all stockholders. If there be three inspectors of election, the
decision, act or certificate of a majority shall be effective in all respects as
the decision, act or certificate of all.
(c) Report.--On request of the chairman of the meeting or of any
stockholder or his proxy, the inspectors shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 4.01. Powers.--All powers vested by law in the corporation
shall be exercised by or under the authority of, and the business and affairs of
the corporation shall be managed under the direction of, the board of directors.
SECTION 4.02. Number and Term of Office.--The board of directors shall
consist of such number of directors, not less than 1, as may be determined from
time to time by resolution
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of the board of directors. Each director shall hold office until the expiration
of the term for which he or she was selected and until a successor shall have
been elected and qualified or until his or her earlier death, resignation or
removal. Directors need not be residents of Delaware or stockholders of the
corporation.
SECTION 4.03. Vacancies.--Vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
of the stockholders having a right to vote as a single class may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
their successors are elected and qualified or until their earlier death,
resignation or removal. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. Whenever the holders of
any class or classes of stock or series thereof are entitled to elect one or
more directors by the provisions of the certificate of incorporation, vacancies
and newly created directorships of such class or classes or series may be filled
by a majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
SECTION 4.04. Resignations.--Any director may resign at any time upon
written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as shall be
specified in the notice of resignation and, unless otherwise specified in the
notice, the acceptance of the resignation shall not be necessary to make it
effective.
SECTION 4.05. Removal.--Any director or the entire board of directors
may be removed, with or without cause, by the holders of shares entitled to cast
a majority of the votes which all stockholders are entitled to cast at an
election of directors.
SECTION 4.06. Organization.--At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the president, the vice presidents in their order of rank and
seniority, or a chairman chosen by a majority of the directors present, shall
preside, and the secretary, or, in the absence of the secretary, an assistant
secretary, or in the absence of the secretary and the assistant secretaries, any
person appointed by the chairman of the meeting, shall act as secretary.
SECTION 4.07. Place of Meeting.--Meetings of the board of directors
shall be held at such place within or without the State of Delaware as the board
of directors may from time to time determine, or as may be designated in the
notice of the meeting.
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SECTION 4.08. Regular Meetings.--Regular meetings of the board of
directors shall be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors.
SECTION 4.09. Special Meetings.--Special meetings of the board of
directors shall be held whenever called by the president or by two or more of
the directors.
SECTION 4.10. Quorum, Manner of Acting and Adjournment.
(a) General Rule.--At all meetings of the board one-third of the total
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the board of directors, except as may be
otherwise specifically provided by the GCL or by the certificate of
incorporation. If a quorum is not 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, until a quorum is
present.
(b) Unanimous Written Consent.--Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors may be taken without a meeting, if all
members of the board consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board.
SECTION 4.11. Executive and Other Committees.
(a) Establishment.--The board of directors may, by resolution adopted
by a majority of the whole board, establish an Executive Committee and one or
more other committees, each committee to consist of one or more directors. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee and the
alternate or alternates, if any, designated for such member, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
director to act at the meeting in the place of any such absent or disqualified
member.
(b) Powers.--The Executive Committee, if established, and any such
other committee to the extent provided in the resolution establishing such
committee shall have and may exercise all the power and authority of the board
of directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the certificate of incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the GCL, fix the designation and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the
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corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of shares of any series), adopting an agreement of merger
or consolidation under Section 251 or 252 of the GCL, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation. The Executive Committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock and to adopt
a certificate of ownership and merger pursuant to Section 253 of the GCL. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee so
formed shall keep regular minutes of its meetings and report the same to the
board of directors when required.
(c) Committee Procedures.--The term "board of directors" or "board,"
when used in any provision of these bylaws relating to the organization or
procedures of or the manner of taking action by the board of directors, shall be
construed to include and refer to the Executive Committee or other committee of
the board.
SECTION 4.12. Compensation of Directors.--Unless otherwise restricted
by the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors.
ARTICLE V
OFFICERS
SECTION 5.01. Number, Qualifications and Designation.--The officers of
the corporation shall be chosen by the board of directors and shall be a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers as may be elected in accordance with the provisions of section 5.03 of
this Article. Any number of offices may be held by the same person. Officers
may, but need not, be directors or stockholders of the corporation. The board of
directors may elect from among the members of the board a chairman of the board
and a vice chairman of the board who shall be officers of the corporation. The
chairman of the board or the president, as designated from time to time by the
board of directors, shall be the chief executive officer of the corporation.
SECTION 5.02. Election and Term of Office.--The officers of the
corporation, except those elected by delegated authority pursuant to section
5.03 of this Article, shall be elected annually by the board of directors, and
each such officer shall hold office for a term of one year and until a successor
is elected and qualified, or until his or her earlier resignation or removal.
Any officer may resign at any time upon written notice to the corporation.
SECTION 5.03. Subordinate Officers, Committees and Agents.--The board
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such
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powers and perform such duties as are provided in these bylaws, or as the board
of directors may from time to time determine. The board of directors may
delegate to any officer or committee the power to elect subordinate officers and
to retain or appoint employees or other agents, or committees thereof, and to
prescribe the authority and duties of such subordinate officers, committees,
employees or other agents.
SECTION 5.04. The Chairman and Vice Chairman of the Board.--The
chairman of the board, if there be one, or in the absence of the chairman, the
vice chairman of the board, if there be one, shall preside at all meetings of
the stockholders and of the board of directors, and shall perform such other
duties as may from time to time be assigned to them by the board of directors.
SECTION 5.05. The President.--The president shall have general
supervision over the business and operations of the corporation, subject,
however, to the control of the board of directors. The president shall, in
general, perform all duties incident to the office of president, and such other
duties as from time to time may be assigned by the board of directors and, if
the chairman of the board is the chief executive officer, the chairman of the
board.
SECTION 5.06. The Vice Presidents.--The vice presidents shall perform
the duties of the president in the absence of the president and such other
duties as may from time to time be assigned to them by the board of directors or
by the president.
SECTION 5.07. The Secretary.--The secretary, or an assistant secretary,
shall attend all meetings of the stockholders and of the board of directors and
shall record the proceedings of the stockholders and of the directors and of
committees of the board in a book or books to be kept for that purpose; shall
see that notices are given and records and reports properly kept and filed by
the corporation as required by law; shall be the custodian of the seal of the
corporation and see that it is affixed to all documents to be executed on behalf
of the corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time to
time be assigned by the board of directors or the president.
SECTION 5.08. The Treasurer.--The treasurer, or an assistant treasurer,
shall have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the corporation;
shall deposit all funds in his or her custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; whenever so required by the board of directors, shall render an
account showing his or her transactions as treasurer and the financial condition
of the corporation; and, in general, shall discharge such other duties as may
from time to time be assigned by the board of directors or the president.
SECTION 5.09. Officers' Bonds.--No officer of the corporation need
provide a bond to guarantee the faithful discharge of the officer's duties
unless the board of directors shall by resolution so require a bond in which
event such officer shall give the corporation a bond (which shall be renewed if
and as required) in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of office.
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SECTION 5.10. Salaries.-- The salaries of the officers and agents of the
corporation elected by the board of directors shall be fixed from time to time
by the board of directors.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER, ETC.
SECTION 6.01. Form and Issuance.
(a) Issuance.-- The shares of the corporation shall be represented by
certificates unless the board of directors shall by resolution provide that some
or all of any class or series of stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until the
certificate is surrendered to the corporation. Notwithstanding the adoption of
any resolution providing for uncertificated shares, every holder of stock
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors, or the
president or vice president, and by the treasurer or an assistant treasurer, or
the secretary or an assistant secretary, representing the number of shares
registered in certificate form.
(b) Form and Records.-- Stock certificates of the corporation shall be
in such form as approved by the board of directors. The stock record books and
the blank stock certificate books shall be kept by the secretary or by any
agency designated by the board of directors for that purpose. The stock
certificates of the corporation shall be numbered and registered in the stock
ledger and transfer books of the corporation as they are issued.
(c) Signatures.-- Any of or all the signatures upon the stock
certificates of the corporation may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any share certificate shall have ceased to be such officer,
transfer agent or registrar, before the certificate is issued, it may be issued
with the same effect as if the signatory were such officer, transfer agent or
registrar at the date of its issue.
SECTION 6.02. Transfer.-- Transfers of shares shall be made on the
share register or transfer books of the corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. No transfer shall be made which would
be inconsistent with the provisions of Article 8, Title 6 of the Delaware
Uniform Commercial Code-Investment Securities.
SECTION 6.03. Lost, Stolen, Destroyed or Mutilated Certificates.-- The
board of directors may direct a new certificate of stock or uncertificated
shares 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 or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof,
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require the owner of such lost, stolen or destroyed certificate or certificates,
or the legal representative of the owner, to give the corporation a bond
sufficient to indemnify against any claim that may be made against the
corporation on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate or uncertificated shares.
SECTION 6.04. Record Holder of Shares.-- 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 the laws of Delaware.
SECTION 6.05. Determination of Stockholders of Record.
(a) Meetings of Stockholders.-- 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 60 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
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. 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 unless the board of
directors fixes a new record date for the adjourned meeting.
(b) Consent of Stockholders.-- 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 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 the GCL, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware,
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 the GCL, 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 resolution
taking such prior action.
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(c) Dividends.-- In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights of 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 60 days
prior to such action. 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 VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
SECTION 7.01. Indemnification of Authorized Representatives in Third
Party Proceedings.-- The corporation shall indemnify any person who was or is an
authorized representative of the corporation, and who was or is a party, or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized representative of the corporation,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such third party
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 third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent, shall not of itself create a presumption
that the authorized representative 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 third party
proceeding, had reasonable cause to believe that such conduct was unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in
Corporate Proceedings.-- The corporation shall indemnify any person who was or
is an authorized representative of the corporation and who was or is a party or
is threatened to be made a party to any corporate proceeding, by reason of the
fact that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate proceeding if such person acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation and 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 corporate proceeding was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
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SECTION 7.03. Mandatory Indemnification of Authorized
Representatives.-- To the extent that an authorized representative or other
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any third party or corporate proceeding or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith.
SECTION 7.04. Determination of Entitlement to Indemnification.-- Any
indemnification under section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
or other employee or agent is proper in the circumstances because such person
has either met the applicable standard of conduct set forth in section 7.01 or
7.02 or has been successful on the merits or otherwise as set forth in section
7.03 and that the amount requested has been actually and reasonably incurred.
Such determination shall be made:
(1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such third party or
corporate proceeding; or
(2) if such a quorum is not obtainable, or even if obtainable,
a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or
(3) by the stockholders.
SECTION 7.05. Advancing Expenses.-- Expenses actually and reasonably
incurred in defending a third party or corporate proceeding shall be paid on
behalf of an authorized representative by the corporation in advance of the
final disposition of such third party or corporate proceeding upon receipt of an
undertaking by or on behalf of the authorized representative to repay such
amount if it shall ultimately be determined that the authorized representative
is not entitled to be indemnified by the corporation as authorized in this
Article. The financial ability of any authorized representative to make a
repayment contemplated by this section shall not be a prerequisite to the making
of an advance. Expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
SECTION 7.06. Definitions.-- For purposes of this Article:
(1) "authorized representative" shall mean any and all
directors and officers of the corporation and any person designated as
an authorized representative by the board of directors of the
corporation (which may, but need not, include any person serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise);
(2) "corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of
a constituent) absorbed
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in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or
was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article
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;
(3) "corporate proceeding" shall mean any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor or investigative proceeding by the
corporation;
(4) "criminal third party proceeding" shall include any action
or investigation which could or does lead to a criminal third party
proceeding;
(5) "expenses" shall include attorneys' fees and
disbursements;
(6) "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan;
(7) "not opposed to the best interests of the corporation"
shall include actions taken in good faith and in a manner the
authorized representative reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan;
(8) "other enterprise" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the corporation" shall include
any service as a director, officer or employee of the corporation which
imposes duties on, or involves services by, such director, officer or
employee with respect to an employee benefit plan, its participants, or
beneficiaries; and
(11) "third party proceeding" shall mean 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.
SECTION 7.07. Insurance.-- The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
the person and incurred by the person in any such capacity, or arising out of
his
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<PAGE> 16
or her 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.
SECTION 7.08. Scope of Article.-- The indemnification of authorized
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The indemnification and advancement of
expenses provided by or granted pursuant to this Article shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be an authorized representative and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.09. Reliance on Provisions.-- Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Dividends.-- Subject to the restrictions contained in the
GCL and any restrictions contained in the certificate of incorporation, the
board of directors may declare and pay dividends upon the shares of capital
stock of the corporation.
SECTION 8.02. Contracts.-- Except as otherwise provided in these
bylaws, the board of directors may authorize any officer or officers including
the chairman and vice chairman of the board of directors, or any agent or
agents, to enter into any contract or to execute or deliver any instrument on
behalf of the corporation and such authority may be general or confined to
specific instances.
SECTION 8.03. Corporate Seal.-- The corporation shall have a corporate
seal, which 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 in any
other manner reproduced.
SECTION 8.04. Deposits.-- All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
SECTION 8.05. Corporate Records.
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(a) Examination by Stockholders.-- Every stockholder shall, upon
written demand under oath stating the purpose thereof, have a right to examine,
in person or by agent or attorney, during the usual hours for business, for any
proper purpose, the stock ledger, list of stockholders, books or records of
account, and records of the proceedings of the stockholders and directors of the
corporation, and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business. Where the stockholder seeks to inspect the books and records
of the corporation, other than its stock ledger or list of stockholders, the
stockholder shall first establish (1) that the stockholder has complied with the
provisions of this section respecting the form and manner of making demand for
inspection of such documents; and (2) that the inspection sought is for a proper
purpose. Where the stockholder seeks to inspect the stock ledger or list of
stockholders of the corporation and has complied with the provisions of this
section respecting the form and manner of making demand for inspection of such
documents, the burden of proof shall be upon the corporation to establish that
the inspection sought is for an improper purpose.
(b) Examination by Directors.-- Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders and its other
books and records for a purpose reasonably related to the person's position as a
director.
SECTION 8.06. Amendment of Bylaws.-- These bylaws may be altered,
amended or repealed or new bylaws may be adopted either (1) by vote of the
stockholders at a duly organized annual or special meeting of stockholders, or
(2) by vote of a majority of the board of directors at any regular or special
meeting of directors if such power is conferred upon the board of directors by
the certificate of incorporation.
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<PAGE> 1
EXHIBIT 4.1
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Second Amended and Restated Registration Rights Agreement (the
"AGREEMENT") dated as of November 23, 1999 is entered into by and among Secure
Commerce Services, Inc., a Delaware corporation (the "COMPANY"), Edward G.
McLaughlin and Flint A. Lane (each a "FOUNDER" and collectively, the
"FOUNDERS"), and the persons and entities listed on Exhibit A hereto. The
persons and entities listed on Exhibit A are sometimes referred to in this
Agreement as "INVESTORS," and each as an "INVESTOR".
WHEREAS, concurrently with the execution of this Agreement, certain
Investors are purchasing 13,274,338 shares of Series C Convertible Preferred
Stock, par value $0.0001 per share, pursuant to that certain Series C
Convertible Preferred Stock Purchase Agreement of even date herewith; and
WHEREAS, a certain Investor has purchased from the Company an aggregate
of 1,000,000 shares of Series A Convertible Preferred Stock, $0.0001 par value
per share of the Company and a warrant to purchase 1,000,000 shares of the
Company's common stock, $0.0001 par value per share (the "COMMON STOCK") (the
"WARRANT"), each pursuant to a Subscription Agreement between the Company and
such Investor dated as of February 4, 1999 (the "SUBSCRIPTION AGREEMENT");
WHEREAS, certain Investors have purchased from the Company an aggregate
of 7,926,829 shares of Series B Convertible Preferred Stock, par value $0.0001
per share, pursuant to that certain Series B Convertible Preferred Stock
Purchase Agreement dated May 28, 1999 (the "SERIES B PURCHASE AGREEMENT"); and
WHEREAS, the parties hereto desire to grant to the Investors certain
demand and incidental registration rights, desire to amend and restate the
Amended and Restated Registration Rights Agreements between the purchasers of
the Series A Preferred Stock, Series B Preferred Stock and the Company dated May
28, 1999 and desire to grant to the Founders certain incidental registration
rights.
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
1.1 "COMMISSION" means the Securities and Exchange Commission,
or any other Federal agency at the time administering the Securities Act.
<PAGE> 2
1.2 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
1.3 "PREFERRED STOCK" means the Series A Preferred, the Series
B Preferred and the Series C Preferred.
1.4 "QUALIFIED PUBLIC OFFERING" means the first underwritten
public offering of the Company's Common Stock pursuant to a Registration
Statement under the Securities Act in which the aggregate gross proceeds to the
Company are no less than $20,000,000 and at a per share price of no less than
$7.00 (as adjusted for stock splits, stock dividends, recapitalizations and
similar events).
1.5 "REGISTRABLE SHARES" means (i) the Series A Conversion
Shares; (ii) the Series B Conversion Shares; (iii) the Series C Conversion
Shares; (iv) any shares of Common Stock purchased or acquired by the Investors
subsequent to the date hereof including upon exercise of the Warrant; (v) any
other shares of Common Stock of the Company issued in respect of the shares
described in clauses (i), (ii), (iii) and (iv) above (because of stock splits,
stock dividends, reclassifications, recapitalizations, or similar events); and
(vi) for the purposes of Section 4 only, shares of Common Stock of the Company
held by the Founders; provided, however, that shares of Common Stock that are
Registrable Shares shall cease to be Registrable Shares (x) upon any sale
pursuant to a Registration Statement, Section 4(l) of the Securities Act or Rule
144 under the Securities Act, (y) with respect to a Stockholder, when such
Stockholder is eligible to sell, transfer or otherwise convey all of such
Stockholder's Registrable Shares pursuant to Rule 144 under the Securities Act
in any 3 month period or (z) upon any sale in any manner to a person or entity
which, by virtue of Section 11 of this Agreement, is not entitled to the rights
provided by this Agreement. Wherever reference is made in this Agreement to a
request or consent of holders of a certain percentage of Registrable Shares, the
determination of such percentage shall include shares of Common Stock issuable
upon conversion of the Series A Preferred, Series B Preferred and Series C
Preferred, even if such conversion has not yet been effected.
1.6 "REGISTRATION EXPENSES" means the expenses described in
Section 6.
1.7 "REGISTRATION STATEMENT" means a registration statement
filed by the Company with the Commission for a public offering and sale of
securities of the Company (other than a registration statement on Form S-8 or
Form S-4, or their successors, or any other form for a limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
1.8 "SECURITIES ACT" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
1.9 "SERIES A CONVERSION SHARES" means the shares of Common
Stock into which each share of Series A Preferred has been converted or is then
convertible
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<PAGE> 3
1.10 "SERIES A PREFERRED" means the Company's Series A
Convertible Preferred Stock, $0.0001 par value per share.
1.11 "SERIES B CONVERSION SHARES" means the shares of Common
Stock into which each share of Series B Preferred has been converted or is
convertible.
1.12 "SERIES B PREFERRED" means the Company's Series B
Convertible Preferred Stock, $0.0001 par value per share.
1.13 "SERIES C CONVERSION SHARES" means the shares of Common
Stock into which each share of Series C Preferred has been converted or is
convertible.
1.14 "SERIES C PREFERRED" means the Company's Series C
Convertible Preferred Stock, $0.0001 par value per share.
1.15 "SERIES C PREFERRED STOCK PURCHASE AGREEMENT" means the
Series C Preferred Stock Purchase Agreement by and among the Company and the
parties set forth therein.
1.16 "STOCKHOLDERS" means the Investors and any persons or
entities to whom the rights granted under this Agreement are transferred by the
Investors, their successors or assigns pursuant to Section 15 hereof.
Section 2. Sale or Transfer of Shares of Preferred Stock; Legend.
2.1 The shares of Preferred Stock and the Registrable Shares
and shares issued in respect of the shares of Preferred Stock or the Registrable
Shares shall not be sold or transferred unless either (i) they first shall have
been registered under the Securities Act, or (ii) the Company first shall have
been furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act.
2.2 Notwithstanding anything to the contrary contained in the
foregoing Section 2.1, no registration or opinion of counsel shall be required
for either (A) a transfer by an Investor (i) to a partner of such Investor or a
retired partner of such Investor who retires after the date hereof, (ii) to the
estate of any such partner or retired partner, (iii) to a member of a limited
liability company, (iv) to an affiliate of such Investor or (v) to a family
member or trust for the benefit of an individual Investor, if the transferee
agrees in writing to be subject to the terms of this Agreement to the same
extent as if he were an original Investor hereunder, provided that such transfer
is pursuant to an exemption under state and federal securities laws, or (B) a
transfer made in accordance with Rule 144 under the Securities Act.
2.3 Each certificate representing shares of Preferred Stock or
the Registrable Shares and shares issued in respect of the shares of Preferred
Stock and the Registrable Shares shall bear legends substantially in the
following form:
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<PAGE> 4
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such shares are registered under
such Act or an opinion of counsel satisfactory to the Company
is obtained to the effect that such registration is not
required.
The shares of stock represented by this certificate are
subject to (i) certain voting agreements as set forth in an
Amended and Restated Stockholders' Voting Agreement, as
amended from time to time, by and among the registered owner
of this certificate, the Company and certain other
stockholders of the Company, (ii) the terms of a Second
Amended and Restated Registration Rights Agreement between the
Company and the registered owner of this certificate (or the
registered owner's predecessor in interest) and (iii)
restrictions on transfer and an option to purchase set forth
in an Amended and Restated Right of First Refusal and Co-Sale
Agreement between the Company and the registered owner of this
certificate (or the registered owner's predecessor in
interest). Copies of such agreements are available for
inspection during normal business hours at the principal
executive office of the Company.
2.4 The Company agrees, upon the request of an Investor, to
make available to such Investor and to any prospective transferee of any shares
of Preferred Stock or Registrable Shares of such Investor the information
concerning the Company described in Rule 144A(d)(4) under the Securities Act.
Section 3. Required Registrations.
3.1 At any time after the earliest of (i) six months after the
Company shall become a reporting company under Section 12 of the Exchange Act,
(ii) six months after the closing of the Company's initial public offering of
Common Stock or (iii) October 30, 2002, the Investors or any transferee of the
Investors holding in the aggregate at least 40% of the Registrable Shares
collectively held by the Investors and any transferees of the Investors may
request, in writing, that the Company effect a registration on Form S-1 (or any
successor form) of Registrable Shares owned by such Stockholder or Stockholders
covering at least 20% of the Common Stock issuable upon conversion of the
aggregate number of shares of Preferred Stock issued by the Company or having an
aggregate offering price of at least $5,000,000 (based on the then current
market price or fair value); provided, however, that the Company shall not be
required to effect any registration (other than on Form S-2 or Form S-3 or any
successor form relating to secondary offerings) (i) within 6 months after the
effective date of the initial Registration Statement or any other Registration
Statement of the Company in which the holder of Registrable Shares was entitled
to participate or (ii) if the Company delivers notice to the holders initiating
the registration within thirty (30) days of the Company's receipt of such
registration request of the Company's intent to file a registration statement
for the Company's
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<PAGE> 5
Qualified Public Offering within ninety (90) days. If the holders initiating the
registration intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Company in their request. In the event
such registration is underwritten, the right of other Stockholders to
participate shall be conditioned on such Stockholders' participation in such
underwriting. Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Stockholders. Such
Stockholders shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Stockholders may
request in such notice of election, subject to the approval of the underwriter
managing the offering. Thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration, on Form S-1 (or any
successor form), of all Registrable Shares that the Company has been requested
so to register.
3.2 At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor forms relating to secondary
offerings), any holder of Registrable Shares will have the right, upon written
notice to the Company, to require the Company to effect an unlimited number of
Registration Statements on Form S-3 (or such successor forms), of Registrable
Shares having an aggregate market price in each registration on Form S-3 in
excess of $500,000 (based on the current public market price). Upon receipt of
any such notice, the Company shall promptly give written notice of such proposed
registration to all Stockholders. Such Stockholders shall have the right, by
giving written notice to the Company within 30 days after the Company provides
its notice, to elect to have included in such registration such of their
Registrable Shares as such Stockholders may request in such notice of election.
Thereupon, the Company shall, as expeditiously as possible, use its best efforts
to effect the registration on Form S-3 (or such successor forms) of all
Registrable Shares that the Company has been requested to register.
3.3 The Company shall be required to effect not more than two
(2) registrations pursuant to Section 3.1 above and two (2) registrations per
year pursuant to Section 3.2 above; provided, however, that the Company shall
not be required to effect any registration (other than on Form S-3 or any
successor forms relating to secondary offerings) within six (6) months after the
effective date of the initial Registration Statement or any other Registration
Statement of the Company in which the holder of Registrable Shares was entitled
to participate, or if all of the shares proposed to be sold may be sold without
a Registration Statement pursuant to Rule 144.
3.4 If at the time of any request to register Registrable
Shares pursuant to this Section 3, the Company is engaged or has fixed plans to
engage within 30 days of the time of the request in a registered public offering
as to which the Stockholders may include Registrable Shares pursuant to Section
4 or is engaged in any other activity that, in the good faith determination of
the Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of 90
days from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any one (1) year period.
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Section 4. Incidental Registration.
4.1 Subject to Section 4.2, below, whenever the Company
proposes to file a Registration Statement (other than pursuant to Section 3) at
any time and from time to time, it will, at least twenty (20) days prior to such
filing, give written notice to all Stockholders of its intention to do so and,
upon the written request of a Stockholder or Stockholders given within 20 days
after the Company provides such notice (which request shall state the intended
method of disposition of such Registrable Shares), the Company shall use its
best efforts to cause all Registrable Shares that the Company has been requested
by such Stockholder or Stockholders to register to be registered under the
Securities Act to the extent necessary to permit their sale or other disposition
in accordance with the intended methods of distribution specified in the request
of such Stockholder or Stockholders; provided that the Company shall have the
right to postpone or withdraw any registration effected pursuant to this Section
4 without obligation to any Stockholder.
4.2 In connection with any offering under this Section 4
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by the
Company. If, in the opinion of the managing underwriter, the registration of
all, or part of, the Registrable Shares that the Investors have requested to be
included would materially and adversely affect such public offering, then the
Company shall be required to include in the underwriting only that number of
Registrable Shares held by the Investors, if any, that the managing underwriter
believes may be sold without causing such adverse effect. If the managing
underwriter determines that marketing factors require such a limitation of the
number of shares to be included in the registration, the number of shares that
may be included in such registration shall be allocated as follows: first, to
the Company; second, to the Investors pro rata based on the total number of
Registrable Shares held by the Investors; third, to the Founders; and fourth, to
any other shareholder of the Company on a pro rata basis. No such reduction
shall reduce the amount of Registrable Shares included in the offering below 35%
of the total number of shares of Common Stock (giving effect to the conversion
into Common Stock of all securities convertible thereinto) included in the
offering unless the offering is the Company's first underwritten public
offering, in which case the amount of Registrable Shares included in the
offering may be reduced to zero. In no event shall (i) any Founder include any
of his Registrable Shares in the Offering or (ii) any other persons or entities
other than the Company, the Stockholders or persons or entities holding
registration rights pursuant to Section 11 hereof include Registrable Shares in
the Offering that would reduce the number of shares which may be included by the
Investors without the written consent of Investors holding not less than 66 2/3%
of the Registrable Shares proposed to be sold in the Offering. If any holder
would thus be entitled to include more shares than such holder requested to be
registered, the excess shall be allocated among other requesting holders pro
rata based upon their total ownership of Registrable Shares.
Section 5. Registration Procedures. If and whenever the Company is
required by the provisions of this Agreement to use its best efforts to effect
the registration of any of the Registrable Shares under the Securities Act, the
Company shall:
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<PAGE> 7
5.1 file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective until the completion of
the distribution;
5.2 as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 180 days after the effective date thereof;
5.3 as expeditiously as possible furnish to each selling
Stockholder such reasonable number of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
5.4 as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling Stockholders
shall reasonably request, and do any and all other acts and things that may be
reasonably necessary to enable the selling Stockholders to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
selling Stockholder; provided, however, that the Company shall not be required
in connection with this Section 5.4 to qualify as a foreign corporation in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses
to the selling Stockholders and after having done so the prospectus is amended
to comply with the requirements of the Securities Act, the Company shall
promptly notify the selling Stockholders and, if requested, the selling
Stockholders shall immediately cease making offers of Registrable Shares and
return all prospectuses to the Company. The Company shall promptly provide the
selling Stockholders with revised prospectuses and, following receipt of the
revised prospectuses, the selling Stockholders shall be free to resume making
offers of the Registrable Shares.
Section 6. Allocation of Expenses. The Company will pay all
Registration Expenses (as defined below) of all registrations under Sections 3.1
and 4 of this Agreement and the first three (3) registrations under Section 3.2
of this Agreement; provided, however, that if a registration under Section 3 is
withdrawn at the request of the Stockholders requesting such registration (other
than as a result of information concerning the business or financial condition
of the Company that is made known to the Stockholders after the date on which
such registration was requested) and if the requesting Stockholders elect not to
have such registration counted as a registration requested under Section 3, the
requesting Stockholders shall pay the Registration Expenses of such registration
pro rata in accordance with the number of their Registrable Shares included in
such registration. The selling Stockholders will pay or reimburse the Company
for all Registration Expenses of all registrations under Section 3.2 of this
Agreement after the first three (3) such registrations have been filed. For
purposes of this Section, the term "REGISTRATION EXPENSES" shall mean all
expenses incurred by the Company in complying with this Agreement,
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<PAGE> 8
including, without limitation, all registration and filing fees, exchange
listing fees, printing expenses, fees and disbursements of accountants and
counsel for the Company and the fees and expenses of one (1) counsel selected by
the selling Stockholders to represent the selling Stockholders (in an amount not
to exceed $25,000 per registration), state Blue Sky fees and expenses, and the
expense of any special audits incident to or required by any such registration,
but excluding underwriting discounts, selling commissions and the fees and
expenses of selling Stockholders' own counsel (other than the counsel selected
to represent all selling Stockholders).
Section 7. Indemnification and Contribution. In the event of any
registration of any of the Registrable Shares under the Securities Act pursuant
to this Agreement, the Company will indemnify and hold harmless the seller of
such Registrable Shares (including, for this purpose only, its directors and
officers), each underwriter of such Registrable Shares, and each other person,
if any, who controls such seller or underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or controlling
person may become subject under the Securities Act, the Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse such seller, underwriter and each such controlling person
for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or omission made in such Registration Statement, preliminary prospectus or
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in
the preparation thereof.
In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
8
<PAGE> 9
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such seller, specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such seller hereunder
shall be limited to an amount equal to the proceeds to such seller of
Registrable Shares sold as contemplated herein.
Each party entitled to indemnification under this Section 7
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
In order to provide for just and equitable contribution to
joint liability in any case in which any seller of Registrable Shares exercising
rights under this Agreement, or any controlling person of any such seller, makes
a claim for indemnification pursuant to this Section 7 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 7 provides for indemnification in
such case, then, in such case, the Company and such seller will contribute to
the aggregate losses, claims, damages, liabilities or expenses to which they may
be subject (after contribution from others) in such proportion as is appropriate
to reflect the relative fault of the Company and such seller in connection with
the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company and such seller shall be determined by reference to, among
other things, whether any action in question, including any untrue statement of
a material fact or omission to state a material fact, has been made by, or
relates to information supplied by, the Company or such seller, and each of such
party's relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The parties hereto agree that it would not be
just and equitable if contribution pursuant hereto were determined by pro rata
allocation or by any other method of allocation which does not take into account
all the foregoing equitable considerations. Notwithstanding the foregoing, no
such seller will be required to contribute any amount in excess of the proceeds
to it of all Registrable Shares
9
<PAGE> 10
sold by it pursuant to such Registration Statement, and no person or entity
guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of
the Securities Act, shall be entitled to contribution from any person or entity
who is not guilty of such fraudulent misrepresentation.
Section 8. Underwriting Agreement with Respect to Underwritten
Offering. In the event that Registrable Shares are sold pursuant to a
Registration Statement in an underwritten offering pursuant to Section 3, the
Company agrees to enter into an underwriting agreement containing customary
representations and warranties with respect to the business and operations of an
issuer of the securities being registered and customary covenants and agreements
to be performed by such issuer, including without limitation customary
provisions with respect to indemnification by the Company of the underwriters of
such offering.
Section 9. Information by Holder. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
Section 10. "Market Stand-Off" Agreement. Each Stockholder, if
requested by the Company and an underwriter of Common Stock or other securities
of the Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Shares or other securities of the Company held by such Stockholder
for a specified period of time (not to exceed 180 days) following the effective
date of a Registration Statement; provided, that:
(a) such agreement shall only apply to the first such
Registration Statement covering Common Stock of the Company to be sold on its
behalf to the public in an underwritten offering; and
(b) all holders of at least 1% of the Company's voting
securities and all officers and directors of the Company enter into similar
agreements.
Notwithstanding anything herein to the contrary, this Section 10 shall not be
deemed to restrict any Stockholder or its affiliates from engaging in any
brokerage, investment advisory, financial advisory, anti-raid advisory, merger
advisory, financing, asset management, trading, market making, arbitrage and
other similar activities conducted in the ordinary course of its or its
affiliates' business.
Such agreement shall be in writing in a form satisfactory to the Company and
such underwriter. The Company may impose stop-transfer instructions with respect
to the Registrable Shares or other securities subject to the foregoing
restriction until the end of the stand-off period.
Section 11. Limitations on Subsequent Registration Rights. The Company
shall not, without the prior written consent of Stockholders holding at least
70% of the Registrable Shares, enter into any agreement (other than this
Agreement) with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder either (a) to include
securities of the Company in any registration filed under Section 3 or 4, or (b)
to make a
10
<PAGE> 11
demand registration that could result in such registration statement being
declared effective prior to the Company's initial public offering.
Section 12. Rule 144 Requirements. After the earliest of (i) the
closing of the sale of securities of the Company pursuant to a Registration
Statement, (ii) the registration by the Company of a class of securities under
Section 12 of the Exchange Act, or (iii) the issuance by the Company of an
offering circular pursuant to Regulation A under the Securities Act, the Company
agrees to:
(a) comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any holder of Registrable Shares upon request
(i) a written statement by the Company as to its compliance with the
requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents of the Company
as such holder may reasonably request to avail itself of any similar rule or
regulation of the Commission allowing it to sell any such securities without
registration.
Section 13. Selection of Underwriter. In the case of any registration
effected pursuant to this Agreement, the Company shall have the right to
designate the managing underwriter in any underwritten offering, subject to the
approval of the holders of a majority of the Registrable Shares requested to be
included in such offering, which approval shall not be unreasonably withheld.
Section 14. Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation, or reorganization in which the
Company shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation, or reorganization, agree
in writing to assume the obligations of the Company under this Agreement, and
for that purpose references hereunder to "Registrable Shares" shall be deemed to
be references to the securities that the Stockholder would be entitled to
receive in exchange for Registrable Shares under any such merger, consolidation,
or reorganization; provided, however, that the provisions of this Agreement
shall not apply in the event of any merger, consolidation, or reorganization in
which the Company is not the surviving corporation if all Stockholders are
entitled to receive in exchange for their Registrable Shares consideration
consisting solely of (i) cash, (ii) securities of the acquiring corporation that
may be immediately sold to the public without registration under the Securities
Act, or (iii) securities of the acquiring corporation that the acquiring
corporation has agreed to register within 90 days of completion of the
transaction for resale to the public pursuant to the Securities Act.
11
<PAGE> 12
Section 15. Successors and Assigns. Except as provided in Section 16,
the provisions of this Agreement shall be binding upon, and inure to the benefit
of, the respective successors, assigns, heirs, executors and administrators of
the parties hereto.
Section 16. Transfers of Certain Rights.
16.1 Amount. The rights granted to each Investor under this
Agreement may be transferred only (i) to a partner of such Investor or a retired
partner of such Investor who retires after the date hereof, (ii) to the estate
of any such partner or retired partner, (iii) to a member of a limited liability
company, (iv) to an affiliate of such Investor, (v) to a family member or trust
for the benefit of an individual Investor, or (vi) or to a transferee who
acquires at least 1,000,000 shares of Preferred Stock (and Conversion Shares)
held by such transferring Investor.
16.2 Transferees. Any transferee to whom rights under this
Agreement are transferred shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be bound by the
obligations imposed upon the Investors under this Agreement to the same extent
as if such transferee were an Investor hereunder.
16.3 Subsequent Transferees. A transferee to whom rights are
transferred pursuant to this Section 16 may not again transfer such rights to
any other person or entity, other than as provided in Sections 16.1 or 16.2
above.
16.4 Partners and Members. Notwithstanding anything to the
contrary herein, an Investor may transfer rights granted to it under this
Agreement to any partner, in the case of a partnership, or to any member, in the
case of a limited liability company, of such Investor to whom shares of
Preferred Stock are transferred pursuant to Section 2 and who delivers to the
Company a written instrument in accordance with Section 16.2 above and
containing the representation that the transfer is exempt from registration
under the Securities Act. In the event of such transfer, such partner or member
shall be deemed to be an Investor for purposes of this Section 16 and may again
transfer such rights to any other person or entity that acquires shares of
Preferred Stock from such partner or member, in accordance with, and subject to,
the provisions of Section 16.1, 16.2 and 16.3 above; provided, however, that if
an Investor transfers rights under this Agreement to its partners or members, as
applicable, at any time prior to the completion of the Qualified Public
Offering, the general partner or manager, as applicable, of the Investor shall
be deemed the sole recipient of notices for all of such Investor's partners or
members, as applicable, for the purposes of Section 17.6 of this Agreement.
Section 17. Miscellaneous.
17.1. No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its securities that is
inconsistent with or violates the rights granted to the holders of Registrable
Shares in this Agreement.
17.2. Adjustments Affecting Registrable Shares. The Company
will not take any action, or permit any change to occur, with respect to its
securities that would adversely
12
<PAGE> 13
affect the ability of the holders of Registrable Shares to include such
Registrable Shares in a registration undertaken pursuant to this Agreement or
that would adversely affect the marketability of such Registrable Shares in any
such registration (including, without limitation, effecting a stock split or a
combination of shares).
17.3. Remedies. Any person having rights under any provision
of this Agreement will be entitled to enforce such rights specifically (without
posting any bond or other security), to recover damages caused by reason of any
breach of any provision of this Agreement and to exercise all other rights
granted by law.
17.4. Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended and the Company may take
action herein prohibited, or omit to perform any act herein required to be
performed by it, if, but only if, the Company has obtained the written consent
of holders of at least 70% of the Registrable Shares then in existence.
17.5. Governing Law; Jury Waiver. This Agreement shall be
governed by and construed under the laws of the State of Delaware. The parties
hereto waive all right to trial by jury in any action or proceeding to enforce
or defend any rights under this Agreement.
17.6. Notices. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been
given when delivered personally or faxed to the recipient, one (1) business day
after they have been sent to the recipient by reputable overnight courier
service (charges prepaid) or three (3) business days after mailed by first class
mail, postage prepaid. Such notices, demands, and other communications shall be
addressed:
If to the Company, at:
Secure Commerce Services, Inc.
29 Emmons Drive, Suite E10
Princeton, NJ 08540
Attention: President,
With a copy to:
Morgan, Lewis & Bockius, LLP
502 Carnegie Center
Princeton, NJ 08540
Attention: Steven M. Cohen, Esq.
or at such other address or addresses as may have been furnished in writing by
the Company to the Investors.
If to the Investors, at such addresses set forth on Exhibit A
hereto, with a copy to:
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<PAGE> 14
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Eric C. Jensen, Esq.
If to any other transferee to whom shares were transferred
pursuant to Section 2, at such address or addresses as may have been furnished
to the Company in writing.
17.7. Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement or any provision of
the other Agreements shall not in any way be affected or impaired thereby.
17.8. Titles and Subtitles. The titles of the sections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
17.9. No Registration of Preferred Stock. The registration
rights contained herein apply only to the Company's Common Stock, and the
Company shall never be obligated to register any of the Preferred Stock.
17.10 Counterparts; Facsimile Signatures. This Agreement may
be executed in any number of counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Second
Amended and Restated Registration Rights Agreement as of the date first written
above.
COMPANY:
SECURE COMMERCE SERVICES, INC.
By: /s/ Flint A. Lane
--------------------------------
Name: Flint A. Lane
Title:
FOUNDERS:
/s/ Edward G. McLaughlin
------------------------------------
Edward G. McLaughlin
/s/ Flint A. Lane
------------------------------------
Flint A. Lane
INVESTORS:
ARALIA TECHNOLOGY PARTNERS, LP
By Aralia Technology Group, Inc.
Its General Partner
By: /s/ John Connolly
--------------------------------
John Connolly
President
AT&T VENTURE FUND II, LP
By: Venture Management, LLC
its General Partner
By: /s/ Bradford Burnham
-------------------------------
Bradford Burnham
Manager
<PAGE> 16
SPECIAL PARTNERS FUND, LP
By: Venture Management III, LLC
Its General Partner
By: /s/ Bradford Burnham
------------------------------
Bradford Burnham
Manager
SPECIAL PARTNERS FUND
INTERNATIONAL, LP
By: Venture Management III, LLC
Its Investment General Partner
By: /s/ Bradford Burnham
------------------------------
Bradford Burnham
Manager
SPECTRUM EQUITY INVESTORS III, L.P.
By Spectrum Equity Associates III, L.P.
Its General Partner
By: /s/ Brion B. Applegate
------------------------------
Brion B. Applegate
General Partner
SPECTRUM III INVESTMENT MANAGERS'
FUND, L.P.
By: /s/ Brion B. Applegate
------------------------------
Brion B. Applegate
General Partner
<PAGE> 17
NASSAU HOLDINGS, INC.
By: /s/ Louis Mercatanti
------------------------------
Louis Mercatanti
President
/s/ Gary M. Lauder
------------------------------
Gary M. Lauder
/s/ Noel Rahn
------------------------------
Noel Rahn
<PAGE> 18
SOFTBANK TECHNOLOGY VENTURES V, L.P.
By: STV V LLC, its General Partner
By: /s/ Gary E. Rieschel
---------------------------
Name: Gary E. Rieschel
Title: Managing Director
SOFTBANK TECHNOLOGY ADVISORS FUND V, L.P.
By: STV V LLC, its General Partner
By: /s/ Gary E. Rieschel
---------------------------
Name: Gary E. Rieschel
Title: Managing Director
SOFTBANK ENTREPRENEURS FUND V, L.P.
By: STV V LLC, its General Partner
By: /s/ Gary E. Rieschel
---------------------------
Name: Gary E. Rieschel
Title: Managing Director
<PAGE> 19
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Michael S. Fisher
----------------------------
Name: Michael S. Fisher
Title: Managing Director
TWP PAYTRUST INVESTORS
By: /s/ David A. Baylor
----------------------------
Name: David A. Baylor
Title:
TAILWIND CAPITAL PARTNERS, L.P.
By Thomas Weisel Capital Partners LLC
Its General Partner
By: /s/ David A. Baylor
----------------------------
Name: David A. Baylor
Title: General Partner
AMERICAN EXPRESS TRAVEL RELATED SERVICES
COMPANY, INC.
By: /s/ Anne Busquet
-----------------------------
Name: Anne Busquet
Title: President AERS
THE GOLDMAN SACHS GROUP, INC.
By: /s/ Joseph Gleberman
-----------------------------
Name: Joseph Gleberman, V.P.
Title:
<PAGE> 20
EXHIBIT A
INVESTOR NAME AND ADDRESS
Aralia Technology Partners, LP
P.O. Box 68
Gwynedd, PA 19436
Attention: John Connolly
AT&T Venture Fund II, LP
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Bradford Burnham
Special Partners Fund, LP
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Bradford Burnham
Special Partners Fund International, LP
Ugland House, South Church Street
Georgetown
Grand Cayman, Cayman Islands
and
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Bradford Burnham
(If to AT&T Venture Fund II, LP, Special
Partners Fund, LP or Special Partners
Fund International, LP, with a copy to:
Piper Marbury Rudnick & Wolfe
Commerce Executive Park III, Suite 610
1850 Centennial Park Drive
Reston, VA 20191
Attention: Nancy A. Spangler, Esq.)
Spectrum Equity Investors III, L.P.
Spectrum III Investment Managers' Fund, L.P.
333 Middlefield Road, Suite 200
Menlo Park, CA 94025
Attention: Brion B. Applegate
<PAGE> 21
Nassau Holdings, Inc.
619 Alexander Road
Princeton, NJ 08540
Attention: Louis Mercatanti
Gary M. Lauder
88 Mercedes Lane
Atherton, CA 94027
Noel Rahn
The Rahn Group
3355 US Bank Place
Minneapolis, MN 55402
SOFTBANK Technology Ventures V, L.P.
SOFTBANK Technology Advisors Fund V, L.P.
SOFTBANK Entrepreneurs Fund V, L.P.
200 West Evelyn Avenue, Suite 200
Mountain View, CA 94043
Attention: Gary Rieschel
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attn: General Counsel
TWP Paytrust Investors
One Montgomery Street, Suite 3700
San Francisco, CA 94104
Attn: Fredericka Drum
Tailwind Capital Partners, L.P.
One Montgomery Street, Suite 3700
San Francisco, CA 94104
Attn: Fredericka Drum
American Express Travel Related Services
Company, Inc.
World Financial Center
New York, NY 10285
Attention: Cathy T. Taylor
The Goldman Sachs Group, Inc.
85 Broad Street
New York, NY 10004
Attention: Martin Stapleton
<PAGE> 1
EXHIBIT 10.2(a)
LEASE
THIS LEASE is made as of the 2nd day of June, 1999, by and between COMMERCE
CENTER AT PRINCETON LLC, a limited liability company organized and existing
under the laws of the State of New Jersey, having its principal place of
business at P.O. Box 7838, Princeton, New Jersey 08543 ("Landlord") and SECURE
COMMERCE SERVICES, INC. (OPERATING UNDER THE TRADE NAME OF PAYTRUST), a
corporation organized and existing under the laws of the State of New Jersey,
having its principal place of business located at 29 Emmons Drive, Princeton,
New Jersey 08540 ("Tenant").
WITNESSETH
WHEREAS, Landlord is the owner of the property known as Princeton
Commerce Center located in the Township of West Windsor, County of Mercer and
the State of New Jersey ("Property"), including the buildings commonly known as
29 Emmons Drive, ("Buildings"); and
WHEREAS, Landlord desires to let to the Tenant and Tenant desires to
rent from the Landlord, that certain portion of the Buildings as more fully
described in Exhibit A ("Leased Premises"):
NOW THEREFORE, in consideration of the recitals above, the terms,
covenants, conditions and provisions that follow, and the sum of ONE ($1.00)
DOLLAR, each party in hand paid to the other, the receipt and sufficiency of
which consideration is hereby acknowledged, the parties hereto, intending to be
legally bound thereby, agree as follows:
ARTICLE I
TERM AND COMMENCEMENT
1.01 Term. The term of this Lease shall commence on the "Commencement
Date" which shall be the earlier of the date set forth in Exhibit A or the date
upon which Tenant actually takes occupancy of the Leased Premises.
1.02 Tenant will review and approve, if accurate, a Commencement Date
memorandum confirming the actual Commencement Date of Lease, to be supplied by
Landlord within sixty (60) days of the actual Commencement Date.
1.03 Termination Date. This Lease, and all rights of the Tenant to the
use and occupancy of the Leased Premises shall terminate on the date as set
forth in Exhibit A.
ARTICLE II
RENT
2.01 Base Rent. The base rent payments for the Leased Premises ("Base
Rent") shall commence on the Commencement Date (except the first month's Base
Rent which is due upon execution of this Lease) and shall be payable in advance,
on the first day of each calendar month for and during the Term. Base Rent shall
be payable by Tenant, without demand or notice, in the amounts and in accordance
with Exhibit A. Unless otherwise provided, Tenant shall have no rights to
withhold or offset Base Rent or Additional Rent.
2.02 Additional Rent. All other rental due under this Lease including
without limitation all charges for services as set forth in Article 3, all late
charges set forth in Section 2.04 and any and all charges, assessments and other
monies due the Landlord under this Lease shall be deemed additional rental
("Additional Rent"), and shall be due on the first day of the calendar month in
which they are due, or the first day of the calendar month following invoice, as
the case may be.
2.03 Payments and Late Payments. All Base Rent and Additional Rent
shall be paid to the Landlord by Tenant's good check or other good funds at the
address of the Landlord first set
1
<PAGE> 2
forth above, or such other address as Landlord may notify Tenant of, in writing,
from time to time. If more than two payments during any consecutive twelve month
period have been late by more than five (5) days, Tenant shall, at Landlord's
option, pay as Additional Rent to the Landlord a late charge equal to five
percent (5%) of any installment of Base Rent or Additional Rent not received by
the Landlord within five (5) calendar days of such payment being due. Such late
payments shall be immediately due and payable to the Landlord without the need
for invoice to the Tenant.
2.04 Interest on Overdue Payments. Interest on all payments due
Landlord, whether as Base Rent or Additional Rent, shall commence accruing
fifteen (15) calendar days following the date upon which each such payment shall
become due and owing to the Landlord through the date each such payment is
actually received by the Landlord, at the rate of one and one-half (1.5%)
percent per month or the maximum rate allowed by law, whichever is less.
ARTICLE III
REIMBURSABLE SERVICES AND OPERATING EXPENSES
3.01 Common Area Services and Maintenance. (a) After the first lease
year, Tenant shall pay, as Additional Rent for each calendar year or
proportionate part thereof during the Term, Tenant's Proportionate Share (as set
forth in Exhibit A) of the increase in the Operating Expenses incurred during
any calendar year over the Operating Expenses incurred during the calendar year
at the Commencement Date of the Lease ("Base Year Operating Expenses").
(b) The term "Operating Expenses" shall mean Landlord's costs
of operating, repairing, and maintaining the land, buildings, and improvements
that are part of the Property to include real estate taxes and assessments;
insurance premiums; utility costs; telephone expenses; management fees and
expenses; accounting fees; legal costs; security services; supplies and
materials; general repairs, maintenance, and replacement costs; structural,
mechanical and electrical repairs; snow removal and grounds maintenance and
repair including parking areas; care and replacement of plants and flowers;
reasonable reserves for replacement and decorating; labor costs including
employment taxes and fringe benefits; the cost of equipment used in the
operation, repair and maintenance of the Property; and capital improvements
(amortized over their useful lives) necessary for the operation, repair, and
maintenance of the Property; and such other expenses and costs as are reasonably
necessary for the purpose of operating, maintaining and repairing the Property
in good condition. Operating Expenses shall not include any costs for which
Tenant is otherwise responsible under any other section of this Lease; debt
service or land rent, if any; or any costs of leasing or marketing space in the
Property.
3.02 Payment of Estimated Reimbursable Costs and Expenses. After the
first lease year, on the first day of each calendar month during the term of
this Lease, Tenant shall pay to Landlord as Additional Rent one-twelfth of the
"Estimated Payment of Reimbursables" which shall be determined by the Landlord
for each calendar year based upon the historical Operating Expenses, together
with Landlord's estimate of any increases or decreases in such costs and
expenses for the forthcoming calendar year. In the event that the term of this
Lease commences on a date other than January 1, then the Estimated Payment of
Reimbursables and the amount paid by Tenant each month shall be adjusted by the
Landlord to reflect such commencement date. In the event that Tenant's
Proportionate Share of actual increases in costs and expenses set forth in this
Lease shall exceed the amount set by the Landlord in the Estimate Payment of
Reimbursables, or new reimbursables costs and expenses occur which were
unanticipated by the Landlord, the Landlord shall have the right to demand
Tenant pay to Landlord with the installment of Base Rent next due, Tenant's
Proportionate Share of any such increase or new reimbursable cost and expense.
All determinations by the Landlord under this Section 3.02 shall be made in
exercise of Landlord's sole, unfettered and unreviewable discretion (subject
solely to the annual adjustment described below in Section 3.03).
3.03 Annual Reconciliation of Estimated Payment Reimbursables. Within
ninety (90) days of the close of each calendar year during the term of this
Lease, Landlord shall prepare an "Annual Reconciliation of Reimbursable
Expenses" which shall reconcile the Estimated Payment of Reimbursables by the
Tenant with the actual, detailed reimbursable costs and expenses incurred by the
Landlord for the previous calendar year. Tenant shall pay as Additional Rent any
difference owed by Tenant with the installment of Basic Rent next due (but in
any event not on
2
<PAGE> 3
fewer than 20 days' notice) and Landlord shall refund any overage to Tenant
simultaneously with the presentation of the Annual Reconciliation of
Reimbursable Expenses. Once each year, and upon written notice to Landlord,
Tenant can inspect the books and records for the Property at a mutually
agreeable time. Exercise of this right by Tenant shall act as neither a waiver
nor a postponement of payment of any amount due Landlord as Additional Rent, and
failure to make any payment when due shall be subject to the provisions of
Sections 2.03 and 2.04 and shall constitute a default as set forth in Article
13, below.
3.04 Payments Due after End of Lease Term. Payments shall be made
pursuant to this Article 3 notwithstanding the fact that a statement is
furnished to Tenant after the expiration of the Lease.
3.05 Payment for Utilities. Tenant shall pay for all utilities used in
or on the Leased Premises by Tenant including the cost of water, sewage,
electricity, and natural gas. In the event such utilities are not separately
metered and billed to Tenant, Landlord shall make a reasonable estimate of
Tenant's share of such utility costs and Tenant shall reimburse Landlord for
such utilities as Additional Rent due on the first day of the calendar month
next following rendition of a bill therefor.
3.06 Repairs and Maintenance. (a) Except as provided in subsection (b)
below, Tenant shall, throughout the Term and at Tenant's sole cost and expense,
keep and maintain the Leased Premises in a neat and orderly condition; and upon
expiration of the Term, Tenant shall leave the Leased Premises in the same order
and condition as when received, ordinary wear and tear, damage by fire or other
casualty and Landlord's obligations alone excepted. Tenant shall not knowingly
suffer or permit any waste,damage or injury to the Leased Premises. Tenant shall
not use or permit the use of any portion of the common areas of the Building for
other than their intended use as specified by the Landlord from time to time.
(b) Landlord shall, throughout the Term, perform all required
maintenance and make all necessary repairs to the mechanical, electrical, HVAC,
plumbing and other systems, facilities, fixtures, and equipment serving the
Leased Premises, the roof, the exterior elements and structural elements of the
Leased Premises, the parking areas, and all other improvements located on the
Property, all in a prompt fashion; Landlord shall keep and maintain all common
areas and access ways adjoining the Property in a clean and orderly condition,
free of accumulations of snow, ice and dirt and rubbish, and shall keep and
maintain all landscaped areas within the Property in a neat and orderly
condition. Landlord's obligations under this Section 3.06 shall be undertaken
and prosecuted in a manner consistent with other suburban office buildings of
similar quality in the greater Princeton area.
3.07 Janitorial Services and Trash Removal. Tenant acknowledges and
agrees that Tenant shall be responsible for, and shall pay all costs and
expenses incurred in connection with, janitorial services for the Leased
Premises and the removal and disposition of all trash. Tenant agrees further
that Tenant will comply with any mandatory recycling programs. Tenant shall use
the trash facilities provided at the Property by Landlord.
ARTICLE IV
LANDLORD WORK AND CONDITION OF PREMISES
4.01 Tenant's Work Letter. Landlord shall provide, at its cost and
expense, the work specifically stated in the Tenant's Work Letter, attached
hereto as Exhibit B ("Work Letter"). Any work requested by the Tenant or
performed by the Landlord or others at Landlord's expense not specifically
enumerated on the Work Letter shall be paid for by the Tenant as Additional Rent
as set forth below at Landlord's actual costs plus ten percent (10%) overhead
and profit. Any and all changes to the Work Letter or other work to be performed
by Landlord are valid solely if approved in writing by Tenant and by the
Landlord or its management company. Tenant shall direct any requests for changes
to the work set forth in the Work Letter or otherwise only to the Landlord or
its management company and not to the architect, contractor, subcontractor or
any workman. Failure of Tenant to provide, in writing, drawings, selections or
make decisions necessary to complete the work set forth in the Work Letter or
otherwise agreed to by Landlord within the time limits set forth in the Work
Letter or in a written request for such information by the Landlord shall result
in the immediate commencement of the term of this agreement of Lease,
notwithstanding the provisions of Section 1.01, above. In each instance, Tenant
shall have not less than five (5) days to respond.
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4.02 Payment for Work. Tenant shall pay as Additional Rent any and all
payments called for in the Work Letter or in any changes to the work agreed to
in writing by Tenant and by the Landlord upon issuance of an invoice by the
Landlord. Failure to make any such payment when due shall be subject to the
provisions of Sections 2.03 and 2.04, and, after notice, shall constitute a
default as set forth in Article 13 below. Notwithstanding the provisions of
Section 1.01, Landlord shall not be obligated to deliver possession of the
Premises to Tenant in the event that any Additional Rent due Landlord under this
Article 4 remains unpaid. Any such postponement in the delivery of the
possession of the Leased Premises pursuant to this Section 4.02 shall not
otherwise delay the obligation of the Tenant to commence payments of Basic Rent
and Additional Rent, including, without limitation Estimated Payment of
Reimbursables, all of which shall commence to accrue on what would otherwise
have been the Commencement Date.
4.03 AS IS. Except solely for the work set forth in the Work Letter,
Tenant acknowledges that it has fully inspected the Leased Premises and agrees
to accept the Leased Premises "AS IS." As of the date Tenant moves in, Landlord
covenants that all electric, HVAC, plumbing, and other systems will be in good
working order.
ARTICLE V
COMPLIANCE WITH LAWS
5.01 Compliance with Laws. Tenant covenants that no waste, injury or
damage shall be committed upon or permitted to the Leased Premises by Tenant,
that the Leased Premises shall not be used by Tenant for any unlawful purposes,
and that no violations of statute, law, ordinance, rule or regulation of any
governmental, quasi-governmental or other authority having jurisdiction over the
Leased Premises, the Landlord or the Tenant shall be committed by the Tenant or
permitted by the Tenant in or about the Leased Premises. Tenant shall give
Landlord prompt written notice of any fire, damage, or injury in, to or about
the Leased Premises or the Property, or to persons on, or about the Leased
Premises or Property. Tenant shall take or permit no action or inaction in or
about the Leased Premises which would cause the increase in any insurance
premium for the Leased Premises, Buildings or Property, nor that would violate
the requirements of any carrier of any insurance policy covering the Leased
Premises, Buildings or Property.
If at any time prior or during the term of this Lease, the Tenant makes
any alterations, improvements or additions to the Leased Premises, whether
pursuant to Section 4 or in violation of this Lease (but excluding any work
performed by Landlord or by its contractors), which violates any statute, law,
ordinance, rule or regulation of any governmental, quasi-governmental, other
authority having jurisdiction over the Leased Premises or any insurance carrier
having a policy of insurance covering the Landlord or the Tenant, the Tenant
shall pay any and all costs, expenses and charges necessary to comply fully with
same. Tenant further covenants that it will not engage in any business activity,
or undertake alterations to the Leased Premises, which jeopardizes the
Landlord's insurance coverage, or creates additional risk to Landlord which may
cause an increase in insurance premium, and/or in Landlord's opinion, a
withdrawal of insurance coverage by an insurance carrier.
ARTICLE VI
USE OF PREMISES AND COMMON AREAS
6.01 Use of Premises. The Premises may be used and occupied by the
Tenant solely for the purposes described in Exhibit A and for no other purpose.
Landlord represents and warrants to Tenant that such use is a permitted use
under the applicable zoning laws, and is not a use which would only be permitted
upon receipt of a variance under the Municipal Land Use Law of the State of New
Jersey.
6.02 Signage. Tenant shall be permitted to place a sign at the front
entry to its Leased Premises and another sign for service deliveries at the side
entry. Such signs shall be approved by Landlord (approval shall not be
unreasonably withheld or delayed) and shall be in accordance with the
regulations for such signs then in effect for all tenants. Tenant shall not
affix any other sign, advertisement, or display that is visible from the
exterior of the Leased Premises, except as
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approved by Landlord. Tenant shall be entitled to a listing on the directory at
the entrance to the Property.
6.03 No violation of Certificate of Occupancy. Tenant shall not use or
occupy the Leased Premises in violation of the Certificate of Occupancy. Tenant
shall not commit or suffer to be committed any waste in or upon the Leased
Premises and shall keep the Leased Premises in the condition and appearance as
delivered, wear, tear, Landlord's obligations and damage by fire or other
casualty excepted.
6.04 Compliance with Rules and Regulations. Tenant shall faithfully
comply with all reasonable rules and regulations ("Rules and Regulations")
promulgated by Landlord and provided to Tenant from time to time, including
those Rules and Regulations set forth in Exhibit C, together with all
modifications and additions thereto adopted by Landlord from time to time in
writing, provided such rules and regulations do not result in a material expense
to Tenant and provided same do not diminish Tenant's rights hereunder. Landlord
shall not be responsible for the non-performance by any other tenant or occupant
of the Property of any of the Rules and Regulations.
6.05 Surrender of Leased Premises. Upon expiration of the Lease Term or
earlier termination of the Lease, Tenant shall quit and surrender the Leased
Premises, in the same order and condition as delivered, wear, tear, Landlord's
obligations and damage by fire or other casualty excepted, and Tenant shall
remove all of its property. Any property not so removed shall be considered to
be abandoned by Tenant, and Landlord may dispose of such property in any manner
it deems appropriate without liability to Tenant. Tenant's obligation to observe
and perform this covenant shall survive the expiration of the Lease Term.
6.06 Holding Over. If Tenant holds possession of the Leased Premises
after the expiration of the Lease Term, without the consent of Landlord, Tenant
shall become a tenant from month to month under the provisions herein provided,
but at a Base Rent equal to 150% of the installments of Base Rent payable for
the last month of the lease term, such amounts to be payable in advance on or
before the first (1st) day of each month.
ARTICLE VII
SUBORDINATION, ESTOPPEL, AND MORTGAGEE RIGHT TO CURE
7.01 Subordination. Tenant acknowledges and agrees that this Lease and
all of Tenant's rights, entitlements and interest in and to the Leased Premises,
Buildings and Property ( "Tenant's Interests") are subordinate to any and all
ground or underlying leases and to the lien of any mortgages or deeds of
indenture or trust which are now, or may at any time in the future, become a
lien upon the Leased Premises, Buildings or Property, and to any modification
thereof or amendments thereto, and to all advances made or hereafter to be made
upon the security thereof ( "Superior Interests"). The subordination of the
Tenant's Interest to the Superior Interests shall be self-operative and no
further instrument of subordination or other writing shall be required for such
subordination to be effective. Notwithstanding the foregoing, Tenant agrees to
execute and deliver to Landlord, within five (5) days of Landlord's written
request, in writing, instrument or instruments confirming the subordination of
Tenant's Interests, and Tenant hereby appoints Landlord as Tenant's
attorney-in-fact to execute and deliver in the name and on behalf of the Tenant,
any such writing or instrument.
7.02 Estoppel Certificates. Each party shall at any time and from time
to time, within fifteen (15) days of receipt or written request therefore,
execute, acknowledge and deliver to the other an Estoppel certificate, in form
reasonably requested by the other, certifying: (a) that this Lease remains
unmodified, and in full force and effect as of the date of such certificate (or
if there are modifications to the Lease, reciting the date and effect of such
modifications and that they remain in full force and effect as of the date of
such certificate); (b) the dates as of which the Base Rent and Additional Rent
have been paid in advance, if any; (c) whether any options or elections granted
to the Tenant under this Lease, if any, have been exercised; (d) whether or not,
to the best of the signer's knowledge, the other party is in default in
performance of any obligation, duty or responsibility hereunder, or has taken or
omitted to take any action which, solely with the passage of time, would
constitute a "Default" hereunder and if so, specifying each such default, action
or inaction of which the signer has knowledge; and (e) that the signer is
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aware that the recipient is relying on such Estoppel certificate for the purpose
of extending credit to the Landlord or purchasing the Leased Premises, Buildings
or Property, as the case may be.
7.03 Mortgagee Right to Cure. Tenant agrees that if Landlord shall have
failed to cure any default under this Lease within the time provided for in this
Lease, then the mortgagee shall have an additional thirty (30) days within which
to cure such default or, if such default cannot be cured within that time, then
such additional time as may be necessary. If within such thirty (30) days, any
mortgagee has commenced and is diligently pursuing the cure of such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), then in that event this Lease shall not be
terminated while such remedies are being so diligently pursued by such
mortgagee. The parties agree that any monetary default is curable and must be
cured by such mortgagee within ten (10) days.
ARTICLE VIII
ASSIGNMENT OR SUBLET
8.01 Assignment or Sublet. Subject to the provisions hereof, Tenant
shall have the right to assign or sublet the Leased Premises and its interest
under this Lease, with the written consent of the Landlord, which consent shall
not be unreasonably withheld or delayed. Landlord shall be considered to have
acted reasonably if it withholds consent due to bona fide concerns regarding the
financial condition of the proposed new occupant, the setting of rent at a rate
below 95% of the prevailing rate for similar space at the Property at the time
of the assignment or sublease, the entering into an assignment or sublease with
either a current occupant of space at the Property or a prospective occupant
whom Landlord has been soliciting. No such assignment or subletting shall in any
manner release Tenant from any of its obligations, duties, responsibilities or
liabilities under this Lease, or under any extension, modification or alteration
executed prior or subsequent to any such assignment or subletting. Any such
subletting or assignment shall be to a tenant of a quality and for a use
consistent with the Tenant and other tenants in the Buildings or the Property.
Landlord reserves the right to reasonably approve any and all terms, covenants,
conditions, provisions and agreements of any such assignment or subletting, and
Tenant agrees not to advertise or market the Leased Premises without the prior
written consent of the Landlord, not to be unreasonably withheld or delayed. No
subletting shall be permitted the terms of which set the base rent at less than
95% of the prevailing rent for similar suites at Princeton Commerce Center nor
at more than 105% of the base rent being paid by Tenant.
8.02 Recapture. If the rental rate paid by any subtenant or assignee of
the Leased Premises, including any and all payments of any nature or type
whatsoever to or for the benefit of the Tenant after deducting all reasonable
costs and expenses of the sublet or assignment, including but not limited to
payments in kind or services, shall exceed 100 % of the Base Rent and Additional
Rent being paid under this Lease, then Landlord reserves the right to recapture
any such excess from either or both the Tenant and any subtenant or assignee,
who shall both be jointly and severally liable to Landlord for payment of same.
The provisions of this Section 8.02 shall not apply to the transactions listed
in Section 8.04.
8.03 Brokerage and Indemnification. Tenant shall defend, indemnify, and
hold Landlord harmless from any claims for broker's commission, finder's fee, or
other compensation in connection with any sublease or assignment hereunder,
other than an assignment of sublease directed by Landlord.
8.04 Additional Provisions. Anything in Article VIII of this Lease
contained to the contrary notwithstanding, Landlord hereby expressly consents
to, and waives any right of recapture or termination and any right to receive
any profit or compensation derived by Tenant directly or indirectly in
connection with, any assignment or other transfer of this Lease or sublease of
any or all of the Leased Premises by Tenant (a) by reason of or in connection
with a corporate reorganization (excluding bankruptcy) of Tenant, (b) to any
corporation or other entity which is acquiring pursuant to a court order (other
than bankruptcy) requiring that Tenant "spin off" its facilities located at the
Leased Premises, (c) as an assignment for security in connection with any debt
financing obtained by Tenant, (d) to any entity, a majority of whose voting
stock or managing interests is owned by Tenant, (e) to any corporation into
which or with which Tenant, its successors or assigns, is merged or
consolidated, (f) to any parent or subsidiary of
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Tenant, and (g) to any person or entity acquiring all or substantially all of
the stock, assets or managing interests of Tenant.
ARTICLE IX
ALTERATIONS AND WORK PERFORMED BY TENANT
9.01 Landlord's Consent Required. Tenant agrees that will make no
alterations, improvements or additions to the Leased Premises (hereinafter
collectively referred to as the ("Tenant Improvements") without the prior
written consent of Landlord, which consent will not be unreasonably withheld.
Tenant must submit to Landlord, with any such request to make Tenant
Improvements, detailed plans, drawings and specifications for same prepared by
licensed architects or engineers, as may be appropriate, and any material
modifications or changes shall be subject to review and approval by Landlord as
stated above prior to being incorporated in the Tenant Improvements. Any and all
such Tenant Improvements, excluding solely Tenant's movable trade fixtures,
shall become the property of the Landlord upon installation and shall remain
upon and be surrendered with the Leased Premises upon the expiration or
termination of this Lease. The foregoing provisions notwithstanding, Tenant
shall be permitted to make interior non-structural changes costing up to $10,000
each, without the consent of Landlord, but Tenant must provide a complete set of
plans identifying all such changes, which are either sealed by a licensed
architect or approved in writing by West Windsor Township, if such approval
shall be required.
9.02 Performance of Tenant Improvements. Tenant shall make all Tenant
Improvements in accordance with all applicable statutes, laws, rules,
regulations, ordinances and codes of authority and entities having jurisdiction
over same, shall secure at Tenant's sole cost and expense, any and all required
permits, authorizations, approvals, certificates and the like, and all such
Tenant Improvements shall be performed in good and workmanlike manner and shall
not in any manner diminish the value of the Leased Premises.
9.03 Insurance. With regard to each Tenant Improvement, Tenant shall
procure, pay for and deliver to Landlord certificates evidencing the following:
(a) fire and casualty insurance; (b) Workman's Compensation Insurance covering
all persons who will perform any work with regard to such Tenant Improvements
for Tenant or any contractor, subcontractor or other person; and (c) Public
Liability Insurance for injuries or damage to persons or property. All of the
foregoing policies of insurance shall be written by companies authorized to
transact such business in the State of New Jersey and with adequate financial
capability, and shall be in form, content and amount reasonably satisfactory to
Landlord.
9.04 Conditions and Reimbursement of Landlord. In granting its consent
to any Tenant Improvement, the Landlord may impose such conditions (including,
but not limited to, with respect to alterations in excess of $10,000, guarantees
of completion, payment and restoration) as Landlord may reasonably require.
Tenant agrees to pay to Landlord as Additional Rent under this Lease any
reasonable fees or expenses incurred by Landlord in connection with the
Landlord's submission of any drawings, plans and/or specifications for Tenant
Improvements to an architect or engineer selected by Landlord, and for any other
reasonable costs or expenses incurred by Landlord relating to the review,
approval, inspection or monitoring of any Tenant's Improvements. Notwithstanding
the review and/or approval of any drawings, plans or specifications by Landlord
or any persons or entity on behalf of Landlord, such review or approval shall in
no manner limit or reduce the liability of Tenant or its professionals,
consultants, contractors, subcontractors or others performing work or providing
services for the drawings, plans, specifications, design and/or construction of
the Tenant Improvements.
9.05 Tenant Improvements Upon Termination. If Landlord's consent
required in Section 9.01 is granted subject to the requirement that all or
certain of the Tenant Improvements be removed at the end of the Lease Term,
Tenant shall prior to the expiration of the term of this Lease, or within ten
(10) days following any other termination of this Lease, remove any such
specified Tenant Improvements and restore the Leased Premises, reasonable wear
and tear excepted. Tenant shall be solely responsible for the costs and expenses
of same, including the procurement of the insurance policies required pursuant
to Section 9.03, and shall be responsible for any and all damage or injury to
the Property of Landlord, other tenants or others as a result of the removal of
Tenant Improvements and restoration of the Leased Premises.
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9.06 Landlord not Liable. Landlord shall not at any time be liable or
responsible for the cost, in whole or part, of any Tenant Improvements or any
other work of any nature performed by, or at the request of the Tenant in or
about the Leased Premises, except solely for the work set forth in the Tenant's
Work Letter described above in Article 4 as the same may be amended by change
orders, and any other work provided by Landlord. Tenant covenants, represents
and warrants that Tenant shall not allow or suffer any mechanic's or
materialmen's lien to be filed, perfected or maintained under the laws of the
State of New Jersey against the Leased Premises, the Buildings or the Property
for or on account of any Tenant Improvements or other work being performed or
materials delivered at the request of or for the benefit of the Tenant. Tenant
further covenants, represents, warrants and agrees that in the event any
contractor, subcontractor, materialman, laborer or any other person or entity
whatsoever shall seek to impose a lien upon the Leased Premises, the Buildings
or the Property, whether by service or filing of a notice or stop notice of any
kind or nature whatsoever relating to or regarding work performed or to be
performed in or about the Leased Premises, Buildings or Property, or materials
delivered, or to be delivered, incorporated in or to be incorporated in the
Leased Premises, Buildings or Property, at the request of or on behalf of the
Tenant, that Tenant shall, within thirty (30) days actual written notice of
same, immediately notify the Landlord and forthwith proceed to obtain an
effective cancellation or discharge of such notice, stop-notice or lien. Should
Tenant fail to accomplish same, Landlord shall have the right to take such
actions and pay such monies as may be necessary to immediately effectuate the
discharge and/or cancellation of any such notice, stop-notice or lien, and
Tenant shall pay Landlord immediately upon invoice therefore, as Additional
Rent, all such monies, costs and expenses of the Landlord in connection
therewith, including, but not limited to, reasonable attorney's fees.
ARTICLE X
DAMAGE OR DESTRUCTION OF THE PREMISES, BUILDINGS OR PROPERTY
10.01 Notification of Damage or Destruction. Tenant shall promptly
notify Landlord of any fire, casualty, damage, or injury in or to the Leased
Premises, the Buildings, or the Property.
10.02 Total Destruction. In the event of total destruction, at
Landlord's option, as soon as reasonably possible thereafter, Landlord shall
commence repair and restoration of the Leased Premises and proceed diligently to
completion, in which event this Lease shall remain in full force and effect; or
within thirty (30) days after such damage, elect not to so repair or restore the
Leased Premises, in which event this Lease shall terminate. In either event,
Landlord shall give Tenant written notice of its intention within said thirty
(30) day period. In the event Landlord elects not to restore the Leased
Premises, this Lease shall be deemed to have terminated as of the date of such
total destruction. Tenant shall have the right to terminate this Lease if
Landlord fails to make a timely election within such thirty (30) day period, or
if Landlord elects to repair and such work is not substantially completed for
resumption of Tenant's normal business uses within 180 days of the date of the
casualty.
10.03 Partial Destruction. (a) In the event of a partial destruction of
the Leased Premises, to an extent not exceeding twenty-five percent (25%) of the
full insurable value thereof, and if the damage thereto is such that the Leased
Premises may be repaired, reconstructed or restored within a period of ninety
(90) days from the date of the happening of such casualty, and if Landlord will
receive insurance proceeds sufficient to cover the cost of such repairs,
Landlord shall commence and proceed diligently with the work or repair and
restoration of the Leased Premises and this Lease shall continue in full force
and effect. If such repair is not completed within said ninety (90) day period
and if Landlord has received sufficient insurance proceeds, then Tenant may
terminate this Lease at the end of the ninety (90) days by written notice to
Landlord.
(b) If such work or repair, reconstruction and restoration
shall require a period longer than ninety (90) days or exceeds twenty-five
percent (25%) of the full insurable value thereof, or if said insurance proceeds
will not be sufficient to cover the cost of such repairs, then Landlord either
may elect to so repair or restore and this Lease shall continue in full force
and effect or Landlord may elect not to repair or so restore and the Lease shall
then terminate. Landlord shall give written notice to Tenant of its intention
within said ninety (90) day period. In the event Landlord elects not to restore
the Leased Premises, this Lease shall be deemed to
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have terminated as of the date of such partial destruction. Tenant shall have
the right to terminate this Lease if repair work is not substantially completed
within 180 days of the date of the casualty.
10.04 Surrender of Premises. Upon any termination of this Lease under
any of the provisions of this Article 10, the parties shall be released without
further obligation to the other from the date possession of the Leased Premises
is surrendered to Landlord except for items which have theretofore accrued and
are then unpaid or which survive the termination of this Lease.
10.05 Abatement of Rent. In the event of damage or destruction as
herein provided, the rent payable under this Lease shall be abated
proportionately in the degree to which Tenant's use of the Leased Premises is
reasonably impaired during the period of such repair, reconstruction or
restoration until Landlord's repair, reconstruction or restoration is complete;
provided that there shall be no abatement of rent unless the Leased Premises are
untenantable for two (2) consecutive business days. Except as herein expressly
provided, Tenant shall not be entitled to any compensation or damages for loss
in the use of the whole or any part of the Leased Premises and/or any
inconvenience or annoyance occasioned by such damage, repair, reconstruction or
restoration.
10.06 Limitations of Landlord Responsibility. (a) If Landlord is
obligated to or elects to repair or restore as herein provided, Landlord shall
be obligated to make repair or restoration (to the extent of available insurance
proceeds) only of those portions of the Leased Premises which were originally
provided at Landlord's expense, and the repair and restoration of items not
provided at Landlord's expense shall be the obligation of Tenant, unless all or
a portion of such additional items are covered by proceeds of Landlord's
insurance.
(b) Notwithstanding anything to the contrary contained in this
Article 10, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Leased Premises when the damage resulting from any
casualty covered under this Article 10 occurs during the last six (6) months of
the Term (as extended by the exercise of any renewal terms) of this Lease. If
fire or other casualty covered under this Article X occurs during the last six
(6) months of the Term that reasonably impairs the ability of Tenant to operate
for a period of more than ten (10) days, either Landlord or Tenant may terminate
this Lease.
(c) Notwithstanding anything to the contrary contained in this
Article 10, in no event shall the Landlord be responsible for the repair,
restoration, or replacement of any personal property or fixtures of the Tenant.
ARTICLE XI
CONDEMNATION
11.01 Option to Terminate. If all or any part of the Leased Premises or
the parking area used by Tenant shall be taken or appropriated under the power
of eminent domain or conveyed in lieu thereof, either party shall have the right
to terminate this Lease with respect to the area so affected upon written notice
to the other party, such termination to be effective upon actual delivery of
possession of the Leased Premises, or conveyance of title to the Leased Premises
to the governmental authority exercising such right of eminent domain. In the
event that either party shall terminate this Lease as herein provided, all Base
Rent and Additional Rent shall be reduced in proportion to the reduction in area
of the Leased Premises.
11.02 Condemnation Award. Landlord shall receive any income, rent,
award or interest therein which may be paid in connection with the exercise of
such power of eminent domain, and Tenant shall have no claim against Landlord
for any part of any sum paid by virtue of such proceedings, whether or not
attributable to the value of the unexpired term of this Lease. Tenant hereby
releases and assigns to Landlord all of Tenant's rights to such award, covenants
to deliver such further assignments and assurances thereof as Landlord may from
time to time request, and hereby irrevocably designates and appoints Landlord as
its attorney-in-fact to execute and deliver in Tenant's name and on behalf of
Tenant all such further assignments thereof. Tenant may file a separate claim
for any taking of fixtures and improvements owned by Tenant and for moving
expenses or the unamortized costs of any leasehold improvements.
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11.03 Restoration of Premises. In the event that neither Landlord nor
Tenant elects to terminate this Lease as a result of a partial taking of the
Leased Premises, then Landlord shall promptly restore the Leased Premises to the
extent of condemnation proceeds available for such purpose to a condition as
comparable as possible to the condition at the time of such condemnation or
conveyance, less any portion of any building or land lost in such condemnation
and Tenant shall promptly make any and all necessary repairs, alterations and
restorations of Tenant's Improvements. Base Rent, Additional Rent and Tenant's
Proportionate Share shall be reduced in the same proportion that the floor area
so taken or conveyed bears to the floor area of the Leased Premises immediately
prior to such conveyance or taking.
ARTICLE XII
COVENANTS OF THE LANDLORD
12.01 Quiet Enjoyment. Landlord covenants that, during the term of this
Lease, and provided that Tenant is not in default in the performance of any of
its obligations, duties or responsibilities hereunder beyond the expiration of
any applicable notice or cure periods, the Tenant shall have the right of quiet
enjoyment of the Leased Premises, subject to the terms, covenants and conditions
herein, free from hindrance or molestation by Landlord or anyone claiming by,
through or under Landlord.
12.02 Structural Maintenance. Landlord covenants that it shall be the
sole responsibility of the Landlord at its sole cost and expense to (i) repair,
replace, and maintain the roof [except for patching and minor repairs the cost
of which will be included in Operating Expenses, and except for damage resulting
from the actions of Tenant]; (ii) replace the load bearing structural members;
and (iii) repair the foundation of the Buildings or the Leased Premises.
ARTICLE XIII
DEFAULT
13.01 Default. The occurrence of any one or more of the following
events shall constitute a default ("Default") hereunder by Tenant:
(a) The abandonment of the Leased Premises by Tenant
accompanied by a failure to pay rent.
(b) The failure by Tenant to make any payment of Base Rent or
Additional Rent when due, where such failure shall continue for a period of five
(5) days after notice from Landlord that the same is past due, it being
understood that Landlord shall not be required to provide notices more that
twice in any twelve month period.
(c) The failure by Tenant to observe or perform any other
covenant or provision of this Lease, where such failure shall continue for a
period of thirty (30) days after written notice from Landlord to Tenant. If the
nature of the Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant shall commence such cure within said thirty (30) day period
and diligently prosecute such cure to completion.
(d) (1) The making by Tenant of any general assignment for the
benefit of creditors; (2) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or a petition for reorganization or arrangement under
any law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (3) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets,
or substantially all of Tenant's assets located at the Leased Premises unless
dismissed within sixty (60) days, or of Tenant's interest in this Lease, where
possession is not restored to Tenant within sixty (60) days; or (4) the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets, or substantially all of Tenant's assets located at the Leased Premises
or of Tenant's interest in this Lease where such seizure is not discharged
within sixty (60) days.
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13.02 Remedies. Upon the occurrence of Default hereunder:
(a) Landlord may perform for the account of Tenant any
obligation of Tenant and immediately recover as additional rent any expenditures
made and the amount of any obligations incurred in connection therewith, plus
interest at the Prime Rate of First Union National Bank, plus four percent (4%)
from the date of any such expenditure;
(b) Landlord may accelerate all Base Rent and Additional Rent
due for the balance of the term of this Lease and declare the same to be
immediately due and payable;
(c) In determining the amount of any future payments due
Landlord as a result of increases in Operating Expenses, Landlord may make such
determination based upon the amount of Operating Expenses paid by Tenant for the
full year immediately prior to such Default;
(d) Landlord, at its option, may serve notice upon Tenant that
this Lease and the then unexpired term hereof shall cease and expire and become
absolutely void on the date specified in such notice, to be not less than five
(5) days after the date of such notice without any right on the part of the
Tenant to save the forfeiture by payment of any sum due or by the performance of
any term, provision, covenant, agreement or condition broken; and, thereupon and
at the expiration of the time limit in such notice, this Lease and the term
hereof granted, as well as the right, title and interest of the Tenant hereunder
shall wholly cease and expire and become void in the same manner and with the
same force and effect (except as to Tenant's liability) as if the date fixed in
such notice were the date herein granted for expiration of the term of this
Lease. Thereupon, Tenant shall immediately quit and surrender to Landlord the
Leased Premises, and Landlord may enter into and repossess the Leased Premises
by summary proceedings, detainer, ejectment or otherwise and remove all
occupants thereof and, at Landlord's option, any property thereon without being
liable to indictment, prosecution or damages. No such expiration or termination
of this Lease shall relieve Tenant of its liability and obligations under this
Lease, all of which shall survive such expiration or termination whether or not
the Leased Premises shall be relet;
(e) Landlord may, at any time after the occurrence of a
Default, re-enter and repossess the Leased Premises and any part thereof and
attempt in its own name, as agent for Tenant if this Lease not be terminated or
in its own behalf if this Lease be terminated, to relet all or any part of the
Leased Premises for and upon such terms to such persons, firms or corporations
and for such period or periods as Landlord, in its sole discretion, shall
determine, including a term beyond the termination of this Lease; and Landlord
shall not be required to accept any tenant offered by Tenant or observe any
instruction given by Tenant about such reletting or do any act or exercise any
care or diligence with respect to such reletting or to the mitigation of
damages. For the purpose of such reletting, Landlord may decorate or make
repairs, changes, alterations or additions in or to the Leased Premises to the
extent deemed by Landlord commercially reasonable; and the cost of such
decoration, repairs, changes, alterations or additions shall be charged to and
be payable by Tenant as Additional Rent hereunder, as well as any reasonable
brokerage and legal fees expended by Landlord; and any sums collected by
Landlord from any new tenant obtained on account of Tenant shall be credited
against the balance of the rent due hereunder. Tenant shall pay to Landlord
monthly, on the days when the rent would have been payable under this Lease, the
amount due hereunder less that amount obtained by Landlord from such new tenant;
(f) Landlord may, but shall not be obligated to, make any such
payment or perform any such act (including the payment of money) on Tenant's
behalf without waiving its rights based upon any Default of Tenant and without
releasing Tenant from any obligation hereunder. All sums so paid by Landlord and
all costs incidental to the performance by Landlord of Tenant's obligations
hereunder shall be paid by Tenant to Landlord as Additional Rent pursuant to
Section 2.02. In the event of nonpayment of such sums by Tenant, Landlord shall
have, in addition to any other rights or remedies hereunder, the same rights and
remedies as in the case of default by Tenant for non-payment of Base Rent and
Additional Rent;
(g) Landlord shall have the right of injunction, in the event
of a breach or threatened breach by Tenant of any of the agreements, conditions,
covenants or terms hereof, to restrain the same and the right to invoke any
remedy allowed by law or in equity, whether or not other remedies, indemnity or
reimbursements are herein provided. The rights and remedies given to Landlord in
this Lease are distinct, separate and cumulative remedies; and no one of
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them, whether or not exercised by Landlord, shall be deemed to be in exclusion
of any of the others; and
(h) Upon the occurrence of a Default, Landlord may draw down
on Tenant's Security Deposit to satisfy any unpaid obligations of Tenant and
upon notice from Landlord, Tenant shall immediately restore and fund the
Security Deposit to the amount set forth in Exhibit A.
13.03 Liquidated Damages. In any case where Landlord has recovered
possession of the Leased Premises by reason of Tenant's Default, Landlord may as
an alternative to its other remedies hereunder and expressly in lieu thereof, at
Landlord's option, and at any time thereafter, and without notice or other
action by Landlord, and without prejudice to any other rights or remedies
Landlord may have hereunto or at law or equity, collect and recover from Tenant,
as damages for such breach, an amount equal to the excess of the Base Rent and
Additional Rent payable pursuant to this Lease from the date of election
hereunder by Landlord to the date of expiration of the Lease Term over the then
fair market rental value of the Leased Premises for the same period. Said
damages shall become due and payable to Landlord immediately upon such election
by Landlord hereunder, and without regard to whether this Lease has been
terminated by Landlord. In the computation of such damages, the excess of the
remaining installments of Base Rent and Additional Rent payable pursuant to the
terms of this Lease over the fair market value of the Leased Premises for the
period for which such installment was payable shall be discounted to the date of
election hereunder by Landlord at the prime or index rate on corporate loans at
First Union National Bank.
13.04. Acceptance of Rent not to Constitute Waiver. A receipt by
Landlord of any payment of Base Rent or Additional Rent with knowledge of the
breach by Tenant of any covenant contained in this Lease shall not be deemed a
waiver of such breach, and shall not be deemed to have been waived unless
expressed in writing and signed by Landlord. Landlord shall be entitled, to the
extent permitted by applicable law, to injunctive relief in case of the
violation, or attempted or threatened violation, of any covenant, agreement,
condition or provision of this Lease, or to a decree compelling performance of
any covenant, agreement, condition or provision of this Lease, or to any other
remedy allowed Landlord under applicable law.
13.05. Divisible Contract. For the purposes of any suit brought by
Landlord to enforce the provisions of this Lease or for damages hereunder, this
Lease shall be construed to be a divisible contract, to the end that successive
actions may be maintained on this Lease as successive periodic sums mature
hereunder.
13.06. Expenses Incident to Enforcement of Lease. The party prevailing
in any litigation between Landlord and Tenant shall be entitled to have its
reasonable legal fees and court costs paid by the non-prevailing party.
13.07. Waiver of Redemption and Reinstatement. Tenant hereby waives any
and all rights of redemption or reinstatement to which Tenant or any person
claiming by, through or under Tenant might be entitled by any law now or
hereafter in force.
13.08. Remedies Cumulative. Landlord's remedies are in addition to any
remedy available to Landlord at law or in equity. Landlord agrees to use
commercially reasonable efforts to mitigate its damages hereunder.
ARTICLE XIV
INSURANCE AND INDEMNIFICATION
14.01. Fire and Casualty Insurance. (a) Tenant shall keep in full force
and effect during the Lease Term insurance against loss or damage by fire and
other casualty to Tenant's stock in trade, trade fixtures, furniture, equipment,
furnishings, removable floor coverings, signs and all other property of Tenant
in the Leased Premises in an "all risks" form, in an amount not less than eighty
percent (80%) of the full insurable value of the property covered and not less
than the amount sufficient to avoid the effect of the co-insurance provisions of
the applicable policy or policies.
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(b) Landlord shall keep in full force and effect during the Lease
Term insurance against loss or damage by fire and other casualty to the Leased
Premises and Property in an "all risks" form, in an amount not less than eighty
percent (80%) of the full insurable value of the property covered and not less
than the amount sufficient to avoid the effect of the co-insurance provisions of
the applicable policy or policies.
(c) Tenant shall comply at its cost and expense with all rules,
orders, regulations, and requirements of any applicable fire insurance bureaus
or any other organization performing a similar function. Tenant shall promptly,
upon demand, reimburse Landlord for any additional premium charged for such
policy by reason of Tenant's failure to comply with the provisions hereof.
14.02. Public Liability Insurance. Landlord and Tenant, at their own
cost and expense, shall keep in full force and effect during the Lease Term
comprehensive general liability insurance (including a contractual liability
insurance endorsement) against claims for personal injury, including bodily
injury and death, in an amount not less than $1,000,000 per person and per
occurrence, and for property damage in an amount not less than $1,000,000 per
occurrence.
14.03. Workers' Compensation. Tenant shall provide Workers'
Compensation and Employer's Liability insurance as required by State law.
14.04. Delivery of Insurance Policies to Landlord. Tenant shall deposit
with Landlord, on or before occupancy, insurance certificates evidencing the
policies of insurance required to be maintained by Tenant under this Article 14.
All such policies shall be taken out in form and with companies reasonably
satisfactory to Landlord. All insurance policies obtained by Tenant shall name
Landlord and any mortgagee of the Leased Premises as additional insureds, as
their interests may appear, and shall contain an undertaking by the insurers to
notify Landlord and the mortgagees of the Leased Premises in writing not less
than ten (10) days prior to any material change, reduction in coverage,
cancellation, or other termination thereof. Tenant shall not take any action or
fail to take any action the result of which would be to invalidate or cancel any
insurance policy required under this Article 14.
14.05. Waiver of Subrogation. Any policy or policies of fire, extended
coverage, or similar casualty insurance, which either Landlord or Tenant obtains
in connection with the Leased Premises shall include a clause or endorsement
denying the insurer any rights of subrogation against the other party. Landlord
and Tenant hereby waive any rights of recovery against the other for injury or
loss due to hazards covered by insurance containing such a waiver of subrogation
clause or endorsement to the extent of the injury or loss covered thereby.
14.06. Indemnification of Landlord. Tenant hereby assumes all risks and
waives all claims against Landlord for any damage to any property or any injury
to or death of any person in or about the Leased Premises arising at any time
and from any cause whatsoever, other than by reason of the gross negligence or
willful misconduct of Landlord and agrees to indemnify and defend Landlord from
and against any and all claims or liability for any injury or damage to any
person or property whatsoever occurring in, on or about the Leased Premises or
any part thereof when such injury or damage shall be caused in part or in whole
by gross negligence or wilful misconduct of Tenant, its agents, servants,
employees or invitees. Tenant further agrees to indemnify, defend and save
harmless Landlord from and against any and all claims by or on behalf of any
person, firm or corporation arising from the conduct of any work or thing
whatsoever done by Tenant in or about the Leased Premises, or from transactions
of Tenant concerning the Leased Premises, and will further indemnify, defend and
save Landlord harmless from and against any and all claims arising from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or arising from any act or negligence of Tenant, or any of its agents,
contractors, servants, employees or licensees, and from and against all costs,
reasonable counsel fees, expenses and liabilities incurred in connection with
any such claim or action or proceeding brought thereon. Furthermore, in case any
action or proceeding is brought against Landlord by reason of any such claims or
liability, Tenant agrees to defend such action or proceeding at Tenant's sole
expense. The provisions of this Section 14.06 shall survive the expiration or
termination of this Lease with respect to any claims or liability occurring
prior to such expiration or termination.
14.07. Insurance Primary. Landlord and Tenant mutually agree that they
shall each look first to their own insurance coverage for the satisfaction of
any liability for claims for personal
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injury or property damage which may be asserted against either of them by reason
of their respective interests in the Leased Premises.
ARTICLE XV
ENVIRONMENTAL RESPONSIBILITIES
15.01 Tenant's Environmental Compliance. For the purpose of this
Article 15, the following definitions shall apply:
(a) "Environmental Release" shall mean any intentional or
unintentional release, spill, leakage, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing, abandoning, discarding or
dumping of any Toxic Substance from, on, into or about the land, water or air of
the Leased Premises, Buildings or Property by Tenant, or any of Tenant's
employees, agents, contractors, subcontractors, licensees, guests or invitees.
(b) "Remediation" shall mean activities in connection with the
clean-up of an Environmental Release, including, but not limited to testing,
sampling, analysis, excavation, removal, disposal, venting, cleaning, scrubbing
and/or replacement of any soils, ground water or surface waters, in accordance
with the provisions of any and all applicable laws, rules, regulations,
statutes, orders, injunctions or other directives, now or hereafter enacted,
passed or in force.
(c) "Toxic Substance" shall mean a hazardous substance, hazardous
waste, hazardous material, pollutant or contaminant, as any of such terms are
now or hereafter defined in any and all applicable federal, state or local
statutes, laws, rules or regulations now or hereafter enacted to define
prohibited or regulated substances, together with all amendments thereto.
(d) "Recycling Materials" shall mean a hazardous substance,
hazardous waste, hazardous material, other than Toxic Substances, whose disposal
is regulated by federal, state or local government or quasi-governmental
authority having jurisdiction.
15.02 Environmental Covenants. Landlord and Tenant hereby covenant as
follows:
(a) Neither Landlord nor Tenant shall use the Leased Premises,
Buildings, or Property or any part thereof, for the purpose of treating,
producing, handling, transferring, processing, transporting, disposing, using or
storing of any Toxic Substance.
(b) Neither Landlord nor Tenant, nor any of their respective
employees, agents, contractors, subcontractors, licensees, guests or invitees
shall cause or permit to exist, as the result, in whole or in part, of any
action or omission by any one or more of them, an Environmental Release.
(c) Except as otherwise provided, Tenant shall sort, dispose,
remove and/or arrange for the sorting, disposal and removal of any and all
Recycling Materials, in accordance with any and all applicable federal, state or
local statutes, laws, rules or regulations now or hereafter enacted to define
and control the sorting and disposal of any non-Toxic Substances, together with
all amendments thereto.
(d) Each party shall be responsible for any and all Remediation
necessitated by its actions or inactions, including all costs and expenses and
the posting of financial assurances, required by any federal, state or local
governmental or quasi-governmental authority having jurisdiction, whether
ordered during the term of this Lease or otherwise should such Remediation be
required as a result of any breach under this Lease or (as such responsibility
relates to Tenant) arising or resulting from a closing, terminating or
transferring of operations of the Tenant or from any other action or inaction by
the Tenant.
(e) Both Landlord and Tenant shall, at their sole cost and
expense, comply with any and all statutes, laws, rules, regulations, ordinances,
orders, and/or injunctions issued by a governmental or quasi-governmental
authority having jurisdiction relating to or involving Toxic Substances, and
they shall give each other prompt written notice of any lack of compliance
hereunder and of any notice it receives of an alleged violation of any of the
foregoing.
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(f) Landlord, to the best of its knowledge, believes that the Property
is not now contaminated by any Toxic Substance. Tenant shall have no liability
for any existing condition as of the date of this Lease nor for any
Environmental Release not caused by Tenant, its employees, agents, contractors,
subcontractors, licensees, guests or invitees.
These covenants, representations, and warranties shall survive the expiration or
earlier termination of this Lease. Notwithstanding the foregoing, Tenant may use
cleaning materials and office supplies in the ordinary course of Tenant's
business, in reasonable quantities and provided that such materials and supplies
are used, stored and disposed of in compliance with any and all statutes, laws,
rules or regulations now or hereafter enacted, together with all amendments
thereto.
ARTICLE XVI
PAYMENTS BY LANDLORD
16.01 Payments by Landlord. Tenant covenants, acknowledges and agrees
that, if Tenant shall at any time fail to make any payment or perform any act
which Tenant is obligated to make or perform under this Lease, Landlord may, but
shall not be obligated to, subject to the notice and cure provisions herein
provided, and without waiving or releasing Tenant from any obligation, duty,
responsibility or liability under this Lease, make any such payment or perform
any such act, in such manner and to such extent as the Landlord, in the exercise
of reasonable discretion shall determine. Tenant shall be liable to Landlord,
and shall pay to Landlord as Additional Rent immediately upon invoice all such
payments and all costs and expenses incurred by Landlord in connection with the
foregoing, including reasonable attorney's fees.
ARTICLE XVII
Intentionally Deleted.
ARTICLE XVIII
Intentionally Deleted.
ARTICLE XIX
SECURITY DEPOSIT
19.01 Security Deposit. Landlord and Tenant agree Tenant shall provide
security ("Security Deposit") for the payment and performance of its obligations
under this Lease. The Security Deposit will be held by Landlord in a
non-interest bearing account. The amount of the Security Deposit is set forth in
Exhibit A. The Security Deposit is due and payable upon execution of this Lease.
See Exhibit A for other terms regarding the Security Deposit.
19.02 Application and Replacement of Security Deposit. At any time and
from time to time during the Lease Term, together with Renewal Term, the
Landlord may take, use and apply in any manner such Security Deposit for the
purpose of satisfying any obligations, duty, responsibility or liability of the
Tenant under this Lease which has not been performed or satisfied within the
time periods specified in this Lease, including payment of the costs and
expenses of the Landlord incurred in connection therewith (including, but not
limited to reasonable attorney's fee) and any amounts due Landlord upon a
Default. Landlord shall provide Tenant with written notice of same within a five
(5) day period of time prior to the application of such Security Deposit. In any
such event, Landlord shall have the right, at any time thereafter, to demand
that Tenant replenish any such amounts expended, and Tenant shall so replenish
such sum immediately upon receipt of invoice from Landlord.
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ARTICLE XX
MISCELLANEOUS
20.01 Brokers. Landlord shall be solely responsible for the brokerage
fees to be paid to the broker ("Broker") named in Exhibit A with regard to this
Lease. Except for such Broker, Landlord and Tenant each represent and warrant to
the other that no other broker brought about this Lease, and each party
indemnifies the other from, for and against any and all claims by and any other
brokers arising out of or resulting from the actions of such party.
20.02 Notices. All notices, consents, waivers or other communications
which are required or permitted hereunder shall be sufficiently deemed given if
in writing and delivered personally, or the next day if by overnight courier
service with proof of service, or in two (2) business days if mailed through the
United States Postal Service as registered or certified, return receipt
requested and postage prepaid. All the foregoing methods of delivery shall be
made to the Landlord or the Tenant as the case may be, at the notice addresses
stated in Exhibit A, or such other addresses as either party may notify the
other of, in writing.
20.03 Access and Right to Show. (a) Tenant hereby acknowledges and
agrees to permit Landlord or Landlord's authorized agents, and their employees,
access to the Leased Premises at any time and from time to time during normal
business hours at times pre-arranged with Tenant for the purpose of examining
and inspecting the Leased Premises, or making repairs, performing maintenance or
for any other legitimate business purpose of the Landlord, and at any time for
the purposes of making emergency repairs in the event of a threat of injury or
damage to persons or property. Tenant agrees to provide Landlord with a means of
emergency access by delivering all keys and alarm codes, as may be necessary to
accomplish the foregoing. Landlord will, conditions permitting, endeavor to
provide Tenant with reasonable notice prior to accessing the Leased Premises.
(b) Tenant acknowledges that Landlord has reserved the right, and
agrees to permit Landlord and Landlord's authorized brokers, agents, and their
employees access to the Leased Premises upon reasonable notice during the last
six (6) months of the Lease Term or Renewal Term at times pre-arranged with
Tenant, for the purpose of showing the Leased Premises to prospective tenants
and others.
20.04 No Waiver by Landlord. The failure of or delay in the Landlord
insisting upon the strict performance of any of the terms, covenants,
conditions, agreements or provisions of this Lease or exercising any option,
right or remedy herein conferred in any one or more instances shall not be
construed nor shall same act as a waiver, release or relinquishment of: (a) the
enforcement of any such failure or breach; or (b) any election, option, right or
remedy. Landlord, in the exercise of its sole, unfettered and unreviewable
discretion may enforce any such failure or breach, or any such election, option,
right or remedy at any time thereafter in the manner set forth in this Lease,
and the same shall at all times thereafter remain in full force and effect.
20.05 No Abatement of Rent. Except as otherwise provided in this Lease,
no abatement, diminution, reduction or set-off of the Base Rent or any
Additional Rent shall be claimed by, or allowed to the Tenant for any
inconvenience, interruptions by any: (a) present or future laws, ordinances,
orders, rules, regulations or requirements of any federal, state, or local
governments or courts of competent jurisdiction; (b) priorities, rationing or
curtailment of labor or materials; (c) war, civil commotion, riots, strikes or
other labor unrest; (d) casualty to the Leased Premises, Buildings or Property;
(e) failure of any utility company, authority or agency to maintain such
services and utilities; or (f) other cause of causes beyond the control of the
Landlord. Neither shall any of the foregoing affect this Lease except solely for
the provisions of Article 10 (Casualty) and Article 11 (Condemnation).
20.06 Entire Agreement. This Lease, and the Exhibits attached hereto
set forth the entire understanding and agreement between the parties with
respect to the subject matter hereof, and neither party has made to the other
any promise, statement, representation, warranty or covenant not expressly set
forth herein.
20.07 Headings. The Article, Section, and Subsection headings set forth
in this agreement are for convenience only and shall have no affect upon the
meaning or interpretation of any provision in this Lease.
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20.08 Modification or Waiver. The terms, promises, conditions,
representations, warranties, covenants and agreements contained in this Lease
may not be waived, modified, amended or otherwise altered except in a writing
duly executed by the party against whom such waiver, modification, amendment or
alteration is sought.
20.09 Counterparts. This Lease may be executed simultaneously in two or
more counterparts, each of which shall be deemed a duplicate original, but all
of which together shall constitute one and the same instrument, binding in
accordance with its terms.
20.10 Parity. This Lease shall be deemed to have been drafted by both
parties equally, and therefore, in the event that any litigation arises under of
as a result of this agreement, it is specifically stipulated and agreed to by
Landlord and Tenant that this agreement shall be interpreted and construed
without regard to any rule of construction whereby ambiguities in an instrument
are resolved against the party that drafted the instrument in question.
20.11 Parties. All the terms, covenants, conditions, representations,
warranties and promises set forth herein shall inur to the benefit of the
parties hereto and their respective successors and assigns. Landlord shall have
the right to sell the Leased Premises, Buildings and/or Property at any time.
20.12 Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
20.13 Severability. In the event that any one or more of the provisions
contained in this Lease shall be determined to be void or unenforceable by a
court of competent jurisdiction, or by action of law, the parties agree that
they shall attempt, in good faith, to restructure this Lease so as to effectuate
and fulfill the purpose and intent of this Lease in compliance with applicable
laws, rules, regulations, and ordinances. However, notwithstanding the failure
of the parties to so agree, the remaining provisions contained in this Lease
shall remain in full force and effect, and be binding upon the parties hereto,
and their respective successors and assigns.
20.14 Time of the Essence. Time shall be of the essence with regard to
all duties, responsibilities, and obligations of the Tenant under this Lease.
20.15 No Recordation. Neither this Lease nor any memorandum thereof
shall be recorded in the Office of the Clerk of Mercer County.
20.16 Sale of Property. Upon transfer of title to the Property,
Landlord shall be released from any liability arising thereafter based upon any
of the terms, covenants, and conditions, expressed or implied, which are
contained in this Lease. In which event, Tenant agrees to look solely to
Landlord's successor in interest for any liability under this Lease. Tenant
agrees to attorn to Landlord's successor in interest.
20.17 Parking. Landlord agrees to provide unassigned parking for Tenant
equal to the number of spaces set forth in Exhibit A. Tenant agrees to refrain
from using more than these number of spaces.
20.18. Relocation. Landlord reserves the right at any time, upon giving
Tenant not less than sixty (60) days' written notice, to relocate Tenant to
another suite in the Property. Any such proposed relocation shall be subject to
the reasonable approval of Tenant. The suite shall be of approximately the same
size as the Leased Premises. Landlord shall pay all costs of relocation,
including all moving expenses, the cost of new stationery, and any construction
required to provide approximately equivalent improvements. Landlord and Tenant
will execute an amendment to this Lease identifying the new space and making
appropriate adjustments for any decrease (but not any increase) in the rentable
area of the Leased Premises.
20.19. Emergencies. In the event that an emergency exists which
requires the action of Landlord and Tenant first attempts to notify Landlord,
then Tenant shall be permitted to take such actions on behalf of Landlord as are
reasonably prudent to treat such emergency. Landlord shall reimburse Tenant upon
demand (including the presentation of an itemized list of expenses and
supporting documentation) for the reasonable, costs incurred by Tenant on behalf
of Landlord. Tenant assumes the liability for its actions in such event. If
Landlord fails to either reimburse Tenant or with reasonable grounds and in good
faith object to the request for payment
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within thirty (30) days, Tenant may offset Base Rent until the full amount
demanded by Tenant is recovered.
20.20. Delay in Completion of Construction. See Exhibit A for
provisions regarding delay in completion of construction by Landlord.
20.21. Termination of Existing Lease. See Exhibit A for provisions
regarding the termination of the existing lease under which Tenant occupies
Suite E-10.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
duly executed and acknowledged as of the day and year first above written.
WITNESS: LANDLORD
COMMERCE CENTER AT PRINCETON LLC
By: /s/ Harry Levine
/s/ [Illegible] -------------------------------
- --------------------- Harry Levine, Managing Member
WITNESS TENANT
SECURE COMMERCE SERVICES, INC.
/s/ Robert K. Fisher By: /s/ Flint A. Lane
- ----------------------- --------------------------------
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EXHIBIT A
PRINCETON COMMERCE CENTER
LEASE TERMS
The Property is identified as 29 Emmons Drive, West Windsor Township,
Mercer County, New Jersey, and further identified on the official tax map of
West Windsor Township as Lot 5, Block 7.03.
a. Leased Premises: Suite B-30 consisting of approximately 6,200
rentable square feet.
b. Commencement Date shall be the date (estimated to be September
1, 1999) on which Landlord provides Tenant written notice that
the Leased Premises are Ready-for-Occupancy. Ready-for-Occupancy
date shall be defined as the date when all of the following
conditions have been satisfied: (1) Landlord has delivered
possession of the Leased Premises to Tenant; (2) construction
has been substantially completed in accordance with the Tenant's
Work Letter excepting only minor "punch list" items which
Landlord shall diligently complete as soon as reasonably
possible; and, if required to comply with state or local law,
(3) a temporary or final certificate of occupancy has been
issued.
c. Term (Article 1): Five years (estimated to be August 31, 2004)
from the Commencement Date.
d. Base Rent (Section 2.01): The monthly amount of Base Rent shall
be as follows:
First Year $9,300.00
Second Year $9,558.33
Third Year $9,816.67
Fourth Year $10,075.00
Fifth Year $10,333.33
Receipt of Tenant's first month's Base Rent is hereby
acknowledged.
e. Estimated Monthly Tenant Utility Cost (Section 3.05): N/A for
direct meter
f. Cost of Living Index: N/A
g. Tenant's Proportionate Share (Section 3.01): 9.3%.
h. Security Deposit: $ 55,000.00. The security deposit shall be
placed in escrow with Ridolfi, Friedman, Frank, Edelstein, and
Backinoff to be released to Landlord upon issuance of
construction permits. The security deposit shall be returned
within 30 days of the end of the Lease, subject to the
provisions of the Lease.
i. Landlord Contribution (Exhibit B): Landlord will provide a
turnkey installation as more fully described in Exhibit B and
the attached Schematic Floor Plan including new offices, walls,
ceilings, carpet, bathrooms, lighting, doors, and a service
kitchen (including plumbing but excluding equipment). Tenant
shall pay $12,500.00 directly to Landlord upon lease execution
and an additional $12,500.00 into the security deposit escrow
with Ridolfi, Friedman, Frank, Edelstein and Backinoff (to be
released to Landlord upon submission of construction documents
and an application for a building permit to the township of West
Windsor) for its share of the cost of the installation and shall
pay the cost of any delays or upgrades, extras, or changes in
the Schematic Floor Plan, if such delays, upgrades, extras or
changes are caused by Tenant.
<PAGE> 20
j. Permitted Use (Section 6.01): general office use
k. Landlord's Notice Address:
P.O. Box 7838 Princeton, New Jersey 08543
l. Tenant's Notice Address:
at the Leased Premises
m. Parking Spaces (Section 20.17): not to exceed 24 cars,
unassigned
n. Broker (Section 20.01): Commercial Property Network, Inc.
o. Renewal Term (Section 17.01): N/A
p. Base Year Operating Expenses (Section 3.01): During the first
year of occupancy, Tenant shall pay for no Operating Expenses.
Base Year Operating Expenses shall be equal to $4.02 per square
foot. Commencing with the second lease year, Tenant shall pay
its proportionate share of any increases in Operating Expenses
over the Base Year Operating Expenses.
q. Termination of Existing Lease: Tenant occupies suite E-10 under
a lease dated November 16, 1998 and amended as of January 13,
1999, and upon Commencement Date will surrender such suite.
Until Tenant surrenders this space, Tenant shall remain liable
for fulfilling all of its responsibilities under such existing
lease. As of the Commencement Date, the lease for suite E-10
will terminate. Any prepaid rent and security deposit shall be
applied first to any outstanding invoices under the previous
lease and then, after the Commencement Date of this Lease, to
the Base Rent required under this new lease.
r. Delay in Completion of Construction: Landlord shall undertake
completion of construction on or before the sixtieth day after
issuance of all required building permits. For every two
business days of delay beyond the sixtieth day, base rent shall
abate for one day. Delays caused by Tenant (change orders,
delays in approving plans, interference with contractors working
for Landlord, etc.) shall extend the sixty day period.
s. Finish schedule: Within five days of receipt of all security
deposits, first month's rent and Tenant's contribution toward
the cost of construction, Landlord shall provide Tenant with a
summary of all interior finishes.
<PAGE> 21
EXHIBIT B
TENANT'S WORK LETTER
Landlord has prepared or will cause to be prepared at LANDLORD'S cost
and expense, a Schematic Design Plan for the interior of the Leased Premises
("Schematic Design Plan") and LANDLORD will cause to be prepared or will prepare
final construction documents to complete the interior of the Leased Premises
("Final Construction Drawings") subject to Tenant's approval, not to be
unreasonably withheld, within 10 days of submission to Tenant. The Schematic
Design Plan referred to above, together with the Final Construction Drawings
when completed, are referred to in this Lease as the "Tenant's Plan".
LANDLORD agrees, to the best of LANDLORD'S knowledge and belief, the
Leased Premises will be constructed in compliance with state and local zoning
and building code regulations and that such construction will be completed in a
good and workmanlike manner. Any fees or costs for permits or other approval or
review of Tenant's Plan shall be paid by Landlord.
Tenant has approved the Schematic Design Plan which is attached to this
Exhibit and which is the basis for the Workletter Amount as defined in Exhibit
A. The Schematic Design Plan shall be the basis for development of the final
construction documents. Upon receipt of the Final Construction Drawings, Tenant
shall have five (5) business days to disapprove or amend, otherwise the Final
Construction Drawings shall be deemed approved. Tenant initiated Change Orders
subsequent to approval of the Final Construction Drawings that cause extensions
of the Ready for Occupancy date shall not affect the Commencement Date.
LANDLORD'S WORK. The Leased Premises shall be constructed and completed
by Landlord in accordance with the Final Construction Drawings approved by
Tenant. During construction, Tenant may not, without the consent of Landlord,
enter the Leased Premises or perform any work within or move furniture and
equipment into the Leased Premises.
Upon substantial completion of construction, Tenant shall take
possession of the Leased Premises. Landlord shall be responsible for completion
of punch list items subsequent to Tenant's occupancy based upon a list prepared
by Tenant and submitted to Landlord prior to occupancy. Any dispute regarding
items on the punch list shall be resolved by the architect who prepared the
Tenant's Plan.
If substantial completion of construction is delayed due to (a) delay
in receiving Tenant's approval of Final Construction Drawings; (b) delay in
receiving Tenant's approval of any other drawings, specifications, or required
authorizations; (c) delay in payments required from Tenant; or (d) Tenant's
entry into the Leased Premises without Landlord's approval, then the
Commencement Date shall be deemed to occur on the date which it could have
occurred were it not for the occurrence of the Tenant delays.
Subject to Tenant's responsibility to contribute $25,000.00 toward the
cost of construction. Landlord shall pay the cost of all construction that is
performed in accordance with the Final Construction Drawings unless a limited
Landlord contribution ("Landlord Contribution") is specified in Exhibit A. Prior
to commencement of construction, Landlord shall identify costs which exceed the
workletter (or the Landlord Contribution) and for which Tenant shall be
responsible. Tenant shall pay such costs prior to commencement of construction.
Any change orders initiated by Tenant which result in cost increases shall also
be paid by Tenant, in advance of executing the change order. Should Tenant fail
to pay any such sums as and when due, Landlord may charge such amounts as
Additional Rent pursuant to Section 2.02.
TENANT'S WORK. Whenever Tenant or its agents or contractors are engaged
to construct the Leased Premises in accordance with Tenant's Plan, Tenant will
provide prior to the commencement of any work evidence satisfactory to Landlord
that Tenant, its agents or contractors have obtained insurance coverage in
amounts and with companies satisfactory to Landlord to protect against claims
for workers' compensation, bodily injury, property damage, personal liability
and contractual liability. Landlord shall have the right to require Tenant, its
agents or contractors to furnish bonds covering the faithful performance of the
construction of Tenant's Plan and the payment of obligations thereunder. Tenant
at all times shall not permit to be filed against the building or the Leased
Premises any mechanics', materialmen's or other liens. Landlord may, without
waiving its rights and remedies based on such breach by Tenant, cause such liens
to be released by any means it shall deem proper, including payments in
satisfaction of such claim. Tenant shall pay any sum paid by Landlord to remove
such liens, together with interest at the Default Rate.
CHANGE ORDERS. Tenant Change Orders must be in writing and approved by
Landlord. No Tenant Change Order will be implemented without the Landlord's
prior approval, which approval shall not be unreasonably withheld or delayed.
Landlord shall have five (5) business days after receipt to accept or reject a
Change Order. Tenant agrees to pay for any additional cost or expense in
implementing any such Tenant Change Order. A Tenant Change Order may give rise
to delays but shall not be cause for any change in the Commencement Date as
defined in Exhibit A herein.
LANDLORD'S WORKLETTER. Landlord's workletter is described in the
materials attached to this Exhibit B and initialed by Tenant and Landlord.
SCHEMATIC DESIGN PLAN ATTACHED.
<PAGE> 22
[Graphic of Schematic Design Plan]
<PAGE> 23
Construction - Scope of Work
PayTrust
29 Emmons Drive
Building B
DEMOLITION/CARPENTRY/PLUMBING
Demolition of entire suite including walls, ceiling, doors, kitchen and
bathrooms.
Build office and other spaces per permitted plans and specifications. Plan
includes rebuilding two bathrooms and a shower room to meet ADA specifications.
Doors to be solid core (stained grade), with hollow metal frames and light duty
commercial locksets (level).
New partitions will be 5/8 drywall on steel studs.
Perimeter partitions to be drywall with one inch of rigid insulation.
New white ceiling grid and 2x4 tiles and existing ceiling height. Ceiling to be
insulated with 3" fiberglass roll insulation.
FLOORING
New carpet, base molding (4 inch), and VCT throughout. Tenant to select color.
Building Standard carpet (Shaw Ambition 26oz.), VCT (Armstrong), and base
molding.
PAINT
Painting: Color selected by tenant.
All walls (eggshell)
Windows
Door Frames (semi-gloss)
Stain Doors
Existing kitchen cabinets to remain.
ELECTRICAL work as follows:
85 -- 2x4 fixtures
9 -- exit signs with battery back-up
3 -- Power polls
10 -- emergency packs
4 -- remote EM Heads (twin)
2 -- remote EM Heads (single)
4 -- remote exterior door fixtures
70 -- duplex receptacles (7-OFI)
2 -- dedicated circuits (compute & scanner rooms)
27 -- single pole switches
4 -- three-way switches Electrical panels and HVAC wiring to remain.
220V circuit and discomfort for new HVAC unit (computer & scanner rooms).
SPECIAL
2 -- steel rear doors with panic hardware.
3 ton HVAC unit for computer & scanner rooms.
<PAGE> 24
EXHIBIT C
RULES AND REGULATIONS
1. Tenant shall not obstruct or permit its employees, agents,
servants, invitees or licensees to obstruct the sidewalks, entry passages, or
corridors of the buildings, or use the same in any way other than as a means of
passage to and from the offices of Tenant; bring in, store, test or use any
materials in the buildings which could cause a fire or an explosion or which
produce any fumes or vapor which may affect other tenants in the building; make
or permit any improper noises in the buildings; or throw substances of any kind
out of windows or doors, or down the passages of the buildings, or in the halls
or passageways.
2. Water closets and urinals shall not be used for any purpose
other than those for which they were constructed, and no sweepings, rubbish,
ashes, newspaper or any other substances of any kind shall be thrown into them.
3. The windows, doors, partitions and lights that reflect or
admit light into the halls or other places of the buildings shall not be
obstructed. NO SIGNS, ADVERTISEMENTS OR NOTICES SHALL BE INSCRIBED, PAINTED,
AFFIXED OR DISPLAYED IN, ON, UPON OR BEHIND ANY WINDOWS OR ON ANY EXTERIOR
DOORS, except as may be required by law or agreed upon by the parties.
4. Electric wiring must be connected as directed by Landlord,
and no stringing or cutting of wires will be allowed, except with the prior
written consent of Landlord, and shall be done only by contractors approved by
Landlord.
6. Landlord shall have the right to prescribe the weight, size
and position of all safes and other bulky or heavy equipment and all freight
brought into the building by any tenant and the time of moving the same in and
out of the buildings.
7. No machinery of any kind or articles of unusual weight or
size will be allowed in the buildings, without the prior written consent of
Landlord. Business machines and mechanical equipment shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's
judgement, to absorb and prevent vibration, noise and annoyance to other
tenants.
8. No additional or different lock or locks shall be placed by
Tenant on any door in the buildings, without the prior written consent of
Landlord, which shall not be unreasonably withheld. Two keys will initially be
furnished to Tenant by Landlord; any additional keys requested by Tenant shall
be paid for by Tenant. Tenant, its agents and employees, shall not have any
duplicate key made. All keys to doors and washrooms shall be returned to
Landlord on or before the Termination Date, and, in the event of a loss of any
keys furnished, Tenant shall pay Landlord the cost thereof.
9. No bicycles, vehicles or animals of any kind shall be
brought into or kept in the Leased Premises.
10. The requirements of Tenant will be attended to only upon
application at the office of Landlord. Employees of Landlord shall not perform
any work for Tenant or do anything outside of their regular duties, unless under
special instructions from Landlord.
11. The Leased Premises shall not be used for lodging or
sleeping purposes, and cooking (except for the use of a microwave oven) therein
is prohibited.
12. Tenant shall not: conduct, or permit any other person to
conduct, any auction upon the Leased Premises; manufacture goods, wares or
merchandise upon the Leased Premises, without the prior written approval of
Landlord, except the storage of usual supplies and inventory to be used by
Tenant in the conduct of its business; permit the Leased Premises to be used for
gambling; make any unusual noises in the buildings; permit to be played any
musical instrument in the Leased Premises; permit to be played any radio,
television, recorded or wired music in such a loud manner as to disturb or annoy
other tenants; or permit any unusual odors to be produced upon the Leased
Premises.
13. No awnings or other projections shall be attached to the
outside walls of the buildings.
14. Canvassing, soliciting and peddling in the buildings are
prohibited, and Tenant shall cooperate to prevent the same.
15. There shall not be used in the Leased Premises or in the
buildings, either by Tenant or by others in the delivery or receipt of
merchandise, supplies or equipment, any hand trucks except those equipped with
rubber tires and side guards.
16. Landlord shall have the right to prohibit any advertising
by Tenant which in Landlord's reasonable opinion tends to impair the reputation
of the Property or its desirability for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
17. Landlord hereby reserves to itself any and all rights not
granted to Tenant hereunder, including, but not limited to, the following rights
which are reserved to Landlord for its
<PAGE> 25
purposes in operating the buildings: (a) the exclusive right to use the name
"Princeton Commerce Center" for all purposes, except that Tenant may use the
name for its business address and for no other purpose; (b) the right to change
the name or address of the buildings (but not more frequently than once per
year), without incurring any liability to Tenant for so doing; (c) the right to
install and maintain a sign or signs on the exterior of the buildings; (d) the
exclusive right to use or dispose of the use of roof of the buildings; and (f)
the right to grant to anyone the right to conduct any particular business or
undertaking in the buildings.
18. Tenant shall have the non-exclusive right to use in common
with Landlord and other tenants of the buildings and their employees and
invitees the parking area provided by Landlord for the parking of passenger
automobiles, other than parking spaces specifically allocated to others by
Landlord. Landlord may issue parking permits, and impose any other system as
Landlord deems necessary for the use of the parking area. Tenant agrees that it
and its employees and invitees shall not park their automobiles in parking
spaces allocated to others by Landlord and shall comply with such rules and
regulations for use of the parking area as Landlord may from time to time
prescribe. Landlord shall not be responsible for any damage to or theft of any
vehicle in the parking area and shall not be required to keep parking spaces
clear of unauthorized vehicles or to otherwise supervise the use of the parking
area. Landlord reserves the right to change any existing or future parking area,
roads, driveways, and may make any repairs or alterations it deems necessary to
the parking area, roads and driveways and to temporarily revoke or modify the
parking rights granted to Tenant hereunder.
19. Tenant shall not use the Leased Premises or permit the
Leased Premises to be used for the sale of food or beverages.
<PAGE> 1
Exhibit 10.2(b)
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made as of the 27th day of August, 1999, by and
between COMMERCE CENTER AT PRINCETON LLC, a limited liability company organized
and existing under the laws of the State of New Jersey, having its principal
place of business at P. O. Box 7838, Princeton, New Jersey 08543 ("Landlord")
and SECURE COMMERCE SERVICES, INC. (OPERATING UNDER THE TRADE NAME OF PAYTRUST),
a corporation organized and existing under the laws of the State of New Jersey,
having its principal place of business located at 29 Emmons Drive, Princeton,
New Jersey 08540 ("Tenant").
WITNESSETH
WHEREAS, Tenant is a tenant in Suite E-10 at Princeton Commerce Center
under a lease dated November 16, 1998 as amended by First Amendment dated
January 13, 1999 ("Old Lease"); and
WHEREAS, Tenant has entered into a second lease ("New Lease") dated June
2, 1999 for the rental of Suite B-30 ("Original Leased Premises"); and
WHEREAS, Tenant has agreed to surrender its current space (Suite E-10)
upon completion of its new space (Suite B-30) and for the Old Lease to terminate
as of the Commencement Date of the New Lease; and
WHEREAS, now Tenant desires to retain possession of Suite E-10 to be
called the "Additional Leased Premises" and to incorporate such space under the
terms of the New Lease;
NOW THEREFORE, in consideration of the recitals above and the provisions
that follow, and the sum of ONE ($1.00) DOLLAR, each party in hand paid to the
other, the receipt and sufficiency of which consideration is hereby
acknowledged, the parties hereto, intending to be legally bound thereby, agree
as follows:
1. Upon the Commencement Date of the New Lease, Tenant shall retain
possession of Suite E-10 and such occupancy shall be governed by the
New Lease.
2. Suite E-10 shall be delivered in its AS IS condition with no further
improvements by Landlord. A schematic design plan of the Additional
Leased Premises is attached to this First Amendment.
3. Exhibit A to the New Lease shall be modified in its entirety and
replaced by the new Exhibit A (amended) attached to this First
Amendment to Lease.
4. All other terms and conditions of the New Lease shall remain in
effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereby have caused this First Amendment to
Lease to be duly executed and acknowledged as of the day and year first above
written.
WITNESS: LANDLORD
COMMERCE CENTER AT PRINCETON LLC
/s/ [illegible] By: /s/ Harry Levine
- ---------------------- -----------------------------
WITNESS: TENANT
SECURE COMMERCE SERVICES, INC.
/s/ Nancy Chu By: /s/ Flint A. Lane
- ---------------------- -----------------------------
<PAGE> 3
EXHIBIT A (AMENDED)
PRINCETON COMMERCE CENTER
LEASE TERMS
The Property is identified as 29 Emmons Drive, West Windsor Township,
Mercer County, New Jersey, and further identified on the official tax map of
West Windsor Township as Lot 5, Block 7.03.
a. Leased Premises: Suite B-30 consisting of approximately 6,200
rentable square feet ("Original Leased Premises") and Suite
E-10 consisting of approximately 1,625 rentable square feet
("Additional Leased Premises"). Together, both suites shall be
considered the Leased Premises.
b. Commencement Date shall be the date (estimated to be
September 1, 1999) on which Landlord provides Tenant
written notice that the Original Leased Premises are
Ready-for-Occupancy. Ready-for-Occupancy date shall be
defined as the date when all of the following conditions
have been satisfied: (1) Landlord has delivered possession
of the Original Leased Premises to Tenant; (2) construction
has been substantially completed in accordance with the
Tenant's Work Letter excepting only minor "punch list"
items which Landlord shall diligently complete as soon as
reasonably possible; and, if required to comply with state
or local law, (3) a temporary or final certificate of
occupancy has been issued.
c. Term (Article 1): Five years (estimated to be August 31, 2004)
from the Commencement Date.
d. Base Rent (Section 2.01): The monthly amount of Base Rent
shall be as follows:
First Year $11,737.50
Second Year $12,063.54
Third Year $12,389.58
Fourth Year $12,715.63
Fifth Year $13,041.67
Receipt of Tenant's first month's Base Rent for the Original
Leased Premises is hereby acknowledged.
e. Estimated Monthly Tenant Utility Cost (Section 3.05): N/A for
direct meter.
f. Cost of Living Index: N/A
<PAGE> 4
g. Tenant's Proportionate Share (Section 3.01): 11.8%
h. Security Deposit: $ 55,000.00. The security deposit shall be
placed in escrow with Ridolfi, Friedman, Frank, Edelstein, and
Backinoff to be released to Landlord upon issuance of
construction permits. The security deposit shall be returned
within 30 days of the end of the Lease, subject to the
provisions of the Lease.
i. Landlord Contribution (Exhibit B): Landlord will provide a
turnkey installation of the Original Leased Premises as
more fully described in Exhibit B and the attached
Schematic Floor Plan including new offices, walls,
ceilings, carpet, bathrooms, lighting, doors, and a service
kitchen (including plumbing but excluding equipment).
Tenant shall pay $12,500.00 directly to Landlord upon lease
execution and an additional $12,500.00 into the security
deposit escrow with Ridolfi, Friedman, Frank, Edelstein and
Backinoff (to be released to Landlord upon submission of
construction documents and an application for a building
permit to the township of West Windsor) for its share of
the cost of the installation and shall pay the cost of any
delays or upgrades, extras, or changes in the Schematic
Floor Plan, if such delays, upgrades, extras or changes are
caused by Tenant. The Additional Leased Premises shall be
delivered in AS IS condition.
j. Permitted Use (Section 6.01): general office use
k. Landlord's Notice Address:
P.O. Box 7838
Princeton, New Jersey 08543
l. Tenant's Notice Address:
at the Leased Premises
m. Parking Spaces (Section 20.17): not to exceed 31 cars,
unassigned
n. Broker (Section 20.01): Commercial Property Network, Inc.
o. Renewal Term (Section 17.01): N/A
p. Base Year Operating Expenses (Section 3.01): During the first
year of occupancy, Tenant shall pay for no Operating Expenses.
Base Year Operating Expenses shall be equal to $4.02 per
square foot. Commencing with the second lease year, Tenant
shall pay its proportionate share of any increases in
Operating Expenses over the Base Year Operating Expenses.
<PAGE> 5
q. Termination of Exiting Lease: Tenant occupies suite E-10
under a lease dated November 16, 1998 and amended as of
January 13, 1999, and upon Commencement Date of this Lease,
the existing lease shall terminate. From the Commencement
Date, suite E-10 shall be considered Additional Leased
Premises and Tenant shall be permitted to remain in
occupancy of such space. Until the Commencement Date of
this Lease, Tenant shall remain liable for fulfilling all
of its responsibilities under such existing lease. As of
the Commencement Date, the lease for suite E-10 will
terminate. Any prepaid rent and security deposit shall be
applied first to any outstanding invoices under the
previous lease and then, after the Commencement Date of
this Lease, to the Base Rent required under this new lease.
r. Delay in Completion of Construction: Landlord shall
undertake completion of construction of the Original Leased
Premises on or before the sixtieth day after issuance of
all required building permits. For every two business days
of delay beyond the sixtieth day, base rent for the
Original Leased Premises shall abate for one day. Delays
caused by Tenant (change orders, delays in approving plans,
interference with contractors working for Landlord, etc.)
shall extend the sixty day period.
s. Finish schedule: Within five days of receipt of all security
deposits, first month's rent and Tenant's contribution toward
the cost of construction, Landlord shall provide Tenant with a
summary of all interior finishes.
[GRAPHIC OF ADDITIONAL LEASED PREMISES]
<PAGE> 1
EXHIBIT 10.3
LEASE, dated the 21 day of January, 2000 by and between J & B REALTY
ASSOCIATES, L.L.C., a New Jersey Limited Liability Company, ("Landlord") having
an office at 2572 Brunswick Pike, Lawrenceville, New Jersey 08648 and SECURE
COMMERCE SERVICES, INC., a Delaware Corporation, t/a Paytrust ("Tenant"), having
an office at 29 Emmons Drive, Bldg. B, Princeton, New Jersey 08540-5919.
WITNESSETH:
For and in consideration of the covenants herein contained, and upon
the terms and conditions herein set forth, Landlord and Tenant agree as follows:
ARTICLE 1.
BASIC LEASE PROVISIONS AND DEFINITIONS
1.1 BASIC LEASE PROVISIONS
(a) Building Address:
2572 Brunswick Pike
Lawrenceville, New Jersey 08648
(b) Real Property:
Block 2206, Lot 3.01, Township of Lawrence County of
Mercer, State of New Jersey.
(c) Landlord Rent and Notice Address:
J & B Realty Associates, L.L.C.
2572 Brunswick Pike
Lawrenceville, N.J. 08648
Telefax No.: (609) 883-8404
(e) Tenant's Current Address:
29 Emmons Drive, Bldg. B
Princeton, New Jersey 08540-5919
Telefax No.: (609) 720-1819
(f) Tenant's Notice Address (upon occupancy):
1
<PAGE> 2
2572 Brunswick Pike
Lawrenceville, N.J. 08648
Telefax No.: ________
(g) Initial Term:
Sixty (60) months
(h) Renewal Term(s):
Sixty (60) months
(i) Security Deposit:
(1) $86,527.38 - Initial Term; $91,678.00 - Renewal Term
(2) $250,000.00 Standby Letter of Credit
(j) Rentable Area of Premises:
50,266 square feet consisting of 16,500 square feet
office space and 33,766 square feet office space
converted from warehouse space
(k) Location of Premises:
Portion of the first (1st) floor of the building
located at 2572 Brunswick Pike, Lawrence Township,
Mercer County, New Jersey
(l) Permitted Use:
Executive and general offices purposes, except for
uses in connection with a pharmaceutical, printing,
or packaging business.
(m) Building Size:
189,000 Rentable Square Feet
(n) Parking Areas:
Cars: 200 unassigned parking spaces
(o) Guarantors: N/A
(p) Specified Broker(s):
Commercial Property Network
919 Alexander Road
Princeton, New Jersey 08540
(q) Base Rent:
2
<PAGE> 3
(1) Initial Term: $393,495.00 per annum
[$140,250.00 per annum ($8.50 per square
foot net for renovated office space X 16,500
square feet of office space) plus
$253,245.00 per annum ($7.50 per square foot
net for office space converted from
warehouse space X 33,766 square feet of
converted warehouse space)] payable in equal
monthly installments of $32,791.25.
(2) Renewal Term: $424,403.00 per annum
[$154,275.00 per annum ($9.35 per square
foot net for renovated office space X 16,500
square feet of office space) plus
$270,128.00 per annum ($8.00 per square foot
net for office space converted from
warehouse space X 33,766 square feet of
converted warehouse space)] payable in equal
monthly installments of $35,366.92
(r) Additional Rent:
(3) Initial Term: (a) $62,832.50 per annum ($1.25
per square foot for real estate
taxes and common area maintenance
expense) payable in equal monthly
installments of $5,236.04.
(b) $62,832.50 per annum ($1.25
per square foot for utilities)
payable in equal monthly
installments of $5,236.04.
(c) Tenant's Proportionate Share
of increase in Real Estate Taxes
on Property over the preceding
year Fiscal Year. The total
amount of real estate taxes on
the Property for the 1999 Fiscal
Year are $87,040.00.
(4) Renewal Term: (a) $75,399.00 per annum ($1.50
per square foot for real estate
taxes and common area maintenance
expense) payable in equal monthly
installments of $6,283.25.
(b) $75,399.00 per annum ($1.50
per square foot for utilities)
payable in equal monthly
installments of $6,283.25.
3
<PAGE> 4
(c) Tenant's Proportionate Share
of increase in Real Estate Taxes
on Property over the preceding
Fiscal Year.
If, at any time during the term of this Lease, the
HVAC system servicing the Premises becomes separately
metered to Tenant, then the additional rent for
utilities shall be reduced by $0.25 per square foot.
(s) Tenant's Proportionate Share:
26.6%
(t) Lease Interest Rate:
Prime Rate plus two percent (2%) per annum.
(u) Exhibits A through C are attached hereto and made a
part hereof.
(v) Tenant's S.I.C. number:
1.2 DEFINITIONS
In addition to the words and terms elsewhere defined in this Lease, the
following words and terms as used in this Lease shall have the following
meanings:
(a) Additional Rent: All obligations or charges of any type or
nature payable pursuant to this Lease other than Base Rent.
(b) Base Rent: The sum set forth in Section 1.1 (q).
(c) Building: That structure containing 189,000 rentable
square feet located on the Real Property in which the Premises are located.
(d) Business Days: All days except Saturday, Sunday and all
days observed by the State and Federal governments as legal holidays.
(e) Commencement Date: The earlier to occur of (1) the day on
which at least 2,000 square feet of the Premises are ready for occupancy (as
defined in Article 7) or (2) the day Tenant or anyone claiming under or through
Tenant, first occupies any portion of the Premises for business.
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(f) Common Area(s): Any area(s) in the Building provided for
the common use or benefit of tenants generally and/or for the public located in
the Building and those portions of the Real Property which are provided and
maintained for the common use and benefit of Landlord and tenants of the
Building generally and employees and invitees and licensees of Landlord and such
tenants including without limitation all parking areas, driveways, walkways,
landscaped areas, drainage facilities, detention areas, and building signs.
(g) Common Area Maintenance Charges ("C.A.M."); Operating
expenses for the Common Areas, taxes and insurance as more fully set forth in
Article 15.
(h) Expiration Date: Noon of the last day of the last calendar
month of the last Lease Year.
(i) Fiscal Year: The twelve (12) month period commencing
January 1 and ending on the following December 31.
(j) Lease Year: Each twelve (12) month period beginning on the
Commencement Date and each anniversary thereof, provided the Commencement Date
is on the first day of a month. If the Commencement Date falls on a day other
than the first day of a month, then the first Lease Year shall begin on the
first day of the calendar month next following the Commencement Date.
(k) Normal Business Hours: The hours of 8:00 AM to 6:00 PM
during Business Days.
(l) Partial Lease Month: If the Commencement Date falls on a
day other than the first day of a month, the period of time from the
Commencement Date through the end of the calendar month in which the
Commencement Date falls.
(m) Premises: The portion of the floor(s) of the Building
consisting of approximately 50,266 square feet of space on the first (1st)
floor, as delivered to Tenant for occupancy in phases in accordance with the
terms hereof, and all Tenant's Finish Work therein to be provided by Landlord,
and all rights and appurtenances related thereto, as more particularly shown on
Exhibit A, annexed hereto and made a part hereof.
(n) Prime Rate: The Prime Rate published from time to time by
Sovereign Bank (or similar institution if such rate ceases to be published)
which prime rate shall be its published prime rate and not necessarily the
lowest rate charged to its most credit worthy customers.
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(o) Real Property: All that certain real property situated in
the County of Mercer, State of New Jersey on which the Building and all
improvements now or hereafter located thereon are located.
(p) Rent: All Base Rent and Additional Rent together with all
adjustments thereto.
ARTICLE 2.
PREMISES
2.1 Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the Premises in the Building situate on the Real Property together with
the right to use in common with other tenants of the Building, their invitees,
customers and employees the Common Areas.
ARTICLE 3.
TERM OF LEASE
3.1 The term of this Lease shall begin on the Commencement Date and end
on the Expiration Date, or shall end on such earlier time and date upon which
said term may expire or be terminated pursuant to the terms or covenants of this
Lease or pursuant to law.
ARTICLE 4.
USE
4.1 Tenant shall use and occupy the Premises only for the Permitted
Uses and for no other purpose and may not alter the Permitted Uses or square
footage of the Permitted Use(s) without the prior written consent of Landlord
which may be withheld in Landlord's discretion or granted subject to conditions.
4.2 If any governmental license or permit, other than a Certificate of
Occupancy and all of the Landlord approvals, permits, and certificates required
to obtain same, shall be required for the proper and lawful conduct of Tenant's
business in the Premises, or any part thereof, Tenant, at its sole expense,
shall duly procure and thereafter maintain such license or permit and submit the
same to inspection by Landlord. Tenant shall at all times comply with the terms
and conditions of each such license or permit. Landlord represents and warrants
that Tenant's use of the Premises for executive and general offices purposes is
and will be permitted by all Statutes and that electricity, water, heating,
ventilating, air conditioning, and plumbing, at the level generally provided for
similar uses in comparable buildings in the vicinity of the Building, will be
available to Tenant at all times during the Initial Term and Renewal term
subject to Section 16.2. Notwithstanding anything to the contrary set forth in
this Lease, Tenant shall not be required to construct or pay the cost of
complying with any covenants, conditions, restrictions
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and encumbrances affecting the Premises, underwriter's requirements or statutes
requiring construction of improvements in the Premises which are properly
capitalized under generally accepted accounting principles, unless such
compliance is necessitated solely because of Tenant's use of the Premises or
Tenant's repair obligations pursuant to Article 8 hereof.
4.3 Tenant shall not at any time use or occupy, nor do or permit
anything to be done in the Premises, in violation of any certificate of
occupancy (or other similar certificate) governing the use and occupancy of the
Premises.
4.4 Tenant's use of the Premises shall be subject at all times during
the term to reasonable rules and regulations adopted by Landlord governing the
use thereof. Tenant expressly acknowledges receipt of a copy of the existing
Rules and Regulations which have been adopted by Landlord as of this date and
incorporated herein as Exhibit B.
4.5 Landlord reserves the right from time to time to reasonably
suspend, amend or supplement its Rules and Regulations applicable to the
Premises, provided same do not adversely interfere with Tenant's operations or
the intended use hereof, and Tenant agrees to comply with all such Rules and
Regulations upon advance written notice of the same from Landlord.
4.6 In case of any conflict or inconsistency between the provisions of
this Lease and any of the Rules and Regulations as originally promulgated or as
changed, the provisions of this Lease shall control.
4.7 Tenant shall have no right to use any part of the roof of the
Building or the exterior Building walls.
ARTICLE 5.
BASE RENT AND ADDITIONAL RENT
5.1 Except as modified below in Section 5.7, Tenant shall pay to
Landlord Base Rent for each Lease Year during the term, without demand or notice
and without any setoff or deduction, in equal monthly installments on the first
day of each month in advance together with any and all other sums due and owing
Landlord in accordance with this Lease.
5.2 The first monthly installment of Base Rent shall be due and payable
by Tenant on the date hereof. Base Rent for the Partial Lease Month, if any,
shall be prorated and shall also be due and payable by Tenant on the
Commencement Date.
5.3 Tenant shall pay to Landlord as Additional Rent: (1) the amounts
set forth under Section 1.1 (r) (1) (a) for real estate taxes and C.A.M.
charges, (2) the amounts set forth under Section 1.1 (r) (1) (b) for utilities,
(3) an amount equal to any increase in the real estate taxes on
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the Property for each Fiscal Year of the Lease term over the real estate taxes
on the Property for the previous Fiscal Year of the Lease term, multiplied by
Tenant's Proportionate Share, and (4) all such other sums of money as shall
become due from and payable by Tenant to Landlord hereunder (for default in
payment in each instance Landlord shall have the same remedies as for a default
in payment of Base Rent).
5.4 Tenant shall pay to Landlord Rent at the address of Landlord set
forth in this Lease or at such other place as Landlord may hereinafter from time
to time designate to Tenant in accordance with the notice provisions of this
Lease. All payments due from Tenant to Landlord pursuant to this Lease shall be
paid in legal tender of the United States.
5.5 Payments of Rent which are not received within ten (10) days after
receipt of written notice from Landlord that such payment is due will be subject
to a late charge of five percent (5%) of the unpaid amount, or $100.00,
whichever is greater. This amount is in compensation of Landlord's additional
cost of processing late payments. In addition, payments of Rent and any other
monetary obligation due Landlord from Tenant not received by Landlord when due
shall accrue interest at the Lease Interest Rate (but if such rate exceeds the
maximum interest rate permitted by law, such rate shall be reduced to the
highest rate allowed by law) from the date on which it was due until the date
full payment (including accrued interest) is received by Landlord.
5.6 Provided that Tenant fails to perform any non-financial term,
covenant or condition of this Lease and Tenant fails to cure such default within
thirty (30) days after receipt of written notice from Landlord, or fails to
commence cure within thirty (30) day period where such default could not be
reasonably cured within said thirty (30) day period. Landlord, at its election,
shall have the right (but not the obligation) to pay for or perform any act
which requires the expenditure of any sums of money by reason of the failure or
neglect of Tenant to perform any of the provisions of this Lease. In the event
Landlord shall at its election pay such sums or perform such acts requiring the
expenditure of monies, Tenant agrees to reimburse and pay Landlord within ten
(10) days of demand all such sums reasonably incurred by Landlord together with
interest thereon at the Lease Interest Rate and such sums shall be deemed
Additional Rent hereunder and be payable by Tenant as such.
5.7 Notwithstanding the foregoing, Tenant hereby acknowledges that the
Premises shall be deemed to be ready for occupancy in phases and that the
obligations of Tenant to pay Base Rent and Additional Rent shall commence as
such phases are deemed to be ready for occupancy as defined in Article 7 of this
Lease. Accordingly, Tenant shall pay Base Rent and Additional Rent only for such
portion of the Premises that becomes deemed ready for occupancy as defined in
Article 7 of this Lease. Tenant hereby acknowledges that the first 16,500 square
feet of office space shall be renovated office space and therefore the Base Rent
shall be calculated based upon the renovated office rate as set forth in Section
1.1 (q)(1).
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ARTICLE 6.
PREPARATION OF THE PREMISES
6.1 The Premises shall be completed and prepared for Tenant's occupancy
in phases, in the manner, and subject to the terms, conditions and covenants,
set forth in the scope of work attached hereto as Exhibit C. The facilities,
materials and work so to be furnished, installed and performed in the Premises
by Landlord at its expense are hereinafter called "Landlord's Work". Such other
installations, materials and work which may be undertaken for the account of
Tenant by Landlord to finish, equip, decorate and furnish the Premises for
Tenant's occupancy are hereinafter called "Tenant's Work". In connection with
Tenant's Work, Tenant shall pay to Landlord all sums due from Tenant to Landlord
prior to the commencement of the work. Landlord's Work and Tenant's Work shall
collectively be known as "Tenant's Finish Work". After review and completion of
the final construction drawings, Landlord reserves the right to notify Tenant of
any restoration Tenant shall be responsible for upon the termination of this
Lease.
ARTICLE 7.
WHEN PREMISES SHALL BE DEEMED READY FOR OCCUPANCY
7.1 The Premises shall be deemed ready for occupancy on the earliest
date on which all of the following conditions have been met:
(a) A certificate of occupancy (temporary or final) has been issued
by the applicable governmental authorities, allowing Tenant's Permitted Use of
the Premises; and
(b) Landlord's Work, and so much of Tenant's Work as Landlord shall
have undertaken in accordance with Exhibit C or by separate agreement, in the
Premises have been substantially completed. The Premises shall be deemed
substantially completed notwithstanding the fact that minor or insubstantial
details of construction, mechanical adjustment, decoration or special Tenant
Finish Work remain to be performed, the noncompletion of which does not
materially interfere with Tenant's use of the Premises for its intended purpose.
(c) Notwithstanding anything herein to the contrary, (i) Tenant
hereby acknowledges that 2,000 square feet of office space is ready for
occupancy upon the execution hereof and Tenant agrees to accept said office
space in "as is" condition, and (ii) Landlord shall not be obligated to perform
any of Tenant's Finish Work unless and until the Letter of Credit is delivered
to Landlord in accordance with the terms of Article 49 hereof.
7.2 If the occurrence of any of the conditions listed in Section 7.1,
and thereby the making of the Premises ready for occupancy, shall be delayed by
the gross negligence or willful
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misconduct of Tenant or any of its employees, agents, or contractors, the
Premises shall be deemed ready for occupancy on the date when they would have
been ready but for such delay and the Commencement Date shall be accelerated by
the number of days of such delay. In addition, Tenant shall reimburse Landlord
for any and all reasonable losses, costs and damages reasonably suffered by
Landlord caused by such delay.
7.3 If and when Tenant shall take actual possession of the Premises, it
shall be conclusively presumed that the same were in satisfactory condition as
of the date of such taking of possession, unless within thirty (30) days after
such date Tenant shall give Landlord notice specifying the respects in which the
Premises were not in satisfactory condition. Possession of the Premises shall be
conveyed to Tenant in phases in accordance with the dates set forth on Exhibit
C. Nothwithstanding anything to the contrary in this Lease, if the Premises are
not delivered to Tenant within the dates prescribed on Exhibit C, through no
fault of Tenant, then the date Tenant is otherwise obligated to commence payment
of Rent for such phase shall be delayed by one day for each day that actual
possession of such phase of the Premises is delayed beyond the delivery date as
set forth on Exhibit C.
7.4 Tenant shall have the right to present Landlord with a written list
of incomplete or defective Landlord's Work or Tenant's Finish Work (the "Punch
List") provided however that Tenant shall provide such Punch List within ninety
(90) days from when Tenant shall have taken actual possession of the Premises
(or any portion thereof based on inspection with representatives of Tenant and
Landlord present. Landlord shall proceed diligently to complete all such Punch
List items within thirty (30) days after receipt of Tenant's Punch List and such
additional time as may be reasonably required because of the nature of the
defect, unavailability of materials or supplies or other reasons not subject to
Landlord's control.
ARTICLE 8.
MAINTENANCE AND REPAIRS, COVENANT AGAINST
WASTE, AND RIGHT TO INSPECTION
8.1 Tenant shall take good care of the Premises and the fixtures and
appurtenances therein and shall so use, operate and maintain the Premises and
the fixtures and appurtenances so as to keep the same in good order and
condition. Tenant, at its sole cost and expense, shall promptly make all repairs
to the Premises, (except those repairs described in Article 9 which shall be
undertaken by Landlord at Tenant's sole or partial expense) including but not
limited to the exterior entrance doorway, interior passage doors, vestibule,
interior and exterior glass and windows, cabinets, millwork, locks, hardware,
interior walls and finish work, floors and floor coverings, ceilings and
mechanical, HVAC, electrical, and plumbing systems serving only the Premises.
Any repair to the Premises not expressly assumed by Landlord shall be Tenant's
responsibility. Notwithstanding the foregoing, Tenant shall not be required to
make any repairs that are (i) necessitated by the acts or omissions of Landlord
or its agents, employees or
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contractors, (ii) occasioned by casualty pursuant to the terms of Section 18
hereof, (iii) occasioned by condemnation pursuant to the terms of Section 19
hereof, (iv) required as a consequence of any violation of Law by Landlord or
construction defect existing as of the date hereof in Tenant's Finish Work, the
Building or Common Area, or (v) for which Landlord receives reimbursement from
others, provided, however, that Landlord shall not be obligated to make any
claims for any such reimbursement.
8.2 Tenant shall give prompt notice of any repair for which Landlord
may be responsible to undertake, whether at Landlord's or Tenant's expense under
the Lease.
8.3 Tenant shall keep the Premises in a clean and sanitary condition
(including the interior glass window surfaces) and free from rubbish, flammable
or other objectionable materials. Tenant shall procure and keep in force during
the term of this Lease an agreement for janitorial services which shall be
submitted to Landlord for its prior consent, which consent shall not be
unreasonably withheld.
8.4 Tenant shall procure and keep in force during the term of this
Lease, service and preventive maintenance contracts upon the heating,
ventilating and air-conditioning equipment systems ("HVAC") and gas fired unit
heaters servicing the Premises with a bonded contractor expressly approved by
Landlord.
8.5 Tenant shall allow the Landlord to inspect the Premises during
normal business hours upon reasonable notice. Tenant agrees to cooperate with
any service people and make the Premises available to them on a reasonable
basis. Tenant will not do, suffer or commit any act or omission, whether upon
the Premises or otherwise, which might or would result in voiding or impairing
the obligations of any such maintenance contract. Landlord's service people
shall conduct such inspection and any work on the Premises in such a manner as
to minimize the interference with Tenant's use and occupancy of the Premises.
8.6 Tenant shall advise Landlord of any proposed repair affecting the
mechanical, HVAC, electrical, plumbing, sanitary, sprinkler or other basic
service system servicing the Premises and any repair which would effect the
outside appearance of or strength of the Building, or any of its structural
parts. Tenant shall be entitled to the benefit of any warranties which Landlord
holds on the Premises. Tenant shall not undertake any repair work in a manner
which may void any provision of any such warranty.
8.7 All repairs undertaken by Tenant shall be done in a good and
workmanlike manner and in compliance with all applicable laws, ordinances and
codes. All materials and workmanship shall be of good quality and at least equal
in quality and class to the original work or installation. All repairs shall be
done as promptly as is possible and practicable under the then existing
circumstances.
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8.9 The term "repair" or "repairs", as used in this Lease shall be
given its broadest meaning and is intended to include maintenance, replacements,
restorations and/or renewals, when necessary. If Tenant fails to obtain service
contracts as required herein or to make a repair as required herein after
receipt of written notice from Landlord stating such failure, Landlord may, at
its election, cause such repair to be made and the amount so expended together
with interest thereon at the Lease Interest Rate shall be deemed Additional Rent
payable to Landlord from Tenant within ten (10) days of demand by Landlord for
same.
ARTICLE 9.
OBLIGATIONS OF LANDLORD
9.1 Landlord, subject to Landlord's rights contained herein to collect
the costs, in whole or in part, from Tenant, shall keep and maintain (i) the
structural parts of the Premises, including, but not limited to, the foundation,
floor slab, exterior walls, structural framing and load bearing walls and roof
(excluding any mechanical equipment), (ii) all utility and other building
systems serving the Building (other than the Premises), including, without
limitation, the mechanical, HVAC, electrical and plumbing systems, subject to
the provisions of Section 16.2, and (iii)the Common Areas, in good working
order, condition and repair and Landlord shall make, with all due diligence, all
repairs to the same and be responsible for snow removal (including removal of
all accumulations of snow and ice from the roadways and walks and parking lots
leading to, in, and around the Building), general ground maintenance and
landscaping and where any such repairs or maintenance have been necessitated by
the proven misuse or neglect on the part of Tenant or its employees, agents,
licensees or visitors, Landlord shall make the repair and do the requisite work
and the cost thereof together with interest thereon at the Lease Interest Rate
shall be charged to Tenant as Additional Rent payable within ten (10) days after
demand by Landlord.
9.2 Landlord agrees that in the event that it shall perform work on the
Premises, it shall do so in a good and workmanlike manner and in such a manner
so as to cause minimal inconvenience to Tenant. Notwithstanding the foregoing,
Landlord shall have no liability to Tenant by reason of any inconvenience,
annoyance, interruption or injury to Tenant's business arising from Landlord's
making any repairs, or changes which Landlord is required or permitted by this
Lease, or required by law, to make and the same shall not constitute an
eviction, either constructive, actual or partial, provided that Landlord shall
use due diligence with respect thereto and shall perform such work, except in
case of emergency, at times reasonably convenient to Tenant, and to the extent
practical in such manner as will not materially interfere with Tenant's use and
occupancy of the Premises. Nothing contained herein shall require Landlord to do
any work at any time other than Normal Business Hours if the doing of such work
at other than Normal Business Hours would cause Landlord additional expense.
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9.4 Tenant hereby acknowledges that Landlord shall not be providing the
security which Tenant may require with respect to its Permitted Use(s). Landlord
and Tenant hereby expressly acknowledge that Tenant shall be required, with the
prior written consent of Landlord, to install such security systems as Tenant
may require with respect to its Permitted Use(s) and that all costs and expenses
with regard to such security to be provided by Tenant shall be at Tenant's sole
cost and expense. Notwithstanding the foregoing, Landlord shall secure all
entranceways, passageways and doorways located around the perimeter of the
Premises in the interior of the Building which are adjacent to office space
leased to other tenants in the building, provided, however, that such
entranceways, passageways and doorways shall remain accessible for emergency
ingress or egress.
9.5 Tenant acknowledges that as part of the consideration for this
Lease, and in order not to interfere with the rights of other tenants or other
tenants' quiet enjoyment of the common areas of the Building and otherwise
prevent Landlord from performing its services without causing increases to the
cost of such services, Tenant agrees that it shall not permit its employees to
create an unsightly condition from the Premises to the common areas or to the
parking lot, with regard to smoking, including the disposal of cigarettes, in
the courtyard and for outer areas adjacent to the Building and will otherwise
require its employees to act and conduct themselves in the common areas in such
a manner as will not disturb other tenants or the use and enjoyment by other
tenants of the Building.
ARTICLE 10.
PARKING AND USE OF EXTERIOR AREAS
10.1 Tenant and its agents, servants, employees or invitees shall have
the right to use, without additional charge, on a non-exclusive basis in common
with other tenants of the Building the number of parking spaces set forth in
Article 1.1(n). Landlord hereby represents that at least such number of parking
spaces will be available for the use of Tenant and its agents, servants,
employees or invitees. In connection with the use of the access driveways and
parking areas, Tenant shall not use the same in connection with the conduct of
its business so as to interfere with the use by others of the access driveways,
parking areas, other loading areas and with the vehicular traffic in and out of
the Premises.
10.2 Tenant may not utilize any portion of the land outside of the
Premises for outside storage of any kind.
ARTICLE 11.
SIGN(S) AND BUILDING DIRECTORY
11.1 Except as set forth in Section 11.2 below, no sign, awnings,
canopies, identification advertisement or notice (collectively "signs") shall be
affixed to or placed upon any
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part of the Premises by Tenant, except in such location, manner of fixation, and
of such size, design, text and color as shall be approved in advance in writing
by Landlord and further provided:
(a) All such signs shall be consistent with the standards for the
Building as now exist or as may be reasonably developed by Landlord;
(b) Tenant shall obtain all required governmental permits and
approvals;
(c) All costs and expenses associated therewith are borne solely
by Tenant;
(d) Tenant, at its sole cost and expense, shall maintain and
repair said signs in compliance with any and all orders, regulations,
requirements and rules of any applicable public authority;
(e) The erection of signs shall not cause any structural damages
to the Building; and
(f) Upon Landlord's request, Tenant agrees to remove such signs
and restore the Premises to its original condition, wear, tear and weathering
excepted upon the expiration or earlier termination of this Lease.
11.2 Tenant may, at Tenant's cost and expense, place a sign with
Tenant's tradename "Paytrust" on the pylon located on the island at the entrance
way on Route One, provided that such sign is in compliance with all laws,
regulations and ordinances.
11.3 It is expressly understood and agreed that Tenant shall not erect
sign(s) on the roof.
11.4 Landlord shall have the right without notice to Tenant and without
any liability for damage to the Premises, reasonably caused thereby, to remove
any sign displayed or affixed in violation of this Article and Landlord's costs
hereof shall be charged to Tenant as Additional Rent together with interest at
the Lease Interest Rate payable within ten (10) days after demand by Landlord.
ARTICLE 12.
ALTERATIONS
12.1 Tenant shall make no changes, alterations, additions,
installations, or substitutions, improvements in the Permitted Uses and/or in
and to the Premises in excess of
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$5,000.00 (hereinafter collectively "Tenant Changes") without the express prior
written consent of Landlord, which consent shall not be unreasonably withheld,
and then only by contractor's or mechanics approved by Landlord.
12.2 All proposed Tenant changes shall be submitted to Landlord for its
written approval, at least thirty (30) days prior to the date Tenant intends to
commence work, such submission to include all plans and specifications for the
work to be done, proposed scheduling, and the estimated cost of completion of
the Tenant Changes. If Landlord consents to the Tenant Changes, Tenant may
commence and diligently prosecute to completion the same, under the direction of
Landlord.
12.3 Notwithstanding the provisions of Section 12.2, all proposed
Tenant Changes to the Premises which shall affect, alter or increase the usage
of:
(a) The mechanical, electrical, plumbing, sanitary, heating,
ventilating, air-conditioning, sprinkler system or other service systems of the
Building;
(b) The outside appearance of the Building;
(c) The strength of the Building or any of its structural parts;
(d) Any part of the Building outside the Premises; and/or
12.4 Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Tenant Changes
and for final approval thereof upon completion, and shall cause Tenant's Changes
to be performed in compliance therewith and with all applicable laws and
requirements of public authorities, and with all applicable requirements of
insurance bodies, and in good and workmanlike manner, using new materials and
equipment at least equal in quality and class to the original installations in
the Building. Landlord shall cooperate with the Tenant in the application for
any necessary governmental permits or certificates where required. Tenant
Changes shall be performed in such manner as not to unreasonably interfere with
the use by the other tenants of their demises nor interfere with Landlord's
ownership, operation and maintenance of the Building (unless Tenant shall
indemnify Landlord therefor to Landlord's reasonable satisfaction) so as not to
impose any additional expense upon Landlord in the construction, maintenance or
operation of the Building. Throughout the performance of Tenant Changes, Tenant,
at its expense, shall carry or cause to be carried, Worker's Compensation
insurance in statutory limits and general liability insurance for any occurrence
in or about the Building, in which Landlord and its agents shall be named as
parties insured in such limits as Landlord may reasonably prescribe, with
insurers reasonably satisfactory to Landlord and such other insurance as
required in Article 17. Tenant shall furnish Landlord with reasonably
satisfactory evidence that such insurance is in effect at or before the
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commencement of Tenant Changes and, on request, at reasonable intervals
thereafter during the continuance of Tenant Changes. If any of the Tenant
Changes shall involve the removal of any fixtures, equipment or other property
in the Premises which are not Tenant's Property (as defined in Article 13), such
fixtures, equipment or other property shall be promptly replaced, at Tenant's
expense, with new fixtures, equipment or other property (as the case may be) of
like size and utility and at least equal value unless Landlord shall otherwise
expressly consent in writing, and Tenant shall store such removal fixtures and
at Landlord's request reinstall the original equipment or other property in the
Building.
12.5 Tenant, at its expense, and with diligence and dispatch, shall
procure the cancellation or discharge of all notices of violation arising from
or otherwise connected with Tenants Changes which shall be issued by any public
authority having or asserting jurisdiction. However, nothing herein contained
shall prevent Tenant from contesting, in good faith and at its own expense, any
such notice of violation, provided that:
(a) Tenant shall defend, indemnify and hold harmless Landlord
against all liability, loss or damage which Landlord shall suffer by reason of
such non-compliance or contest, including reasonable attorney's fees and other
expenses reasonably incurred by Landlord;
(b) Such non-compliance or contest shall not constitute or result
in any violation of any superior lease or superior mortgage, or if such superior
lease and/or superior mortgage shall permit such non-compliance or contest on
condition of the taking of action or furnishing of security by Landlord, such
action shall be taken and such security shall be furnished at the expense of
Tenant; and
(c) Tenant shall keep Landlord advised as to the status of such
proceedings.
12.6 Tenant agrees that the exercise of its rights pursuant to the
provisions of this Article 12 shall not be done in a manner which would create
any work stoppage, picketing, labor disruption or dispute or violate union
contracts of Landlord or its agents or contractors affecting the Premises.
12.7 Landlord shall have the absolute right to condition its consent of
a Tenant Change upon:
(a) Tenant paying a sum as reasonably estimated by Landlord of its
cost of restoring the Premises or portions thereof to a condition substantially
equivalent to that existing immediately prior to the Tenant Changes; and/or
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(b) Tenant entering into a Restoration Agreement with Landlord
requiring, without limitation, Tenant (i) to restore the Premises or portions
thereof to its condition immediately prior to the Tenant Changes, (ii) to post
with Landlord such security as Landlord may reasonably require to insure
Tenant's compliance therewith, and (iii) to provide insurance in form and
substance reasonably acceptable to Landlord.
12.8 In the event Landlord shall hereafter determine in its sole and
absolute discretion, and without any obligation to do so, to erect additional
structures or to construct improvements on all or any portion of the Building,
Tenant hereby consents thereto and to the performance of work necessary to
effect the same and attendant inconvenience caused thereby, provided Landlord
agrees to use reasonable efforts to minimize such attendant inconvenience to
Tenant's ability to utilize the Premises. The design, materials and performance
of necessary work therefor shall be in the sole unrestricted discretion of
Landlord.
ARTICLE 13.
TENANT'S PROPERTY
13.1 The title to all fixtures, equipment, additions, appurtenances,
improvements, repairs and decorations (including without limitation any
carpeting and hard surface, bonded or adhesively affixed flooring, wall
coverings, heating and air conditioning) attached to or built into the Premises
at the commencement of or during the term of this Lease, whether or not by or at
the expense of Tenant shall vest in Landlord upon the installation thereof and
shall be and remain a part of the Premises, shall be deemed the property of
Landlord and shall not be removed by Tenant, except as expressly provided in
this Lease.
13.2 Notwithstanding the above, all business and trade fixtures,
machinery, equipment and other types of fixtures, whether or not attached to or
built into the Premises by or for the account of Tenant, without expense to
Landlord, which can be removed without permanent structural damage to the
Building, and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (all of which are sometimes
called "Tenant's Property"), shall be and shall remain the property of Tenant
and may be removed by it at any time during the term of this Lease, provided
that if any of Tenant's Property is removed, Tenant shall repair or pay the cost
of repairing any damage to the Premises resulting from such removal. Any
equipment, property or other work for which Landlord shall have granted any
allowance or credit to Tenant shall not be deemed to have been attached to or
built into the Premises by or for the account of Tenant without expense to
Landlord and shall not be considered Tenant's Property. Prior to the Expiration
Date or any earlier termination of this Lease, Tenant at its expense, shall
remove from the Premises all of Tenant's Property and if required by Landlord,
remove all items of work done by or on behalf of Tenant pursuant to Article 12
("Tenant Changes") and Tenant shall repair any damage to the Premises resulting
from such removal and restore the Premises to its condition prior to
installation or construction of such
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Tenant's Property, or Tenant Changes or as otherwise required by Landlord. If
Tenant fails to remove its Property and/or otherwise fails to perform any
restoration required of it under this Lease, then Tenant shall be deemed a
hold-over Tenant as contemplated in Article 35.
13.3 Any other items of Tenant's Property (except money, securities and
other like valuables) which shall remain in the Premises after the Expiration
Date or after a period of ten (10) days following an earlier termination date,
may at the option of the Landlord, be deemed to have been abandoned, and in such
case either may be retained by Landlord as its property or may be disposed of,
without accountability to Tenant therefor or any third party with an interest in
same, in such manner as Landlord may see fit at Tenant's sole cost and expense.
Any damage to the Premises in causing removal of Tenant's Property shall be
Tenant's responsibility.
ARTICLE 14.
CONSTRUCTION LIENS
14.1 Tenant shall not suffer any construction lien or notice of unpaid
balance due to be filed against the Premises by reason of work, labor, services
or materials performed or furnished to Tenant or to anyone holding the Premises,
or any part thereof, through or under Tenant. If any construction lien or notice
of unpaid balance due shall at any time be filed against the Premises, (unless
the labor or materials were actually performed for or furnished to Landlord in
connection with its obligations under this Lease) Tenant shall at Tenant's cost,
within fourteen (14) days after knowledge or notice of the filing of any
construction lien or notice of unpaid balance due, cause the same to be removed
or discharged of record by payment, bond, order of a court of competent
jurisdiction, or otherwise.
14.2 If Tenant shall fail to remove or discharge any construction lien
or notice of unpaid balance due within the prescribed time, then in addition to
any other right or remedy of Landlord, Landlord may, at its option, procure the
removal or discharge of the same by payment or bond or otherwise. Any amount
paid by Landlord for such purpose, together with all legal and other expenses of
Landlord in procuring the removal or discharge of such lien or notice of unpaid
balance due and together with interest thereon at the Lease Interest Rate shall
be and become due and payable by Tenant to Landlord as additional rent, and in
the event of Tenant's failure to pay therefor within fifteen (15) days after
demand, the same shall be added to and be due and payable with the next month's
Rent.
14.3 Nothing contained in this Lease shall be construed as a consent on
the part of Landlord to subject Landlord's estate in the Premises to any lien or
liability arising out of Tenant's use or occupancy of the Premises.
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ARTICLE 15.
COMMON AREA MAINTENANCE CHARGES
15.1 Commencing on the Commencement Date and throughout the term of the
Lease, Tenant agrees to pay as Additional Rent the Common Area Maintenance
Charges ("C.A.M.") as set forth in Section 1.1(r)(1).
ARTICLE 16.
UTILITY SERVICES AND CHARGES
16.1 Commencing on the Commencement Date and throughout the term of the
Lease, Landlord shall furnish to the Premises electric, gas and water service.
As consideration for such service, Tenant agrees to pay as Additional Rent the
Utilities Charge as set forth in Section 1.1(r)(2).
16.1 Notwithstanding the foregoing, in the event that the HVAC unit
shall be separately-metered to the Premises, the Utilities Charges shall be
decreased as set forth in Section 1.1(r)(2) and thereupon Tenant shall pay
directly to the utility company all billings and charges of the utility company
for such HVAC unit during the remainder of the term and also thereafter until
Tenant vacates the Premises and terminates such utility services and shall pay
all charges of the utility companies incident to termination.
16.2 Landlord shall not be liable in any way to Tenant for any failure
or defect in the supply or character of any utility furnished to the Premises by
reason of any requirement, act or omission of the public utility serving the
Building or for any other reason except for the gross negligence of Landlord or
Landlord's agents.
16.3 Tenant's use of electric energy in the Premises shall not at any
time exceed the "capacity", as defined herein, of any of the electrical
conductors and equipment in or otherwise serving the Premises. In order to
insure that such "capacity" is not exceeded and to avert possible adverse effect
upon the Building electric service, Tenant shall not, without Landlord's prior
written consent in each instance (which shall not be unreasonably withheld),
connect any additional fixtures, appliances or equipment to the Building
electric distribution system or make any alteration or addition to the electric
system of the Premises existing on the Commencement Date. Should Landlord grant
such consent, all additional risers or other equipment required therefor shall
be provided by Landlord and the cost thereof shall be paid by Tenant as
Additional Rent within ten (10) days of Landlord's demand. As used in this
Section 16.3, the term "capacity" shall be defined as (i) 10,000 kwh per month
during any of the "periods", as defined herein, and (ii) 100 kw demand load at
any time during any of the "periods". As used in this Section 16.3, the term
"periods" shall be the peak, off-peak and intermediate periods as defined by the
utility providing the electrical service to the Premises.
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16.4 Tenant, upon written notice to Landlord, may, at its sole cost and
expense, connect to the Premises, up to the five (5) T-1 telephone lines serving
the Building as of the date hereof. Tenant hereby acknowledges that there are
six (6) T-1 telephone lines serving the Building as of the date hereof.
ARTICLE 17.
INSURANCE
17.1 During the term of this Lease, Tenant shall, at its own cost and
expense, provide and keep in force the following insurance:
(a) Comprehensive General Liability Insurance relating to the
Premises and its appurtenances on an occurrence basis, including but not limited
to contractual liability in connection with Tenant's indemnity of Landlord
herein with minimum limits of liability in an amount of not less than Two
Million ($2,000,000.00) Dollars combined single limit for bodily injury or death
and/or property damage including water damage and sprinkler leakage;
(b) "All Risk" property insurance, including coverage for flood
and earthquake and loss of rents, upon Tenant's Property, including decorations,
trade fixtures, furnishings, equipment and all contents of the Premises in an
amount equal to the full replacement value;
(c) During the course of construction of any Tenant Change and
until completion thereof, Builder's Risk insurance on an "All Risk" basis on a
completed value form for full replacement value covering the interest of
Landlord and Tenant (and their respective contractors and subcontractors), and
Landlord's mortgages in all work incorporated in the Building and all materials
and equipment in or about the Premises;
(d) Workers' Compensation Insurance, as required by law;
(e) Such other insurance in such amounts as Landlord or Landlord's
mortgagees may reasonably require from time to time; and Tenant shall have the
right to insure and maintain the insurance coverages set forth in this Section
under blanket insurance policies covering the Premises so long as such blanket
policies comply as to the terms and amounts with the insurance provisions set
forth in this Lease.
17.2 All policies of insurance procured by Tenant shall be issued by
insurance companies reasonably acceptable to Landlord, licensed to do business
in the State of New Jersey and be in form and substance reasonably acceptable to
Landlord. All policies of insurance procured by Tenant shall be written as
primary policies as opposed to a policy which would
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contribute to or provide coverage only in excess of a coverage which Landlord
may carry. Tenant shall not carry separate or additional insurance, concurrent
in form or contributing, in the event of any loss or damage with any insurance
required to be obtained by Tenant under this Lease.
17.3 All insurance required to be procured by Tenant pursuant to (a)
and (c) of Section 17.1 hereof shall name Landlord and any other parties in
interest from time to time designated by Landlord to Tenant as additional
insured and shall contain a cross liability endorsement to the effect that
Landlord and Landlord's managing agent and any such other party in interest
although named as an additional insured, shall nevertheless be entitled to
recover under said policies for any loss or damage occasioned to them, their
servants, agents, employees, contractors, directors, shareholders, partners and
principals (disclosed and undisclosed) by reason of the negligence or tortious
acts of Tenant. Additionally, all policies of insurance procured by Tenant shall
contain endorsements providing as follows: (1) that such policies may not be
materially changed, amended, reduced, cancelled or allowed to lapse with respect
to Landlord or other party interest except after thirty (30) days' prior written
notice from the insurance company to each in a manner consistent with the notice
provisions of this Lease, and (2) that Tenant shall be solely responsible for
the payment of all premiums under such policies and that Landlord shall have no
obligation for the payment thereof notwithstanding that Landlord is or may be
named as an additional insured.
17.4 Each party shall include in each of its insurance policies
covering loss, damage or destruction by fire or other insured casualty loss a
waiver of the insurer's right of subrogation against the other party, or if such
waiver should be unobtainable or unenforceable, (1) an express agreement by each
party's insurance company that such policy shall not be invalidated if the
insured waives or has waived before the casualty or liability the right of
recovery against any party responsible for a casualty or liability covered by
the policy, or (2) any other form of permission by each party's insurance
company for the failure of the other party. If such waiver, agreement or
permission shall not be, or shall cease to be, obtainable, the insured party
shall so notify the other party promptly after learning thereof. Each party
hereby waives their right to recover damages, loss or injury no matter how
caused, for any such damage, loss or injury required to be insured (whether or
not such coverage is in effect) by each party hereunder, it being understood
that the parties will look solely to their insurer for reimbursement.
17.5 A duly executed certificate of insurance evidencing any of the
policies in which Landlord is an additional insured and all other policies,
together with reasonably satisfactory evidence of payment of the premiums
therefor, shall be delivered to Landlord on or before the Lease Commencement
Date. Any endorsements to any such policies shall also be so deposited upon
issuance thereof and each renewal or replacement of a policy shall be so
deposited not less than thirty (30) days prior to the expiration of such policy.
The minimum limits of any insurance
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coverage required herein to be carried by Tenant shall not limit Tenant's
liability under this Lease.
17.6 Landlord may from time to time (but not more frequently than once
in any twelve (12) month period) review and require reasonable modifications to
the insurance limits contained in this Article 17.
17.7 If Tenant shall at any time neglect to maintain the insurance
coverage as herein required, Landlord may, at its election, after giving written
notice to Tenant and after opportunity to cure within thirty (30) days, procure
or renew such insurance and the amount so paid therefor by Landlord, including
reasonable expenses and interest thereon at the Lease Interest Rate shall be
deemed Additional Rent payable by Tenant to Landlord within ten (10) days after
demand by Landlord.
17.8 Tenant shall not violate or permit the violation of any condition
imposed by any fire insurance, other casualty insurance or liability insurance
policy carried by Landlord or Tenant with respect to the Premises, or any
portion of the Building and shall not do or permit anything to be done, or keep
or permit anything to be kept, in the Premises which may (1) increase the fire,
other casualty or liability insurance rates on the Building above the rate which
would otherwise then be in effect (unless Tenant pays the resulting increased
amount of premium as provided for below), or (ii) result in insurance companies
of good standing refusing to insure the Building in amounts reasonably
satisfactory to Landlord. If by reason of any act or omission of Tenant, there
is an increase in the fire, other casualty or liability insurance rates on the
Building above the rate which would otherwise be in effect, Tenant shall
reimburse Landlord on demand for that part of the premium or premiums for
insurance coverage paid by Landlord because of such failure to comply on the
part of Tenant together with interest at the Lease Interest Rate in addition to
any other remedies which Landlord may have pursuant to this Lease and such
reimbursement shall be deemed Additional Rent and shall be in addition to
Tenant's C.A.M. Charge. In determining whether any increase in such rates is the
result of anyone claiming by, through or under Tenant, a schedule or rule book
issued by the Insurance Service Organization or any insurance rating
organization having jurisdiction selected by Landlord, or the rating procedures
or rules of Landlord's insurance companies shall be conclusive evidence of the
several items and charges which make up the insurance rates and premiums.
ARTICLE 18.
FIRE AND CASUALTY
18.1 If the Building or the Premises are damaged or destroyed by fire
or any other casualty to such extent that the cost of restoration, as reasonably
estimated by Landlord, will equal or exceed twenty-five percent (25%) of the
replacement value of the Building (exclusive of foundations) or the Premises (as
applicable) just prior to the occurrence of the damage, or if the
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damage or destruction occurs during the last eighteen (18) months of the term of
the Lease, then Landlord may, no later than the sixty (60) day following the
damage, give Tenant a notice of election to terminate this Lease, or, if the
cost of restoration will equal or exceed fifty percent (50%) of such replacement
value or if the Premises shall not be reasonably usable for the purpose for
which it is leased hereunder, then Tenant may, no later than the fifteenth
(15th) day following the damage, give Landlord a notice of election to terminate
this Lease. In either said event of election, this Lease shall be deemed to
terminate on the thirtieth (30th) day after the giving of said notice, and
Tenant shall surrender possession of the Premises on the termination date and
the Rent shall be apportioned as of the date of said damage or destruction, and
any Rent paid for any period beyond said date shall be repaid to Tenant. If the
cost of restoration as reasonably estimated by Landlord shall amount to less
than twenty-five percent (25%) of said replacement value of the Building or
Premises (as applicable), or if, despite the cost, Landlord does not elect to
terminate this Lease, Landlord shall, subject to the provisions of Section 18.3,
restore the Building and the Premises with reasonable promptness not to exceed
one hundred eighty (180) days from the date of casualty, subject to force
majeure, availability of materials or any other cause beyond Landlord's
reasonable control. Notwithstanding the foregoing, Tenant shall have a right to
terminate this Lease, if the damage or destruction occurred during the last
eighteen (18) months immediately prior to the expiration of the term and the
Premises are not reasonably usable for the purposes for which it is leased
hereunder. If the Premises are not ready for occupancy at the expiration of such
one hundred eighty (180) day period as it may be extended, and prior to
substantial completion by Landlord of its work, Tenant shall have the right to
terminate this Lease at any time thereafter by serving Landlord with thirty (30)
days written notice thereof. Landlord may vitiate the effect of such notice by
substantially completing its work within such fifteen (15) day period. In the
event the term of this Lease shall be terminated as aforesaid, Landlord shall be
entitled to receive and retain all proceeds of insurance which are payable in
connection with such damage.
18.2 Tenant shall continue to be responsible to pay rent after a
partial destruction of the Premises. The Rent shall, however, abate equitably
and proportionately during such period of time as the Premises shall be
untenantable to the extent of such untenantability during the period from the
date of such damage or destruction until the earlier to occur of (1) the date
the Premises are deemed ready for occupancy, or (ii) Tenant occupies the
Premises to conduct its Permitted Use, provided, however, that (a) if the damage
shall be attributable to the fault or negligence of Tenant, its agents or
employees such abatement shall not exceed the amount Landlord receives from
"rent insurance" policy payments or continue for a term longer than the period
of time during which Landlord receives such "rent insurance" policy payments
attributable to the Premises and (b) if Landlord or the holder of any superior
mortgage, if any, shall be unable to collect all of the insurance proceeds
(including rent insurance proceeds) by reason of some action or inaction on the
part of Tenant or any of its employees, agents or contractors in connection with
the processing of any claim, then, without prejudice to any other remedies which
may be
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available against Tenant, there shall be no abatement of Tenant's rents. The
words "restoration" and "restore" as used in this Paragraph shall include
repairs.
18.3 Landlord's duty to restore shall at all times be subject to the
approval and consent of the then holder of any mortgage affecting the Premises
and the willingness of such mortgagee to make the proceeds of the casualty
insurance policies available to Landlord for such purposes and subject to the
terms and conditions of any mortgage affecting the Premises. If the holder of a
mortgage affecting the Premises is not willing to make the casualty insurance
proceeds available to them, Landlord shall notify Tenant of such fact
immediately. Upon receipt of such notice Tenant may cancel this Lease effective
as of the date of the casualty unless Landlord elects to restore without the
benefits of such proceeds.
18.4 Landlord will not carry insurance of any kind on Tenant's
Property, and shall not be obligated to repair any damage thereto.
18.5 Notwithstanding anything to the contrary herein, if the Premises
and/or access thereto become partially or totally damaged or destroyed by any
casualty not insured against, then Landlord shall have the right to terminate
this Lease upon giving the Tenant thirty (30) days notice and upon the
expiration of said thirty (30) day notice period this Lease shall terminate as
if such termination were the Expiration Date.
18.6 No damages, compensation or claim shall be payable by Landlord for
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Premises pursuant to this Article.
ARTICLE 19.
CONDEMNATION
19.1 In the event that any public authority or agency holding the power
of eminent domain under applicable law shall at any time during the term of this
Lease condemn or acquire title in lieu of condemnation of substantially all of
the Premises, this Lease and the term hereby created shall terminate and expire
as of the date upon which title shall vest in such authority, and Tenant shall
pay rent only to the time of such vesting of title. In such event, no part of
the Landlord's condemnation award shall belong to or be claimed by the Tenant.
Without diminishing Landlord's award, the Tenant shall have the right to make a
claim against the condemning authority for such independent claim which it may
have and as may be allowed by law, for costs and damages due to relocating,
moving and other similar costs and charges directly incurred by the Tenant and
resulting from such condemnation.
19.2 If there shall be only a partial taking or condemnation as
aforesaid which shall not substantially prevent Tenant's use of the Premises for
purposes of its business, this Lease shall
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thereafter continue as to the untaken part and Tenant shall be entitled to a
reduction in the Base Rent in such proportion and in such manner as shall be
fair and equitable. If the parties hereto cannot agree thereto the dispute shall
be settled by arbitration as set forth in this Lease. No part of the Landlord's
condemnation award shall belong to or be claimed by the Tenant. However, subject
to the rights of any holder of a mortgage affecting the Premises, the Landlord
shall, to the extent permitted by applicable law and as the same may be
practicable on the site of the Premises, at the Landlord's sole cost and
expense, promptly make such repairs and alterations in order to restore the
Premises and/or other improvements to usable condition to the extent of the
condemnation award received.
19.3 Should any part of the Premises be taken to effect compliance with
any law or requirement of public authority then, (1) if such compliance is the
obligation of Tenant under this Lease, Tenant shall not be entitled to any
diminution or abatement of rent or other compensation from Landlord therefor,
but (ii) if such compliance is the obligation of Landlord under this Lease, the
Rent hereunder shall be adjusted in the same manner as is provided in Section
19.2 according to the reduction in rentable area of the Premises resulting from
such taking.
ARTICLE 20.
ENVIRONMENTAL COMPLIANCE AND COVENANTS
20.1 Tenant shall, at Tenant's sole expense, comply with the New Jersey
Industrial Site Recovery Act and the regulations promulgated thereunder
(referred to as "ISRA") as same relate to Tenant's occupancy of the Premises, as
well as any other environmental law, rule, or regulation relating to Tenant's
use and occupancy of the Premises. Tenant shall, at Tenant's own expense, make
all submissions to, provide all information to, and comply with all the
requirements of, the Bureau of Industrial Site Evaluation (the "Bureau") of the
New Jersey Department of Environmental Protection and Energy ("NJDEP"). Should
the Bureau or any other division of NJDEP, pursuant to any other environmental
law, rule, or regulation, determine that a cleanup plan be prepared and that a
cleanup be undertaken because of any spills or discharge of hazardous substances
or wastes at the Premises which occur during the term of this Lease and were
caused by Tenant or its agents or contractors, then Tenant shall, at Tenant's
own expenses prepare and submit the required plans and financial assurances, and
carry out the approved plans. In the event that Landlord shall have to comply
with ISRA by reason of Landlord's actions, Tenant shall promptly provide all
relevant, non-privileged information requested by Landlord for preparation of
non-applicability affidavits or a Negative Declaration and shall promptly sign
such affidavits when requested by Landlord. Tenant shall indemnify, defend, and
save harmless Landlord from all fines, suits, procedures, claims, and actions of
any kind arising out of or in any way connected with any spills or discharges of
hazardous substances or wastes at the Premises which occur during the term of
this Lease and were caused by Tenant or its agents or contractors, and from all
fines, suits, procedures, claims, and actions of any kind arising out of
Tenant's failure to provide all relevant, non-privileged information as
requested by
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Landlord, and, make all submissions and take all actions required by the Bureau
or any other division of NJDEP. Tenant's obligations and liabilities under this
Paragraph shall continue so long as Landlord remains responsible for any spills
or discharges of hazardous substances or wastes at the Premises, provided that
such spills or discharges which occurred during the term of this Lease were
caused by Tenant or its agents, employees, invitees, or contractors. Tenant's
failure to abide by the terms of this paragraph shall be restrainable by
injunction. Tenant shall have no responsibility to obtain a "Negative
Declaration" or "Letter of Non-Applicability" from the NJDEP if the sole reason
for obtaining same is in connection with a sale or other disposition of the real
estate by Landlord, but Tenant agrees to reasonably cooperate with Landlord in
Landlord's effort to obtain same and shall perform at Tenant's expense any clean
up required by reason of Tenant's use and occupancy of the Premises.
20.2 Tenant covenants not to discharge any "Hazardous Substances" or
"Wastes" (as said terms are defined in ISRA and/or the Spill Compensation and
Control Act, N.J.S.A. 58:10-23.11, et seq. or any other Environmental Law) upon
the Premises or any adjacent lands. In the event of any such discharge, Tenant
shall immediately notify Landlord, and shall, at Tenant's sole cost and expense,
forthwith remove and clean up all such hazardous substances and wastes and take
any and all actions required by law.
20.3 Tenant, at its sole cost and expense, agrees to conduct any and
all environmental testing and sampling and submit all necessary applications
required by ISRA not more than two months before the earlier of (1) the
anticipated Expiration Date of this Lease, or (ii) the date on which Tenant
intends to "close, terminate or transfer operations" at the Premises (as those
terms are defined in ISRA). Tenant shall notify Landlord at least (7) days in
advance of any such testing or sampling and permit Landlord or its
representatives to observe all testing and sampling activities. Tenant shall
provide to the Landlord, within seven (7) days after Landlord's request the
following:
(a) The name, address and telephone number and primary contact
name of Tenant's environmental testing or sampling consultants or contractors;
and
(b) Written authorization to such consultant or contractor to
communicate freely with Landlord or its environmental consultants and to provide
to Landlord or its environmental consultants, copies of all non-privileged
written materials relating to the Premises.
20.4 Tenant agrees, at its sole cost and expense, to obtain all
necessary governmental approvals and to remove and cleanup any Hazardous
Substances or Wastes which were spilled or discharged during the term of the
Lease and were caused by Tenant or its agents, employees, invitees, or
contractors, prior to cessation of operations or termination of this Lease.
Tenant's obligations under this Section 20 shall survive the expiration or
earlier termination of this Lease and, in the event of such termination or
expiration of this Lease, Tenant's rights under the Lease
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shall be limited to a right of access for the sole and limited purpose of
completing the required cleanup.
20.5 Landlord shall have the right to inspect the Premises and
surrounding lands and waters and to conduct environmental surveys and testing of
any nature whatsoever (collectively "Inspection") at any time. Landlord's right
to conduct Inspection shall include without limitation a right of access to all
portions of the Premises for testing and a right to inspection of Tenant's raw
materials, processes, work in progress, furnished products, machinery, waste
disposal procedures, waste disposal equipment and waste materials, and the right
to remove samples of any of the foregoing for analysis. The cost of such
Inspection shall be the responsibility of Landlord unless any one or more of the
following conditions are applicable, in which event the entire cost and expense
of the Inspection shall be borne by the Tenant:
(a) The Inspection occurs within six (6) months prior to or within
a reasonable time after (1) the Expiration Date of the Lease or the closure,
termination or transfer of operations at the Premises and Tenant has failed to
provide such testing as required in Article 20.3 above, (ii) the assignment or
sublease of all or a portion of the Premises by Tenant, or (iii) the termination
of any such assignment or sublease; or
(b) The Inspection is required by any governmental authority
having jurisdiction ("Environmental Regulator"); or
(c) The Inspection reveals any unlawful environmental
contamination of or discharge on the Premises; or
(d) The Inspection is the result of or in response to any
discharge, spill or contamination of the Premises, or any cleanup of any of the
foregoing. As used herein, the costs and expenses of Inspection are all costs
directly or indirectly related to such Inspection, or as may be required by any
Environmental Regulator in the formulation of a cleanup plan or otherwise.
20.6 Landlord shall have the right of injunctive relief and any other
equitable remedies available to enforce any and all of Tenant's obligations
under this Article.
20.7 Landlord shall have the right to remedy any environmental
contamination revealed by an Inspection or cleanup required by any Environmental
Regulator, at Tenant's sole cost and expense, and any amounts paid or incurred
by Landlord shall be due from Tenant together with interest at the Lease
Interest Rate within ten (10) days upon demand and be deemed Additional Rent.
20.8 All rights and remedies of the Landlord under this Section are
cumulative and in addition to any other rights or remedies provided to Landlord
elsewhere in this Lease or pursuant
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to applicable law. In the event of any conflict between the provisions of this
Article and the other provisions of this Lease, the provision which gives the
greater protection to the Landlord shall control.
20.10 Tenant shall indemnify, defend and save harmless Landlord from
all liabilities, fines, suits, procedures, claims, costs and expenses including
reasonable attorneys fees and actions of any kind arising out of or in any way
connected with any violation of any Environmental Law, including without
limitation any spills or discharges of Hazardous Substances or Wastes at the
Premises which occurred during the term of this Lease and were caused by Tenant
or its agents or contractors.
20.11 If any Environmental Law or regulation is modified or amended,
then Tenant shall have the responsibility of complying with such statute and/or
regulation and Tenant shall assume the cost of said compliance and agrees to
indemnify, defend and save Landlord harmless from and against any and all
liability, loss, costs and expenses, including reasonable attorney's fees
arising out of these statutes or regulatory obligations, to the extent that such
compliance is necessitated by Tenant's acts or omissions.
20.12 Landlord represents and warrants that the Premises are in
compliance with all applicable federal, state and local environmental laws,
regulations and ordinances. Landlord further represents and warrants that no
leak, spill, release, discharge, emission or disposal of any Hazardous
Substances or Wastes has occurred on the Premises to date which has not been
remediated and that the soil, groundwater and soil vapor on or under the
Premises is free of any Hazardous Substances or Wastes as of the date that the
term of this Lease commences.
20.13 For purposes of this section the term "Environmental Laws" shall
mean and include any and all laws, statutes, ordinances, rules, regulations,
orders, or determinations of any governmental authority pertaining to health or
to the environment, and relating to the Premises, including without limitation,
the Clean Air Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, ("SARA"), and as may be further amended, all
together herein called ("CERCLA"), the Federal Water Pollution Control Act
Amendments, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, ("RCRA"), the
Hazardous Materials Transportation Act of 1975, as amended, the Safe Drinking
Water Act, as amended, and the Toxic Substances Control Act, as amended and the
Environmental Cleanup Responsibility Act, N.J.S.A. 13:1k-6 et. seq. and the
Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et. seq.
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ARTICLE 21.
COMPLIANCE WITH LAWS, ETC.
21.1 Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority and
Tenant shall, at its own cost and expense, promptly comply, or cause compliance
with, all laws and ordinances and the orders, rules, regulations and
requirements of all federal, state, county and municipal governments, and
appropriate departments, commissions, boards and offices thereof, and the
requirements of any insurer of the Premises or the Board of Fire Underwriters or
any other body (all of the above being hereinafter collectively referred to as
"Statutes"), now or hereafter exercising similar functions foreseen or
unforeseen, ordinary as well as extraordinary, and whether or not the same shall
presently be within the contemplation of the parties hereto or shall involve any
change of governmental policy or require repairs, alterations, equipment or
additions or any work of any kind and irrespective of the cost thereof, which
may be applicable to the manner of use of the Premises by the Tenant at the
commencement of or during the term of this Lease.
21.2 Landlord warrants and represents that (1) the Building and other
improvements (exclusive of any Tenant Finish Work not constructed by Landlord)
were or shall be, as appropriate, built substantially in accordance with the
plans and specifications, as approved by and on file with the Municipality in
which the Premises are located, (ii) that said plans and specifications comply
with all applicable statutes with respect to the construction of the Building,
including, but not limited to the requirements of Title III of the Americans
With Disabilities Act of 1990, 42 U.S.C. Section 12101 et seq., and (iii) that
all applicable permits necessary for the construction thereof have been obtained
and complied with.
21.3 Except with respect to Landlord's obligations under Article 7,
Tenant shall, at its own cost and expense, obtain and keep in full force and
effect any and all necessary permits, licenses, certificates or other
authorizations required in connection with the lawful and proper use, occupancy,
operation and management of the Premises and Tenant shall indemnify, defend and
hold harmless Landlord from and against all claims, liability, damage, loss,
costs and expenses (including reasonable attorneys' fees) in connection
therewith.
21.4 No abatement, diminution or reduction of the Rent or other charges
required to be paid by Tenant pursuant to the terms of this Lease, shall be
claimed by, or allowed to, Tenant for any inconvenience, interruption, cessation
or loss of business or otherwise caused directly or indirectly by any present or
future laws, rules, requirements, orders, directions, ordinances or regulations
of the United States of America, or of the State, county or city government, or
of any other municipal, governmental or lawful authority whatsoever, or by
priorities, rationing or curtailment of labor or materials, or by war, civil
commotion, strikes or riots, or any matter or
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thing resulting therefrom, nor shall this Lease be affected by any such causes
unless within Landlord's control.
ARTICLE 22.
INDEMNIFICATION
22.1 Tenant shall defend, indemnify and save harmless Landlord and its
agents and employees against and from all liabilities, obligations, damages,
penalties, claims, costs, charges and expenses, including reasonable architects'
and attorneys' fees, which may be imposed upon or incurred by or asserted
against Landlord and/or its agents by reason of any of the following occurring
during the term of this Lease, or during any period of time prior to the
Commencement Date or after the Expiration Date that Tenant may have been given
access to or possession of all or any part of the Premises:
(a) Any work or thing done in or about the Premises or any part
thereof by or at the instance of Tenant, its agents, contractors,
subcontractors, servants, employees, licensees or invitees;
(b) Any negligence, or otherwise wrongful act or omission on the
part of Tenant or any of its agents, contractors, subcontractors, servants,
employees, subtenants, licensees or invitees;
(c) Any accident, injury or damage to any person or property
occurring in, on or about the Premises or any part thereof;
(d) Any failure on the part of Tenant to perform or comply with
any of the covenants, agreements, terms, provisions, conditions or limitations
contained in this Lease on its part to be performed or complied with.
In case any action or proceeding is brought against Landlord by reason
of any such claim, Tenant upon written notice from Landlord shall at Tenant's
expense resist or defend such action or proceeding by competent counsel.
Tenant's covenants and obligations under this Article shall survive the
expiration or sooner termination of the term of this Lease. Notwithstanding
anything herein contained to the contrary, Tenant shall not be obligated or
required hereunder, to hold harmless or indemnify Landlord from or against any
liability, loss, cost, expense or claim arising solely from any act, omission or
negligence of Landlord or its agents, servants, employees or contractors. The
provisions hereof are not intended to abrogate the provisions regarding waiver
of subrogation by the parties to the Lease.
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ARTICLE 23.
SURRENDER OF PREMISES
23.1 Tenant shall, upon the expiration or sooner termination of the
term of this Lease or upon any re-entry by Landlord upon the Premises, surrender
to Landlord the Premises, together with all alterations (unless Tenant shall be
required to remove same pursuant to the initial agreement for the Tenant Finish
Work or by reason of any consent given or required to be given by Landlord in
connection with a Tenant Change) and replacements thereof then on the Premises
or required to be on the Premises, broom clean and in good order, condition and
repair, except for reasonable wear and tear. If Tenant fails to perform any
restoration required of it under this Lease on or before the last day of the
term of this Lease or upon any earlier termination, Tenant shall be deemed a
hold-over Tenant under Article 35 of this Lease until such time as Tenant has
completed such restoration.
ARTICLE 24.
ASSIGNMENTS, SUBLETTING AND ENCUMBRANCES
24.1 Tenant shall not sell, assign, sublet, mortgage, pledge, or, in
any manner, transfer or encumber this Lease or any estate or interest hereunder
(hereinafter designated as Assignment), or sublet the Premises or any part
thereof without the previous written consent of the Landlord which consent shall
not be unreasonably withheld, conditioned or delayed. With respect to
assignments and sublets, Landlord's consent shall not be unreasonably withheld
provided that (1) Tenant provides Landlord with such information about the
proposed assignee/subtenant as Landlord reasonably requests, (ii) Tenant is not
in default hereunder, (iii) Tenant shall provide Landlord with reasonable access
to the Premises for inspection and testing thereof, (iv) the use by the proposed
assignee or subtenant does not, in Landlord's sole discretion, adversely affect
the Premises by virtue of environmentally related factors or lessen the present
or future value of the Premises, and (v) the use by the proposed assignee or
subtenant does not increase risk or endanger the Building or the occupants
thereof. In any of the events aforesaid, Tenant, nevertheless, shall remain
primarily liable for the payment of the Base Rent and all Additional Rents, and
the performance of Tenant's other covenants and obligations hereunder. No
consent to any assignment of this Lease or subletting of any or all of the
Premises shall be deemed or be construed as a consent by Landlord to any further
or additional Assignment or subletting. Notwithstanding anything herein above
contained to the contrary, Landlord may refuse to permit Tenant to assign this
Lease or sublet to a third party any portion of the Premises if Landlord agrees
to sublet back the Premises from Tenant under the same terms and conditions as
set forth in this Lease and for the remaining term of this Lease. If Landlord
agrees to sublet back the Premises from Tenant, Landlord shall notify Tenant
within fifteen (15) business days of Tenant's request for consent. Further,
Landlord may condition its consent to any assignment or sublet upon Tenant
paying to Landlord the difference between the Rent reserved in this Lease
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and the rent collected by Tenant as assignor or sublessor after Tenant deducts
the costs incurred in connection with the assignment or sublet.
Notwithstanding the foregoing, Tenant may assign this Lease or sublet
all or a portion of the Premises without Landlord's consent to a parent,
subsidiary, or an entity under common control with Tenant, or to any entity in
connection with the transfer of a majority interest in Tenant's stock or the
sale of substantially all of Tenant's assets, provided that all conditions to
such assignment or sublet as set forth in this Section 24.1, except the
requirement of consent of the Landlord, are satisfied.
24.2 In the event of an assignment of this Lease, the assignee shall
assume, by written recordable instrument satisfactory to Landlord, the due
performance of all of Tenant's obligations under this Lease. No assignment shall
be valid or effective in the absence of such assumption. A true copy of such
assignment and the original assumption agreement shall be delivered to Landlord
within ten (10) days of the effective date thereof. Notwithstanding such
assignment, Tenant shall remain fully liable for the performance of all the
terms and conditions of this Lease.
24.3 With respect to each and every sublease or subletting under the
provisions of this Lease, it is further agreed:
(a) No subletting shall be for a term ending later than one day
prior to the Expiration Date of this Lease;
(b) No sublease shall be valid, and no subtenant shall take
possession of the Premises or any part thereof, until an executed counterpart of
such sublease has been delivered to Landlord;
(c) Each sublease shall provide that it is subject and subordinate
to this Lease and to the matters to which this Lease is or shall be subordinate,
and that in the event of termination, re-entry or dispossess by Landlord under
this Lease, Landlord may, at its option, take over all of the right, title and
interest of Tenant, as sublessor, under such sublease, and such subtenant shall,
at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that Landlord shall not (1) be liable for
any previous act or omission of Tenant under such sublease, (ii) be subject to
any offset, not expressly provided in such sublease, which theretofore accrued
to such subtenant against Tenant, or (iii) be bound by any previous modification
of such sublease or by any previous prepayment of more than one month's rent.
24.4 Tenant in connection with any request to assign or sublet the
Premises shall pay Landlord Two Hundred Fifty ($250.00) Dollars as a processing
fee to reimburse Landlord for its
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legal and other costs of review and such amount shall be deemed Additional Rent
herein due and payable at the time Tenant requests Landlord's consent.
ARTICLE 25.
CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS
25.1 This Lease and the term and estate hereby granted are subject to
the limitation that, if at any time during the term hereof, any one or more of
the following events shall occur, each such event shall be deemed an Event of
Default and a breach of this Lease.
(a) If Tenant shall fail to pay any installment of Rent (including
any item of Additional Rent) or any part thereof or any other monetary
obligation required to be paid by Tenant to Landlord hereunder and such failure
shall continue for ten (10) days after the giving of written notice thereof from
Landlord to Tenant; or
(b) If Tenant shall fail to perform or observe any other
requirement of this Lease (not hereinbefore in this Section 25.1 specifically
referred to) on the part of Tenant to be performed or observed, and such failure
shall continue for thirty (30) days after notice thereof from Landlord to
Tenant, or in connection with any default not susceptible of being cured with
due diligence within said period of thirty (30) days, such longer time as may be
needed by Tenant to cure the default, not to exceed ninety (90) days, provided
Tenant commences to cure within the initial thirty (30) day period and proceeds
thereafter with all due diligence and the continuance of which will not subject
Landlord to the risk of criminal liability or to foreclosure of any superior
mortgage, if any; or
(c) If Tenant fails to pay any installment of Rent for two (2)
consecutive months or for a total of four (4) months in any period of twelve
(12) months, or more than three (3) times in any six (6) month period, then
notwithstanding that such defaults shall have each been cured within the
applicable grace period, any similar default shall be deemed to be deliberate
and Landlord may thereafter be entitled to its remedies for breach of this Lease
as hereinafter set forth without affording to Tenant an opportunity to cure such
default.
25.2 In case of any Event of Default under Article 25.1, at any time
following the expiration of the respective grace periods above mentioned,
Landlord in addition to any other remedy that it may have at law and/or in
equity may elect to terminate this Lease by serving notice upon the Tenant of
its election to terminate this Lease which notice shall specify a termination
date not less than ten (10) days after the date of serving such notice and this
Lease shall then expire on the date so specified as if that date had been
originally fixed as the Expiration Date of the term herein granted, however,
Tenant's obligation to pay rent shall survive the termination of the Lease and
shall continue to accrue interest at the Lease Interest Rate.
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25.3 In case this Lease shall be terminated as hereinbefore provided,
or by summary proceedings or otherwise, Landlord or its agents may, immediately
or any time thereafter, re-enter and resume possession of the Premises or such
part thereof, and remove all persons and property therefrom, either by summary
proceedings or by a suitable action or proceeding at law, or by force or
otherwise, without being liable for any damages therefor. No re-entry by
Landlord shall be deemed an acceptance of a surrender of this Lease. The words
"re-enter" and "re-entry" as used herein are not restricted to their technical
legal meaning.
25.4 In case this Lease shall be terminated as hereinbefore provided,
or by summary proceedings or otherwise, it is hereby agreed that the Tenant
shall remain liable to pay in monthly payments the Rent which shall accrue
subsequent to the re-entry of the Landlord and that Landlord may either in its
own name or as agent of Tenant relet the whole or any portion of the Premises,
for any period equal to or greater or less than the remainder of the then
current terms, for any sum which it may deem reasonable, to any tenant which it
may deem suitable and satisfactory, and for any use and purpose which it may
deem appropriate, and in connection with any such lease, Landlord may make such
changes in the character of the improvements on the Premises as Landlord may
determine to be appropriate or helpful in ejecting such lease and may grant
concessions or free rent. However, in no event shall Landlord be under any
obligation to relet the Premises. Further (1) in no event shall Tenant be
entitled to receive any surplus of any sums received by Landlord on a reletting
in excess of the Rent reserved in the Lease and (ii) if the Premises or any part
thereof should be relet in combination with other space, then appropriate
apportionment on a square foot rentable area basis shall be made of the rent
received from such a reletting and of the expenses of reletting. Landlord agrees
that it shall exert commercially reasonable efforts to mitigate damages by
attempting to relet the Premises. However, in the exercise of such efforts,
Tenant acknowledges that Landlord shall have no obligation to Tenant to offer
the Demised Premises, or any part thereof, in any manner, shape, form, or
pursuant to any program different from any other space in any building owned by
Landlord in the Complex then sought to be leased by Landlord.
25.5 In case this Lease is terminated as provided in this Article 25,
and whether or not the Premises are relet, Landlord shall be entitled to recover
from the Tenant, the following:
(a) A sum equal to all expenses and costs including attorneys fees
and court costs through and including all trial and appellate levels with
respect to any lawsuit instituted or Defended or any actions taken by Landlord
to enforce all or any of the provisions of this Lease, and all reasonable costs
and charges for the care of the Premises while vacant, and all reasonable costs
and charges incurred in connection with an attempt to relet the Premises,
including altering and preparing the Premises for new tenants and brokers'
commissions which expenses shall be due and payable by Tenant to Landlord at
such time or times as such expenses shall have been incurred by Landlord;
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(b) All sums which Tenant has agreed to pay under this Lease to
and on behalf of Landlord except for rent; and
(c) A sum equal to all damages set forth in Article 26.
25.6 Without any previous notice or demand, separate actions may be
maintained by Landlord against Tenant from time to time to recover any damages
which, at the commencement of any such action, have then or theretofore become
due and payable to the Landlord under this Article 25 and Article 26 without
waiting until the end of the then current term.
25.7 Nothing herein contained shall be construed as limiting or
precluding the recovery by Landlord against Tenant of any sums or damages to
which, in addition to the damages particularly provided for in this Lease,
Landlord may lawfully be entitled by reason of any default hereunder on the part
of Tenant.
25.8 In the event of a breach or threatened breach on the part of
Tenant with respect to any of the covenants, agreements, terms, provisions or
conditions on the part of or on behalf of Tenant to be kept, observed or
performed, Landlord shall also have the right of injunction.
ARTICLE 26.
DAMAGES
26.1 In the event that Tenant is in breach of or in default under this
Lease and such breach or default is not cured within the time period prescribed
under this Lease for the cure of such breach or default, Tenant shall pay
Landlord as damages the following:
(a) The difference between the rent reserved and the rent
collected and received, if any by the Landlord, during the remainder of the
unexpired term, as the amount of such difference or deficiency shall, from time
to time, be ascertained, computed by discounting such amount at the prime rate
published in the Wall Street Journal at such time, plus one (1%) percent.
Deducted from all amounts due hereunder shall be all rent received by Landlord
pursuant to its efforts to relet the Premises; and
(b) The unamortized amount of the Landlord's Work equal to (a)
$250,000.00 decreased by (b) the number of months for which Base Rent and
Additional Rent due hereunder have been paid times the amount of $4,166.67.
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ARTICLE 27.
BANKRUPTCY OR INSOLVENCY
27.1 The following shall be Events of Bankruptcy under this Lease:
(a) Tenant becoming insolvent, as that term is defined in Title 11
of the United States Code, entitled Bankruptcy, 11 U.S.C. Section 101 et. seq.
(the "Bankruptcy Code") or under the insolvency laws of the State of New Jersey;
(b) The appointment of a Receiver or Custodian for any or all of
Tenant's property or assets,
(c) The filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
(d) The filing of an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which is either not
dismissed within thirty (30) days of filing, or results in the issuance of an
order for relief against the debtor, whichever is later; or
(e) Tenant making or consenting to an assignment for the benefit
of creditors of a common law composition of creditors.
27.2 Landlord shall have the following remedies in the event of
Bankruptcy:
(a) Termination of Lease. Upon the occurrence of an Event of
Bankruptcy, Landlord shall have the right to terminate this Lease by giving
thirty (30) days prior written notice to Tenant provided, however, that this
Subsection (a) shall have no effect while a case in which Tenant is the subject
debtor under the Bankruptcy Code is pending, unless Tenant or its Trustee in
Bankruptcy is unable to comply with the provisions of Subsections (e) and (. If
Tenant or its Trustee is unable to comply with Subsections (a), (e) and (, this
Lease shall automatically cease and terminate, and Tenant shall be immediately
obligated to quit the premises upon the giving of notice pursuant to this
Subsection (a). Any other notice to quit, or notice of Landlord's intention to
re-enter is hereby expressly waived. If Landlord elects to terminate this Lease,
everything contained in this Lease on the part of Landlord to be done and
performed shall cease without prejudice, subject, however, to the right of
Landlord to recover from Tenant all Rent and any other sums accrued up to the
time of termination or recovery of possession by Landlord, whichever is later,
and any other monetary damages or loss of reserved Rent sustained by Landlord.
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(b) Suit for Possession. Upon termination of this Lease pursuant
to Subsection (a) above, Landlord may proceed to recover possession under and by
virtue of the provisions of the laws of the State of New Jersey, or by such
other proceedings, including reentry and possession, as may be applicable.
(c) Reletting of Premises. Upon termination of this Lease pursuant
to Subsection (a) above, the premises may be relet by Landlord as more fully set
forth in Section 25.4.
(d) Monetary Damages. Any damage or loss of rent sustained by
Landlord as a result of an Event of Bankruptcy may be recovered by Landlord, as
more fully set forth in Articles 25 and 26. In the event Tenant becomes the
subject debtor in a case under the Bankruptcy Code, the provisions of this
Subsection (d) may be limited by the limitations of damage provisions of the
Bankruptcy Code.
(e) Assumption or Assignment by Trustee. In the event Tenant
becomes the subject debtor in a case pending under the Bankruptcy Code,
Landlord's right to terminate this Lease pursuant to this Article 27 shall be
subject to the rights of the Trustee in Bankruptcy to assume or assign this
Lease. The Trustee shall not have the right to assume or assign this Lease
unless the Trustee (a) promptly cures all defaults under this Lease, (b)
promptly compensates Landlord for monetary damages incurred as a result of such
default, and (c) provides adequate assurance of future performance.
(f) Adequate Assurance of Future Performance. Landlord and Tenant
hereby agree in advance that adequate assurance of future performance, as used
in Section 27.1 (2) (v) above, shall mean that all of the following minimum
criteria must be met: (A) The Trustee must pay to Landlord, at the time the next
payment of Rent is then due under this Lease, in addition to such payment of
Rent, an amount equal to the next three (3) months Rent under this Lease, said
amount to be held by Landlord in escrow until either the Trustee or Tenant
defaults in its payment of Rent or other obligations under this Lease (whereupon
Landlord shall have the right to draw such escrowed funds) or until the
expiration of this Lease (whereupon the funds shall be returned to the Trustee
or Tenant); (B) The Tenant or Trustee must agree to pay to the Landlord, at any
time the Landlord is authorized to and does draw on the funds escrowed the
amount necessary to restore such escrow account to the original level required
by said provision; (C) Tenant must pay its estimate pro-rata share of the cost
of all services provided by Landlord in advances of the performance or provision
of such services; (D) The Trustee must agree that Tenant's business shall be
conducted in a first class manner, and that no liquidating sales, auctions, or
other non-first class business operations shall be conducted on the Premises;
(E) The Trustee must agree that the use of the Premises as stated in this Lease
will remain unchanged; (F) The Trustee must agree that the assumption or
assignment of this Lease will not violate or affect the rights of other tenants
in the Building.
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(g) Failure to Provide Adequate Assurance. In the event Tenant is
unable to: (A) cure its defaults, (B) reimburse Landlord for its monetary
damages, (C) pay the Rent due under this Lease, or any other payments required
of Tenant under this Lease, on time (or within ten (10) days of the due date)
under this Lease, or any other payments required of Tenant under this Lease, on
time (or within ten (10) days of the due date), or (D) meet the criteria and
obligations imposed by Subsection ( above, then Tenant agrees in advance that it
has not met its burden to provide adequate assurances of future performance, and
this Lease may be terminated by Landlord in accordance with Subsection (a)
above.
ARTICLE 28.
CUMULATIVE REMEDIES - WAIVER - ORAL CHANGE
28.1 Every term, condition, agreement or provision contained in this
Lease shall be deemed to be also a covenant.
28.2 The specified remedies to which Landlord may resort under the
terms of this Lease are cumulative and are not intended to be exclusive of any
other remedies or means of redress to which Landlord may be lawfully entitled in
case of any breach or threatened breach by Tenant of any provision of this
Lease.
28.3 The failure of either party to insist in any one or more cases
upon the strict performance of any of the terms, covenants, conditions,
provisions or agreements of this Lease herein contained shall not be construed
as a waiver or a relinquishment for the future of any such term, covenant,
condition, provision or agreement. A receipt and acceptance by Landlord of rent
or any other payment, or the acceptance of performance of anything required by
this Lease to be performed by Tenant, with knowledge of the breach by Tenant of
any term, covenant, condition, provision or agreement of this Lease, shall not
be deemed a waiver of such breach nor shall any such acceptance of rent or any
other payment in a lesser amount than is herein provided for (regardless of any
endorsement on any check or any statement in any letter accompanying any payment
of Rent or any other payment) operate or be construed either as an accord and
satisfaction or in any manner other than as a payment on account of the earliest
Rent or any other payment then unpaid by Tenant. No waiver by Landlord or Tenant
of any term, covenant, condition, provision or agreement of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord or
Tenant, as applicable.
28.4 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
including any claim of injury or damage, or any emergency or other statutory
remedy with respect thereto.
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28.5 If Tenant shall default in the performance of any of Tenant's
obligations under this lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice, in a case of emergency, and in any other
case, only if such default continues after the expiration of the applicable
grace period provided in Articles 25 and 27 or elsewhere in this Lease for cure
of such default.
28.6 The delivery of keys to an employee of Landlord or of its agent
shall not operate as a termination of this Lease or a surrender of the Premises.
If Tenant shall at any time request Landlord to sublet the Premises for Tenant's
account, Landlord or its agent is authorized to receive said keys for such
purposes without releasing Tenant from any of its obligations under this Lease,
and Tenant hereby releases Landlord from any liability for loss or damage to any
of Tenant's property in connection with such subletting.
28.7 This Lease may not be changed, modified or discharged orally but
only by an agreement in writing signed by the party against whom enforcement of
the change, modification or discharge is sought.
ARTICLE 29.
QUIET ENJOYMENT
29.1 Tenant, upon payment of the Base Rent and all additional rents and
all sums herein reserved and due upon the due performance of all the terms,
covenants and conditions herein contained on the Tenant's part to be kept and
performed, shall and may, at all times during the term hereby granted, peaceably
and quietly enjoy the Premises, subject, however, to the terms of this Lease.
ARTICLE 30.
ESTOPPEL CERTIFICATE
30.1 Tenant agrees, when requested by Landlord, to execute and deliver
to Landlord a statement certifying that this Lease is unmodified and in full
force and effect (or if there have been modifications, that the same is in full
force and effect as modified and stating the modifications), certifying the
dates to which the fixed rent and additional rent have been paid, whether any
dispute exists with respect thereto and stating whether or not, to Tenant's best
knowledge, Landlord is in default in performance of any of its obligations under
this Lease, it being intended that any such statement delivered pursuant hereto
may be relied upon by others. Such statement shall be served upon Landlord by
Tenant within ten (10) business days of Landlord's request. If Tenant fails to
deliver such notice, Landlord shall be deemed appointed as
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Tenant's attorney-in-fact to prepare and deliver such notice on behalf of
Tenant, and Tenant shall be deemed bound thereby upon Landlord's furnishing a
copy of the notice to Tenant.
ARTICLE 31.
SUBORDINATION
31.1 This Lease is subject and subordinate in all respects to mortgages
which may now or hereafter affect the Premises and to all renewals,
modifications, consolidations, participations, replacements and extensions
thereof. The aforesaid provisions shall be self operative and no further
instrument of subordination shall be necessary. In confirmation of such
subordination, however, upon the request of Landlord, Tenant shall execute and
deliver, without charge, any and all documents (in form reasonably acceptable to
Landlord) subordinating this Lease and the Tenant's rights hereunder. To
effectuate the intention of the parties with respect hereto, it is agreed and
understood that should Tenant fail or otherwise refuse to execute such
certificates as may be requested, and such failure or refusal shall continue for
a period of ten (10) days after a formal written request shall have been
forwarded to Tenant by Landlord, then Tenant shall be deemed to have appointed
Landlord, and Landlord shall thereupon be regarded as the irrevocable attorney
in-fact of Tenant, duly authorized to execute and deliver the required documents
for and on behalf of Tenant.
31.2 Tenant agrees that if requested in writing by the holder of any
mortgage constituting a first lien on the Premises, it will give to the holder
of such mortgage duplicates of any notices under this Lease, given by it to
Landlord, and any such mortgage holder, at its option, shall have the same right
as Landlord to cure any default of Landlord.
31.3 In the event of the sale, transfer or assignment of Landlord's
interest in all or any portion of the Premises or in the event any proceedings
are brought for the foreclosures of or for the exercise of any power of sale
under any mortgage on all or any portion of the Premises, at the option of the
transferee, assignee, purchaser or mortgagee the Tenant shall attorn to the
respective transferee, assignee or purchaser and recognize such party as
Landlord under this Lease (to the extent applicable).
31.4 If, in connection with obtaining financing for the Building or
Premises, a banking, insurance or other recognized institutional lender shall
request reasonable modifications in this Lease as a condition for such
financing, Tenant will not unreasonably withhold, delay or defer its consent
thereto, provided that such modifications do not materially adversely affect the
leasehold interest hereby created nor otherwise adversely affect Tenant's rights
hereunder. The request by such mortgagee for notice of Landlord's defaults and
reasonable opportunity to cure shall not be deemed adverse.
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31.5 Landlord shall request from its current mortgagee to expressly
agree that this Lease shall be recognized by the mortgagee and that the rights
of Tenant shall remain in full force and effect as herein set forth, without any
modification thereof, notwithstanding any default by the mortgagor with respect
to such mortgage or any foreclosure thereof, so long as Tenant shall perform all
of the covenants and conditions of this Lease. In negotiating future mortgages,
Landlord shall request from such prospective mortgagee a provision to the effect
that so long as Tenant is not in default under this Lease, no foreclosure of the
lien of said mortgage or any other proceeding in respect thereof shall divest,
impair, modify, abrogate or otherwise adversely affect any interest or rights
whatsoever of Tenant under this Lease. Notwithstanding the foregoing, the
refusal of any of Landlord's mortgagees or prospective mortgagees to agree to
such provisions shall not be deemed to be a breach of or default under this
Lease by Landlord and same shall not affect Tenant's obligations hereunder.
ARTICLE 32.
BROKER
32.1 Landlord and Tenant each warrant and represent to each other that
it dealt with no brokers in connection with this Lease other than the Specified
Broker(s) and agree to hold the other party harmless from and against any claims
for commissions by any other brokers arising by reason of its actions in
connection with the execution of this Lease. Landlord agrees to be responsible
for the payment of any commissions due the Specified Broker(s) in accordance
with Landlord's separate agreement with the Specified Broker(s).
ARTICLE 33.
NOTICES
33.1 Every notice required or permitted under this Lease shall, unless
otherwise specifically provided herein, be given in writing and shall be sent by
United States certified mail, return receipt requested, addressed by the party
giving, making or sending the same to its Notice Address or to such other
address as either party may designate from time to time by a notice given to the
other party. Notice shall be deemed to be given upon receipt, provided, however,
that in the event a party shall refuse to accept delivery of said certified
mail, the notice shall nevertheless be deemed to be given upon the date of
refusal to accept delivery and further provided that if the postal service is
unable to deliver said certified mail the notice shall nevertheless be deemed to
be given as of the date of the Postal Service's second notice of attempted
delivery. Notwithstanding the above, a notice of change of address shall not be
effective until received.
Either party may, at its option, substitute for service by United
States first class certified mail, service by Federal Express or similar
overnight courier, provided that such courier obtains
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and makes available to its customers evidence of delivery. Notice given via such
courier shall be deemed to be given upon receipt.
ARTICLE 34.
INVALIDITY OF PARTICULAR PROVISIONS
34.1 If any term or provision of this Lease or the application thereof
to any person or circumstance, shall to any extent be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
Law.
ARTICLE 35.
HOLDING OVER
35.1 Tenant will have no right to remain in possession of all or part
of the Premises after the expiration of the term. If Tenant remains in
possession of all or any part of the Premises after the expiration of the Lease,
without the express consent of Landlord: (a) such tenancy will be deemed to be a
periodic tenancy from month-to-month only; (b) such tenancy will not constitute
a renewal or extension of this Lease for any further term; and (c) such tenancy
may be terminated by Landlord upon the earlier of (1) thirty (30) days prior
written notice, or (ii) the earliest date permitted by law. In such event,
monthly rent will be increased to an amount equal to two hundred percent (200%)
of the monthly rent payable during the last month of the term, and any other
sums due under this Lease will be payable in the amount and at the times
specified in this Lease. Such month-to-month tenancy will be subject to every
other term, condition, and covenant contained in this Lease. The provisions of
this Section shall not be construed to relieve Tenant from liability to Landlord
for damages resulting from any such holding over, or preclude Landlord from
implementing summary dispossess proceedings.
ARTICLE 36.
ARBITRATION
36.1 The parties hereto shall not be deemed to have agreed to
determination of any dispute arising out of this Lease by arbitration unless
determination in such manner shall have been specifically provided for in this
Lease.
36.2 The party desiring arbitration shall give notice to that effect to
the other party and shall in such notice appoint a person as arbitrator on its
behalf. Within ten (10) days, the other party by notice to the original party
shall appoint a second person as arbitrator on its behalf. The arbitrators thus
appointed shall appoint a third person, and such three arbitrators shall as
promptly as possible determine such matter, provided, however that:
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(a) If the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall proceed to determine such matter; and
(b) If the two arbitrators appointed by the parties shall be
unable to agree, within ten (10) days after the appointment of the second
arbitrator, upon the appointment of a third arbitrator, they shall give written
notice to the parties of such failure to agree, and, if the parties fail to
agree upon the selection of such third arbitrator within ten (10) days after the
arbitrators appointed by the parties give notice as aforesaid, then within five
(5) days thereafter either of the parties upon notice to the other party may
request such appointment by the American Arbitration Association (or any
organization successor thereto), or in it absence, refusal, failure, or
inability to act, may apply for a court appointment of such arbitrator.
36.3 Each arbitrator shall be a fit and impartial person who shall have
had at least five years' experience in a calling connected with the matter of
dispute.
36.4 The arbitration shall be conducted, to the extent consistent with
this Article, in accordance with the then prevailing rules of the American
Arbitration Association (or any organization successor thereto) and shall take
place in the County of Mercer, State of New Jersey. The arbitrators shall render
their decision and award, upon the concurrence of at least two of their number,
within thirty (30) days after the appointment of the third arbitrator. Such
decision and award shall be in writing and shall be final and conclusive on the
parties, and counterpart copies thereof shall be delivered to each of the
parties. In rendering such decision and award, the arbitrators shall not add to,
subtract from, or otherwise modify the provisions of this Lease. Judgment may be
had on the decision and award of the arbitrator(s) so rendered in any court of
competent jurisdiction.
36.5 Each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator and all other expenses of the arbitration (other than the
fees and disbursement of attorneys or witnesses for each party) shall be borne
by the parties equally.
36.6 Notwithstanding the provisions of this Article, if any delay in
complying with any requirements of this Lease by Tenant might subject Landlord
to any fine or penalty, or to prosecution for a crime, or if it would constitute
a default by Landlord under any mortgage, Landlord may exercise its right under
Article 29, to remedy such default.
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ARTICLE 37.
RIGHT OF INSPECTION, ACCESS, DUCTS,
CHANGES TO BUILDING AND RIGHT TO EXHIBIT PREMISES
37.1 Right of Inspection. Landlord or Landlord's duly authorized
representative may, upon reasonable advance written notice, during business
hours and in such manner as not to unreasonably interfere with the business of
Tenant to enter and inspect the Premises and show same as applicable to
prospective purchasers, mortgagees or tenants of the Building as an entirety.
The Landlord shall have the right to enter the Premises without notice at any
time with respect to any emergency which necessitates Landlord or Landlord's
duly authorized representatives entering the Premises.
37.2 Access. Landlord understands that confidential information will be
stored in the Premises and, therefore, Landlord will not permit any unauthorized
or authorized persons unattended by Tenant or Tenant's representatives into the
Premises. Notwithstanding the foregoing, Landlord reserves for itself entry
through the Premises that permits access to any other part of the Building
including, but not limited to core corridor walls, if any, doors, other
entrances, roofs adjacent to the Premises and to any space in, under or adjacent
to the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, or other Building facilities, for the purposes of
operation, maintenance, decoration, repair, replacement or renovation thereof,
provided, however, that access will be at reasonably appropriate hours on prior
notice unless an emergency occurs.
37.3 Ducts. Tenant shall permit Landlord to install, use and maintain,
replace or add additional pipes, lines, utilities, ducts and conduits within
walls, load bearing columns and ceilings located in, under or on the Premises,
provided, however, that access will be at reasonably appropriate hours on prior
notice unless an emergency occurs and shall be conducted with an effort to
minimize interruption of Tenant's Use of Premises and provided further that
Landlord will indemnify Tenant for any damages to Tenant's Premises or Tenant's
Property, arising out of Landlord utilizing the provisions of this Section.
37.4 Changes to Building. From and after the Commencement Date,
Landlord reserves the absolute right which right Tenant acknowledges to perform
renovation work to the Building and Real Property, to expand the Building and to
erect additional buildings on the Real Property without incurring any liability
to Tenant therefor provided Landlord uses reasonable efforts (which shall not
include any obligation to employ labor at overtime rates) to avoid disruption of
Tenant's business and provided Tenant is not denied access to the Premises.
Landlord shall be provided access to the Premises at all reasonable times, upon
reasonable notice, for the purposes of performing such work. Further, Tenant is
not to be entitled to any abatement of rent on account of any noise, vibration
or other disturbance to Tenant's business at the Premises which
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shall arise out of said access by Landlord or by the performance by Landlord of
the aforesaid work.
37.5 Right to Exhibit Premises and Signs. Any time during the last one
hundred eighty (180) days of the term of this Lease, Landlord may, during normal
business hours, and with reasonable advanced written notice to Tenant, enter the
Premises with a prospective tenant and exhibit the Premises to said prospective
tenant and shall have the right to place at reasonable locations on the Premises
the usual notice of "To Let" and "For Rent" without hindrance and molestation.
ARTICLE 38.
NOTICE OF ACCIDENTS
38.1 Tenant shall give notice to Landlord, promptly after Tenant learns
thereof, of (1) any accident in or about the Premises for which Landlord might
be liable, (ii) all fires in the Premises, (iii) all damage to or defects in the
Premises, including the fixtures, equipment and appurtenances thereof, for the
repair of which Landlord might be responsible, and (iv) all damage to or defects
in any parts or appurtenances of the Building's sanitary, electrical, heating,
ventilating, air-conditioning, elevator, if any, and other systems located in or
passing through the Premises or any part thereof.
ARTICLE 39.
CONSENTS
39.1 Wherever it is specifically provided in this Lease that a party's
consent or approval is not to be unreasonably withheld, a response to a request
for such consent or approval shall also not be unreasonably delayed. If either
Landlord or Tenant considers that the other has unreasonably withheld or delayed
consent or approval, it shall so notify the other party within ten (10) days
after receipt of notice of denial of the requested consent or approval, or, in
case notice of denial is not received, within twenty (20) days after making its
request for the consent.
ARTICLE 40.
CAPTIONS AND MARGINAL NOTES
40.1 The captions and marginal notes of this Lease are for convenience
and reference only, and in no way define, limit or describe the scope or intent
of this Lease nor in any way affect this Lease.
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ARTICLE 41.
LIMITATION OF LIABILITY
41.1 Landlord shall be under no personal liability with respect to any
of the provisions of this Lease, and if it is in breach or default with respect
to its obligations or otherwise under this Lease, Tenant shall look solely to
the equity of Landlord in the Building for the satisfaction of Tenant's
remedies. It is expressly understood and agreed that Landlord's obligations of
this Lease shall in no event exceed the loss of its equity in the Premises. In
addition, it is further agreed that under no circumstances shall Landlord be
liable to Tenant for incidental, indirect and/or consequential damages.
ARTICLE 42.
COVENANTS BINDING ON RESPECTIVE PARTIES
42.1 The terms, covenants, conditions, provisions and undertakings
herein contained shall be binding upon and inure to the benefit of the parties
hereto and their respective agents, heirs, distributees, executors,
administrators, successors and assigns, except as otherwise expressly provided
in this Lease.
ARTICLE 43.
RELATIONSHIP OF THE PARTIES
43.1 Nothing contained in this Lease shall be deemed or construed as
creating the relationship of principal and agent or of partnership or joint
venture between the parties hereto, it being understood and agreed that neither
the method of computing rent nor any other provision contained herein nor any
acts of the parties hereto shall be deemed to create any relationship between
the parties other than that of landlord and tenant. If the named Landlord in
this Lease is designated as an agent or managing agent, then Tenant agrees that
the word "Landlord" shall be deemed to refer solely to such agent's principal.
ARTICLE 44.
REQUIREMENT OF EXECUTION
44.1 The submission by Landlord to Tenant of this Lease for examination
or signature of Tenant does not constitute an offer, reservation of, or option
to lease, and this Lease shall have no binding force and effect upon the parties
as a Lease or otherwise until execution and delivery by both Tenant and
Landlord.
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ARTICLE 45.
GOVERNING LAW
45.1 This Lease shall be governed by and construed under the laws of
the State of New Jersey. All disputes arising out of this Lease shall be
resolved solely in the Federal or state courts located in the State of New
Jersey.
ARTICLE 46.
ACCORD AND SATISFACTION
46.1 No payment by Tenant or receipt by Landlord of a lesser amount
than the rent herein stipulated shall be deemed to be other than on account of
the earlier rent nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
provided in this Lease.
ARTICLE 47.
REPRESENTATIONS AND AGREEMENTS; ENTIRE AGREEMENT
47.1 Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon any warranties, representations, promises or statements, except
to the extent that the same are expressly set forth in this Lease. It is
understood and agreed that this Lease alone fully and completely expresses the
parties' agreement and that this Lease is entered into after full investigation,
neither party relying upon any statement or representation not embodied in this
Lease.
47.2 This instrument constitutes the entire agreement between the
parties and there are no verbal or collateral understandings, agreements,
representations or warranties not expressly set forth herein.
ARTICLE 48.
LEASE NOT TO BE RECORDED
48.1 Tenant agrees not to place this Lease on record, but may record a
short form or memorandum of this Lease setting forth the basic information
regarding this Lease, in form and substance reasonably acceptable to Landlord.
Landlord shall have the right to discharge or cancel any such short form or
memorandum of this Lease upon the expiration or earlier termination of this
Lease. Tenant hereby appoints Landlord as its attorney in fact to execute in
Tenant's name any such documentation to effectuate such discharge or
cancellation.
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ARTICLE 49.
SECURITY
49.1 Upon execution of this Lease, Tenant shall deposit with the
Landlord the Security Deposit as security for the full and faithful performance
of this Lease upon the part of the Tenant to be performed. Upon termination of
this Lease, and providing the Tenant is not in default hereunder and has
performed all of its obligations under this Lease (including without limitation
the payment of all sums accruing hereunder), the Landlord shall return the
Security Deposit to Tenant. Tenant shall not be entitled to any interest on the
Security Deposit.
49.2 The Security Deposit shall not and may not be mortgaged, assigned,
transferred or encumbered by Tenant and any such act on the part of Tenant shall
be without force and effect and shall not be binding upon Landlord.
49.3 If any of the rent or any other sum payable by Tenant to Landlord
shall be overdue and unpaid, or if Landlord makes payment on behalf of Tenant,
or if Tenant shall fail to perform any of the terms, covenants and conditions of
the Lease, then Landlord may apply the entire Security Deposit or so much
thereof as may be necessary to compensate Landlord for payment of any such rent
in default or for any other sum which Landlord may expend or be required to
expend by reason of Tenant's default (including interest thereon at the Lease
Interest Rate) or for any reasonable loss or damage sustained by Landlord due to
such breach on the part of Tenant (including any reasonable damages or
deficiency in the reletting of the Premises), whether such damage or deficiency
may accrue before or after summary proceedings or other re-entry by Landlord and
other expenses and costs, and Tenant shall forthwith upon demand restore the
Security Deposit to the original sum deposited. The use by Landlord of all or
any part of the Security Deposit is not intended to be a form of liquidated
damages and shall not release Tenant from liability for the full amount of any
and all damages and expenses incurred by Landlord by reason of Tenant's default.
49.4 In the event of bankruptcy or other creditor-debtor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of rent and other charges due Landlord for all periods prior to the
filing of such proceedings.
49.5 In the event of sale by Landlord of the Premises, Landlord may
deliver the then balance of the Security Deposit to the transferee of Landlord's
interest in the Premises and Landlord shall thereupon be discharged from any
further liability with respect to the Security Deposit, and this provision shall
also apply to any subsequent transferees provided that the transferee agrees in
writing to hold the Security Deposit in accordance with the terms of this Lease.
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49.6 No holder of a superior mortgage or a lessor's interest in a
superior Lease to which the Lease is subordinate shall be responsible in
connection with the Security Deposit, by way of credit or payment of any fixed
or additional rent, or otherwise, unless such mortgage or lessor actually shall
have received the entire Security Deposit.
49.7 The Letter of Credit shall be an irrevocable standby letter of
credit in form and substance and issued by a financial institution reasonably
satisfactory to Landlord. The Letter of Credit is to secure the reimbursement of
the costs and expenses incurred by Landlord in performing Landlord's Work in the
event that Tenant breaches or is in default under the terms, covenants and
conditions of this Lease during the Initial Term hereof. The Letter of Credit
shall be available for payment upon presentation to the issuer of a statement
from the beneficiary to the effect that Secured Commerce Services, Inc. or its
assignee is in default in respect of the terms, covenants and conditions of this
Lease and by a statement as to the amount of the Letter of Credit to be drawn by
the beneficiary as a result of the payments of Base Rent and Additional Rent
theretofore paid by the Tenant under this Lease. Each monthly payment of Base
Rent and Additional Rent due under this Lease Agreement in full to Landlord
shall reduce the amount available to Landlord under such Letter of Credit by
Four Thousand One Hundred Sixty Six and 66/100 ($4,166.66) Dollars.
ARTICLE 50.
50.1 (Intentionally Omitted).
ARTICLE 51.
JOINDERS AND SITE PLAN APPROVAL
51.1 The Tenant, at Landlord's expense in the case of Landlord's Work,
hereby agrees to join in the execution of any and all documents pertaining to
the Premises which are requested by Landlord including, but not limited to, land
use plan amendments, zoning applications, and all other permits, applications
and/or documents, to be filed with any governmental and/or quasi-governmental
authorities with respect to the development of all or any portion of the
Premises ("Joinders"), provided, that such Joinder shall not materially affect
Tenant's ability to occupy the Premises and use the Premises for Tenant's
Permitted Use.
ARTICLE 52.
RENEWAL OPTION
52.1 Provided that Tenant is not then in default of any of the terms,
covenants and provisions of this Lease, Landlord hereby grants to Tenant the
right to renew the term of this Lease for one (1) additional period of five (5)
years commencing on the day after the initial Expiration Date upon the same
terms and conditions as set forth in this Lease other than the Base
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Rent which shall be as follows: $424,403.00 per annum [$154,275.00 per annum
($9.35 per square foot net for renovated office space X 16,500 square feet of
office space) plus $270,128.00 per annum ($8.00 per square foot net for office
space converted from warehouse space X 33,766 square feet of converted warehouse
space)] payable in equal monthly installments of $35,366.92. Tenant shall
exercise the within option by giving written notice to Landlord not later than
six (6) months prior to the initial Expiration Date, TIME BEING OF THE ESSENCE.
If Tenant fails to give such notice within said time period, Tenant shall be
deemed to have waived this Renewal Option and the provisions of this Section
shall be null and void.
ARTICLE 53.
RIGHTS IN ADJACENT SPACE
At such time that Landlord receives a bona find offer from a
prospective tenant for the rental of space adjacent and contiguous to the
Premises, Landlord shall present to Tenant the same essential terms and
conditions of the proposed lease transaction between the Landlord and
prospective tenant. If Tenant desires to match the offer and lease the space in
question, the Tenant must so notify the Landlord in writing within seven (7)
business days of Tenant's receipt of the essential terms and conditions of such
proposed lease transaction. It shall not be necessary for Landlord to present to
Tenant a complete lease in order to fulfill Landlord's obligation to Tenant
pursuant to this Article. The provisions of this Article 53 shall not apply to a
proposed lease transaction by and between Landlord and Accumed, Inc. or its
affiliates or Parker Communications Group, Inc. or its affiliates.
IN WITNESS WHEREOF, the Parties hereto have hereunto duly set their
hands and seals as of the day and year first above written.
WITNESS: LANDLORD:
a New Jersey limited liability company
/s/ Burgise F. Palkhiwala
- ------------------------------- --------------------------------------
By: Burgise F. Palkhiwala
Title: Managing Member
/s/ Jon Parker
- ------------------------------- --------------------------------------
By: Jon Parker
Title: Managing Member
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ATTEST: TENANT:
Secure Commerce Services, Inc. t/a Paytrust
a Delaware corporation
/s/ Kenneth Zeng
- ------------------------------- --------------------------------------
By: Kenneth Zeng
Title: CFO
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EXHIBIT A
LOCATION OF PREMISES IN BUILDING
[GRAPHIC OF PREMISES IN BUILDING]
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EXHIBIT B
RULES AND REGULATIONS
1. Tenant shall maintain the ground adjacent to the Premises in neat and
orderly condition. Waste paper and refuse shall be gathered and disposed
of at least daily. Sufficient refuse cans shall be placed near operating
areas to permit convenient use of same by Tenant's employees and
invitees.
2. Doors and windows in the Premises shall not be covered or obstructed by
Tenant and only such window coverings as are furnished or permitted by
the Landlord shall be used in a Tenant's Premises.
3. Water closets and other plumbing shall be used for no other purpose than
those for which they were intended, and no sweeping, rubbish, rags, or
improper articles or materials shall be thrown therein.
4. No auction sales shall be conducted without the prior written permission
of Landlord.
5. No nuisance, public or private, shall be created or permitted in the
Premises and the Premises shall be conducted so that no annoyance is
caused to Landlord or other Tenants.
6. All entrance doors in each Tenant's Premises shall be left locked and
all windows shall be left closed by the Tenant when the Premises are not
in use. Entrance doors shall not be left open at any time.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows in any Tenant's Premises and no lock on any door
therein shall be changed or altered in any respect without Landlord's
prior consent and Landlord shall be provided with keys to the Premises.
Upon the termination of Tenant's lease, all keys to the Tenant's
Premises shall be delivered to the Landlord.
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EXHIBIT C/C-1
[SEE ATTACHED PLANS]
1. Phase One - 2,000 square feet of office space is immediately
available for occupancy.
2. Phase Two - An additional 18,000 square feet of office space to be
completed as soon as possible.
3. Phase Three - An additional 15,000 square feet of office space to be
completed no later than June 30, 2000. Rent for such additional space shall
commence on July 1, 2000, unless the Tenant takes possession of such additional
space on an earlier date at which time Rent for such additional space shall
commence upon the date of such possession.
4. Phase Four - An additional final 15,000 square feet of office space
to be completed no later than November 30, 2000. Rent for such additional space
shall commence on December 1, 2000, unless the Tenant takes possession of such
additional space on an earlier date at which time Rent for such additional space
shall commence upon the date of such possession.
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EXHIBIT C-1
[GRAPHIC OF FLOOR SPACE]
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EXHIBIT C (CONTINUED)
LANDLORD'S WORK
1. Offices, conference room and reception room in front of building as per
plans.
2. Canopy at main entrance and vestibule within reception area with double
set of double glass doors.
3. Kitchen area consisting of counter with sink and cabinets above
counter, with area left for refrigerator.
4. Enclose electrical panel by reception area.
5. Close off area with gas and water meters.
6. Painting, carpeting (or vinyl tiles), and replacing of ceiling tiles
and lighting throughout.
7. Refinishing of bathrooms and bringing in compliance with applicable
building codes.
8. Install double door in firewall at rear of area.
9. Landlord shall complete the interior of the Premises in a turnkey
fit-out using the Landlord's building standard finishes in accordance
with plans and specifications as noted herein, in Exhibit A, if
applicable, and Exhibit D-1.
10. Landlord shall permit Tenant and/or its agents or labor to enter the
Premises prior to the Commencement Date of the Lease upon prior
reasonable written request from Tenant, at a time designated by
Landlord consistent with Landlord's construction schedule in order to
install telephone outlets and data lines. The foregoing right to enter
prior to the Commencement Date, however, is conditioned upon Tenant's
not interfering with Landlord's labor. If at any time such entry shall
cause disharmony, interference or union disputes of any nature
whatsoever or if Landlord shall, in Landlord's sole judgment, determine
that such entry, such work and the continuance thereof shall interfere
with, hamper or prevent Landlord from proceeding with the completion of
the Demised Premises at the earliest possible date, this right of entry
may be withdrawn by Landlord immediately upon written notice to Tenant
but shall be reinstated as soon as Landlord deems Tenant's re-entry
practicable. Such entry shall be at Tenant's sole risk. In the event
that Tenant's agents or labor incur any charges from Landlord,
including but not limited to, charges for clean-up costs necessitated
by Tenant's entry, such charges shall be deemed an obligation of Tenant
and shall be collectible as additional rent pursuant to the Lease.
Landlord shall have no liability for any furnishings, equipment or
other items
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<PAGE> 57
placed in the Premises and Tenant shall indemnify, defend and hold
Landlord harmless for any damage, loss or expense caused by it or its
contractors or agents. Tenant must also provide evidence of insurance
in accordance with the Lease and evidence of Worker's Compensation
Insurance to protect Landlord and Tenant during the period of Tenant's
entry prior to the Commencement Date.
11. At any time after substantial completion of Landlord's Work, Landlord,
upon reasonable notice to Tenant, may enter the Premises to complete
unfinished details of Landlord's Work and entry by Landlord, its
agents, servants, employees or contractors for such purpose shall not
constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement of rent, or relieve Tenant from any of
its obligations under this Lease or impose any liability upon Landlord
or its agents.
12. The Tenant shall be responsible for its own telecommunications,
computer and systems furniture installation.
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EXHIBIT C (CONTINUED)
TENANT'S WORK
1. Five offices in rear of the Premises near lunch room.
2. Shower area in front of Premises.
3. Running of electric wiring from overhead conduits where requested by
Tenant.
4. Any and all appliances requested by Tenant.
5. Installation of security system as requested by Tenant.
In connection with Tenant's Work, Tenant shall pay to Landlord all sums
due from Tenant to Landlord prior to the commencement of the work.
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<PAGE> 1
Exhibit 10.6(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 4th day of February, 1999,
is between Secure Commerce Services, Inc., a Delaware corporation with its
principal offices at 29 Emmons Drive, Suite E10, Princeton, NJ 08540 (the
"Company") and Edward G. McLaughlin ("Employee").
WHEREAS, Employee is one of the founders of the Company and has been
employed by the Company since its inception; and
WHEREAS, the Company and Employee both desire to document the terms and
conditions under which Employee shall continue his employment with the
Company.
NOW, THEREFORE, in consideration of the mutual promises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Employment. The Company shall employ Employee, and Employee
hereby accepts such employment and agrees to perform his duties and
responsibilities hereunder, in accordance with the terms and conditions
hereinafter set forth. Notwithstanding anything to the contrary set forth in
this Agreement, this Agreement shall be null and void and of no further force
and effect unless and until the consummation of the Transaction, it being
understood that any waiver under or amendment or modification to the Purchase
Agreement by any of the parties thereto shall not affect or otherwise modify
in any regard Employee's obligations hereunder.
1.1 Employment Term. The term of this Agreement including the
original and any renewal terms (the "Employment Term") shall commence upon
the date of this Agreement, and shall continue for two years, unless
terminated prior thereto in accordance with Section 8 hereof. Unless either
party elects to terminate this Agreement at the end of the original or any
renewal term by giving the other party written notice of such election at
least 90 days before the expiration of the then current term, this Agreement
shall be deemed to have been renewed for an additional term of one year
commencing on the day after expiration of the then current term. Nothing in
this Agreement shall be construed as giving Employee any right to be retained
in the employ of the Company beyond the expiration of the Employment Term,
and Employee specifically acknowledges that he shall be subject to discharge
pursuant to Section 8 hereof.
1.2 Duties and Responsibilities.
(a) During the Employment Term, Employee shall serve as
Executive Vice President of Marketing and perform all duties and accept all
responsibilities incidental to and in keeping with such position. Employee
shall also cooperate fully with the board of directors and other executive
officers of the Company.
<PAGE> 2
(b) Employee represents to the Company that he is not
subject to or a party to any employment agreement, non-competition covenant,
non-disclosure agreement or other agreement, covenant, understanding or
restriction of any nature whatsoever which would prohibit Employee from
executing this Agreement and performing fully his duties and responsibilities
hereunder, or which would in any manner, directly or indirectly, limit or
affect the duties and responsibilities which may now or in the future be
assigned to Employee by the Company.
(c) Employee shall at all times comply with policies and
procedures adopted by the Company for employees of the Company and its
subsidiaries, including without limitation, procedures and policies regarding
conflicts of interest.
1.3. Extent of Service. During the Employment Term, Employee
agrees to use his best efforts to carry out his duties and responsibilities
under Section 1.2 hereof and to devote his full time, attention and energy
thereto. Except as provided in Section 5 hereof, the foregoing shall not be
construed as preventing Employee from making investments in other businesses
or enterprises provided that Employee agrees not to become engaged in any
other business activity which may, in the sole judgment of the board of
directors of the Company, interfere with his ability to discharge his duties
and responsibilities to the Company. Employee further agrees not to work
either on a part-time or independent contracting basis for any other business
or enterprise during the Employment Term without the prior written consent of
the board of directors of the Company.
1.4. Base Compensation.
(a) For all the services rendered by Employee hereunder,
the Company shall pay Employee an annual salary of $100,000 for the
Employment Term, plus in each additional year such additional amounts, if
any, as may be approved by the Company's board of directors at Employee's
annual review to be held on or about the anniversary date of the Employment
Term (annual increases exceeding 10% must be approved unanimously by the
board of directors), less withholding required by law or agreed to by
Employee.
(b) During the Employment Term, Employee shall also be
entitled to participate in such vacation pay and other fringe benefit plans,
if any, as may be authorized from time to time by the board of directors in
its sole discretion for employees of the Company.
1.5 Bonus. In addition to the base compensation provided
under Section 1.4 hereof, Employee shall be entitled to receive from the
Company during the Employment Term bonus compensation for each complete
calendar year during the Employment Term, such bonus compensation to be
approved by a majority of the board of directors (excluding Employee), less
withholding required by law or agreed to by Employee.
2. Expenses. Employee shall be reimbursed for the reasonable
business expenses incurred by him in connection with his performance of
services hereunder during the Employment Term upon presentation of an
itemized account and written proof of such expenses
2
<PAGE> 3
in accordance with policies established by the Company.
3. Developments. All developments, including inventions, whether
patentable or otherwise, trade secrets, discoveries, improvements, ideas and
writings which either directly or indirectly relate to or may be useful in
the business of the Company or any of its affiliates (the "Developments")
which Employee, either by himself or in conjunction with any other person or
persons, shall conceive, make, develop, acquire or acquire knowledge of
during the Employment Term or at any time thereafter during which he is
employed by the Company, shall, on and after the closing of the Transaction,
become the sole and exclusive property of the Company. Employee hereby
assigns, transfers and conveys, and agrees to so assign, transfer and convey
to the Company, all of his right, title and interest in and to any and all
such Developments and to disclose fully as soon as practicable, in writing,
all such Developments to the board of directors of the Company. At any time
and from time to time, upon the request and at the expense of the Company,
Employee will execute and deliver any and all instruments, documents and
papers, give evidence and do any and all other acts which, in the opinion of
counsel for the Company, are or may be necessary or desirable to document
such transfer or to enable the Company to file and prosecute applications for
and to acquire, maintain and enforce any and all patents, trademark
registrations or copyrights under United States or foreign law with respect
to any such Developments or to obtain any extension, validation, reissue,
continuance or renewal of any such patent, trademark or copyright. The
Company will be responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such proceedings and will
reimburse Employee for all reasonable expenses incurred by him in compliance
with the provisions of this Section.
4. Confidential Information. Employee recognizes and acknowledges
that by reason of his employment by and service to the Company he will
continue to have (both during the Employment Term and at any time thereafter
during which he may be employed by the Company), access to confidential
information of the Company and its affiliates, including without limitation,
information and knowledge pertaining to products and services offered,
inventions, innovations, designs, ideas, plans, trade secrets, proprietary
information, advertising, distribution and sales methods and systems, sales
and profit figures, customer and client lists, and relationships between the
Company and its affiliates and dealers, customers, clients, suppliers and
others who have business dealings with the Company and its affiliates
("Confidential Information"). Employee acknowledges that such Confidential
Information is a valuable and unique asset and covenants that he will not,
either during or at any time after the Employment Term, disclose any such
Confidential Information to any person for any reason whatsoever (except as
his duties described herein may require) without the prior written
authorization of the board of directors of the Company, unless such
information is in the public domain through no fault of Employee or except as
may be required by law.
5. Non-Competition.
(a) During the Employment Term and for the one-year
period following the date the employment of Employee by the Company or any of
its affiliates has ended (whether or not such employment is pursuant to this
Agreement), Employee will not,
3
<PAGE> 4
unless acting pursuant hereto or with the prior written consent of the board of
directors of the Company, directly or indirectly, own, manage, operate, join,
control, finance or participate in the ownership, management, operation, control
or financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise with or use or permit
his name to be used in connection with, any business or enterprise engaged in
the business in which the Company is engaged at the date of termination of
Employee's employment by the Company in any portion of the United States.
(b) The foregoing restriction shall not be construed to
prohibit the ownership by Employee of not more than five percent (5%) of any
class of securities of any corporation which is engaged in any of the
foregoing businesses having a class of securities registered pursuant to the
Securities Exchange Act of 1934, provided that such ownership represents a
passive investment and that neither Employee nor any group of persons
including Employee in any way, either directly or indirectly, manages or
exercises control of any such corporation, guarantees any of its financial
obligations, otherwise takes any part in its business, other than exercising
his rights as a shareholder, or seeks to do any of the foregoing.
6. No Solicitation. During the Employment Term and for the
one-year period following the date the employment of Employee by the Company
or any of its affiliates has ended (whether or not such employment is
pursuant to this Agreement), Employee will not, either directly or
indirectly, (i) call on or solicit any person, firm, corporation or other
entity who or which at the time of such termination was, or within two years
prior thereto had been, a customer of the Company with respect to the
activities prohibited by Section 5 hereof or (ii) solicit the employment of
any person who was employed by the Company on a full or part-time basis at
any time during the last year of Employee's employment, unless such person
prior to such solicitation of employment was involuntarily discharged by the
Company.
7. Equitable Relief.
(a) Employee acknowledges that the restrictions contained
in Sections 3, 4, 5 and 6 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates, that the Company
would not have entered into this Agreement or the Purchase Agreement, in the
absence of such restrictions, and that any violation of any provision of
those Sections will result in irreparable injury to the Company. Employee
represents that his experience and capabilities are such that the
restrictions contained in Sections 5 and 6 hereof will not prevent Employee
from obtaining employment or otherwise earning a living at the same general
level of economic benefit as is provided by his current employment or as is
anticipated by this Agreement. EMPLOYEE FURTHER REPRESENTS AND ACKNOWLEDGES
THAT (i) HE HAS BEEN ADVISED BY THE COMPANY TO CONSULT HIS OWN LEGAL COUNSEL
IN RESPECT OF THIS AGREEMENT, (ii) THAT HE HAS HAD FULL OPPORTUNITY, PRIOR TO
EXECUTION OF THIS AGREEMENT, TO REVIEW THOROUGHLY THIS AGREEMENT WITH HIS
COUNSEL, AND (iii) HE HAS READ AND FULLY UNDERSTANDS THE TERMS AND PROVISIONS
OF THIS AGREEMENT.
4
<PAGE> 5
(b) Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits
and other benefits arising from any violation of Sections 3, 4, 5 or 6
hereof, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company may be entitled. In the event that any of
the provisions of Sections 3, 4, 5 or 6 hereof should ever be adjudicated to
exceed the time, geographic, product or service, or other limitations
permitted by applicable law in any jurisdiction, then such provisions shall
be deemed reformed in such jurisdiction to the maximum time, geographic,
product or service, or other limitations permitted by applicable law.
(c) Employee irrevocably and unconditionally (i) agrees
that any suit, action or other legal proceeding arising out of this
Agreement, including without limitation, any action commenced by the Company
for preliminary or permanent injunctive relief or other equitable relief, may
be brought in any court of general jurisdiction in the Commonwealth of
Pennsylvania, (ii) consents to the non-exclusive jurisdiction of any such
court in any such suit, action or proceeding, and (iii) waives any objection
which Employee may have to the laying of venue of any such suit, action or
proceeding in any such court. Employee also irrevocably and unconditionally
consents to the service of any process, pleadings, notices or other papers in
a manner permitted by the notice provisions of Section 12 hereof.
(d) Employee agrees that he will provide, and that the
Company may similarly provide, a copy of Sections 3, 4, 5 and 6 of this
Agreement to any business or enterprise (i) which he may directly or
indirectly own, manage, operate, finance, join, participate in the ownership,
management, operation, financing, or control of, or (ii) with which he may be
connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, or in connection with which he may
use or permit his name to be used; provided, however, that this provision
shall not apply in respect of Sections 5 and 6 of this Agreement after
expiration of the time periods set forth therein.
8. Termination. This Agreement shall terminate prior to the
expiration of its term set forth in Section 1.1 above upon the occurrence of
any one of the following events:
8.1. Disability. In the event that Employee is unable fully to
perform his duties and responsibilities hereunder to the full extent required
by the Company by reason of illness, injury or incapacity for 90 consecutive
days, during which time he shall continue to be compensated as provided in
Section 1.4 hereof (less any payments due Employee under disability benefit
programs, including Social Security disability, worker's compensation, and
disability retirement benefits), this Agreement may be terminated by the
Company, and the Company shall have no further liability or obligation to
Employee for compensation hereunder; provided, however, that Employee will be
entitled to receive the payments prescribed under any disability benefit plan
which may be in effect for employees of the Company and in which he
participated. Employee agrees, in the event of any dispute under this
Section 8.1, to submit to a physical examination by a licensed physician
selected by the board of directors of the Company.
8.2. Death. In the event that Employee dies during the
Employment Term, the
5
<PAGE> 6
Company shall pay to his executors, legal representatives or administrators any
amounts due and owing to the date of death to Employee as part of the salary set
forth in Section 1.4(a) hereof through the date of death, and thereafter the
Company shall have no further liability or obligation hereunder to his
executors, legal representatives, administrators, heirs or assigns or any other
person claiming under or through him; provided, however, that Employee's estate
or designated beneficiaries shall be entitled to receive the payments prescribed
for such recipients under any death benefit plan which may be in effect for
employees of the Company and in which Employee participated.
8.3. Cause. Nothing in this Agreement shall be construed to
prevent its termination by the Company at any time for "cause." For purposes
of this Agreement, "cause" shall mean the failure of Employee to perform or
observe any of the terms or provisions of this Agreement in any material
respect after written notice of such failure and an opportunity to cure,
dishonesty to the board of directors of the Company, conviction of a crime
involving moral turpitude, substance abuse which affects Employee's
performance of his duties under this Agreement, misappropriation of funds or
disparagement of the Company (or its management). In the event of
termination for cause, the Company shall have no further liability or
obligation to Employee for compensation hereunder. Such termination shall be
effected by notice thereof delivered by the Company to Employee and shall be
effective as of the date of such notice.
8.4. Without Cause by the Company. The Company may terminate
this Agreement upon not less than 90 days' notice to Employee at and for the
Company's sole convenience and in its sole discretion and without specifying
any cause as set forth in Section 8.3 hereof. In such event, and contingent
upon the resignation of Employee from all positions of any nature which
Employee may then have held with the Company and any of its affiliates, the
Company (i) shall continue to pay Employee until the end of the notice period
plus severance equal to 18 months base salary set forth in Section 1.4(a)
hereof which Employee was receiving prior to the effective date of such
termination or (ii) in lieu of 90 days' notice, pay Employee severance equal
to 21 months (amount in (i) plus 3 months base salary set forth in Section
1.4(a) hereof which Employee was receiving prior to the effective date of
such termination.
9. Survival. Notwithstanding the termination of this Agreement by
the Company by reason of Employee's disability under Section 8.1, for cause
under Section 8.3, or without cause under Section 8.4, his obligations under
Sections 3, 4, 5, and 6 hereof shall survive and remain in full force and
effect for the periods therein provided, and the provisions for equitable
relief against Employee in Section 7 hereof shall continue in force, along
with the provisions of Sections 9 through 17 hereof.
10. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of Delaware without giving effect to
any conflict of laws provisions.
11. Litigation Expenses. In the event of a lawsuit by either party
to enforce the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable costs, expenses and attorney's fees from the
other party.
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<PAGE> 7
12. Notices. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall
be in writing and shall be deemed to have been given when hand delivered or
mailed by registered or certified mail, as follows (provided that notice of
change of address shall be deemed given only when received):
If to the Company, to:
Secure Commerce Services, Inc.
29 Emmons Drive, Suite E10
Princeton, NJ 08540
Attn: President
Telecopy: (609) 720-1819
With a required copy to:
Morgan, Lewis & Bockius LLP
214 Carnegie Center
Princeton, NJ 08540
Attn: Steven M. Cohen
Telecopy: (609) 520-6639
If to Employee, to:
Edward G. McLaughlin
528 South Taney St.
Philadelphia, PA 19146
or to such other names or addresses as the Company or Employee, as the case
may be, shall designate by notice to each other person entitled to receive
notices in the manner specified in this Section.
13. Entire Agreement; Contents of Agreement.
(a) This Agreement supersedes all prior agreements and
sets forth the entire understanding among the parties hereto with respect to
the subject matter hereof and cannot be changed, modified, extended or
terminated except upon written amendment executed by Employee and approved by
the board of directors of the Company and executed on behalf of the Company
by a duly authorized officer. Employee acknowledges that the effect of this
provision is that no oral modifications of any nature whatsoever to this
Agreement shall be permitted.
(b) Employee acknowledges that from time to time, the
Company may establish, maintain and distribute employee manuals or handbooks
or personnel policy manuals, and officers or other representatives of the
Company may make written or oral statements relating to personnel policies
and procedures. Such manuals, handbooks and statements are
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<PAGE> 8
intended only for general guidance. No policies, procedures or statements of any
nature by or on behalf of the Company (whether written or oral, and whether or
not contained in any employee manual or handbook or personnel policy manual),
and no acts or practices of any nature, shall be construed to modify this
Agreement or to create express or implied obligations of any nature to Employee.
14. Assignment. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto, except that the duties and
responsibilities of Employee hereunder are of a personal nature and shall not
be assignable or delegable in whole or in part by Employee.
15. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect any other provision or application of this Agreement which can be
given effect without the invalid or unenforceable provision or application
and shall not invalidate or render unenforceable such provision or
application in any other jurisdiction.
16. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Agreement is intended to be exclusive of any other remedy,
and each and every such remedy shall be cumulative and shall be in addition
to any other remedy given hereunder or now or hereafter existing at law or in
equity. No delay or omission by the Company in exercising any right, remedy
or power hereunder or existing at law or in equity shall be construed as a
waiver thereof, and any such right, remedy or power may be exercised by the
Company from time to time and as often as may be deemed expedient or
necessary by the Company in its sole discretion.
17. Miscellaneous. All section headings are for convenience only.
This Agreement may be executed in several counterparts, each of which is an
original. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement as of the date first above written.
SECURE COMMERCE SERVICES, INC.
By /s/ Flint A. Lane
----------------------------------
Name: Flint A. Lane
Title: Chief Operating Officer
EMPLOYEE
/s/ Edward G. McLaughlin
----------------------------------
Edward G. McLaughlin
<PAGE> 1
Exhibit 10.6(b)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into this 28th day of May, 1999 by and between Secure Commerce Services, Inc.
("Paytrust") and Edward G. McLaughlin ("Employee").
WHEREAS, Employee entered into an Employment Agreement, dated
February 4, 1999, with Paytrust;
WHEREAS, Employee and Paytrust acknowledge and agree that it is in
the best interests of the parties to renew such Employment Agreement and amend
the severance provision therein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Definitions. All capitalized terms used but not otherwise
defined in this Amendment shall have the meanings set forth in the Notes.
2. Section 1.1 of the aforementioned Employment Agreement is hereby
amended and restated in its entirety as follows:
Employment Term. The term of this Agreement including the original and any
renewal terms (the "Employment Term") shall commence upon May 28, 1999,
and shall continue for two years, unless terminated prior thereto in
accordance with Section 8 hereof. Unless either party elects to terminate
this Agreement at the end of the original or any renewal term by giving
the other party written notice of such election at least 90 days before
the expiration of the then current term, this Agreement shall be deemed to
have been renewed for an additional term of one year commencing on the day
after expiration of the then current term. Nothing in this Agreement shall
be construed as giving Employee any right to be retained in the employ of
the Company beyond the expiration of the Employment Term, and Employee
specifically acknowledges that he shall be subject to discharge pursuant
to Section 8 hereof.
3. Section 8.4 of the aforementioned Employment Agreement is hereby
amended and restated in its entirety as follows:
Without Cause by the Company. The Company may terminate this Agreement
upon not less than 90 days' notice to Employee at and for the Company's
sole convenience and in its sole discretion and without specifying any
cause as set
<PAGE> 2
forth in Section 8.3 hereof. In such event, and contingent upon the
resignation of Employee from all positions of any nature which Employee
may then have held with the Company and any of its affiliates, the Company
shall continue to pay Employee until the end of the notice period plus
severance equal to the base salary set forth in Section 1.4(a) hereof
which Employee was receiving prior to the effective date of such
termination for the greater of (i) six months or (ii) the remainder of the
Employment Term.
4. Counterparts. This Amendment may be executed in separate
counterparts, each of which shall, collectively, constitute one agreement.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Amendment as
of the date first above written.
SECURE COMMERCE SERVICES, INC.
By: /s/ Flint A. Lane
----------------------------------
Name: Flint A. Lane
Title: Chief Operating Officer
EDWARD G. MCLAUGHLIN
/s/ Edward G. McLaughlin
----------------------------------
<PAGE> 1
Exhibit 10.7(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 4th day of February, 1999,
is between Secure Commerce Services, Inc., a Delaware corporation with its
principal offices at 29 Emmons Drive, Suite E10, Princeton, NJ 08540 (the
"Company") and Flint A. Lane ("Employee").
WHEREAS, Employee is one of the founders of the Company and has been
employed by the Company since its inception; and
WHEREAS, the Company and Employee both desire to document the terms and
conditions under which Employee shall continue his employment with the
Company.
NOW, THEREFORE, in consideration of the mutual promises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Employment. The Company shall employ Employee, and Employee
hereby accepts such employment and agrees to perform his duties and
responsibilities hereunder, in accordance with the terms and conditions
hereinafter set forth. Notwithstanding anything to the contrary set forth in
this Agreement, this Agreement shall be null and void and of no further force
and effect unless and until the consummation of the Transaction, it being
understood that any waiver under or amendment or modification to the Purchase
Agreement by any of the parties thereto shall not affect or otherwise modify
in any regard Employee's obligations hereunder.
1.1 Employment Term. The term of this Agreement including the
original and any renewal terms (the "Employment Term") shall commence upon
the date of this Agreement, and shall continue for two years, unless
terminated prior thereto in accordance with Section 8 hereof. Unless either
party elects to terminate this Agreement at the end of the original or any
renewal term by giving the other party written notice of such election at
least 90 days before the expiration of the then current term, this Agreement
shall be deemed to have been renewed for an additional term of one year
commencing on the day after expiration of the then current term. Nothing in
this Agreement shall be construed as giving Employee any right to be retained
in the employ of the Company beyond the expiration of the Employment Term,
and Employee specifically acknowledges that he shall be subject to discharge
pursuant to Section 8 hereof.
1.2 Duties and Responsibilities.
(a) During the Employment Term, Employee shall serve as
Chief Operating Officer and perform all duties and accept all
responsibilities incidental to and in keeping with such position. Employee
shall also cooperate fully with the board of directors and other executive
officers of the Company.
<PAGE> 2
(b) Employee represents to the Company that he is not
subject to or a party to any employment agreement, non-competition covenant,
non-disclosure agreement or other agreement, covenant, understanding or
restriction of any nature whatsoever which would prohibit Employee from
executing this Agreement and performing fully his duties and responsibilities
hereunder, or which would in any manner, directly or indirectly, limit or
affect the duties and responsibilities which may now or in the future be
assigned to Employee by the Company.
(c) Employee shall at all times comply with policies and
procedures adopted by the Company for employees of the Company and its
subsidiaries, including without limitation, procedures and policies regarding
conflicts of interest.
1.3. Extent of Service. During the Employment Term, Employee
agrees to use his best efforts to carry out his duties and responsibilities
under Section 1.2 hereof and to devote his full time, attention and energy
thereto. Except as provided in Section 5 hereof, the foregoing shall not be
construed as preventing Employee from making investments in other businesses
or enterprises provided that Employee agrees not to become engaged in any
other business activity which may, in the sole judgment of the board of
directors of the Company, interfere with his ability to discharge his duties
and responsibilities to the Company. Employee further agrees not to work
either on a part-time or independent contracting basis for any other business
or enterprise during the Employment Term without the prior written consent of
the board of directors of the Company.
1.4. Base Compensation.
(a) For all the services rendered by Employee hereunder,
the Company shall pay Employee an annual salary of $100,000 for the
Employment Term, plus in each additional year such additional amounts, if
any, as may be approved by the Company's board of directors at Employee's
annual review to be held on or about the anniversary date of the Employment
Term (annual increases exceeding 10% must be approved unanimously by the
board of directors), less withholding required by law or agreed to by
Employee.
(b) During the Employment Term, Employee shall also be
entitled to participate in such vacation pay and other fringe benefit plans,
if any, as may be authorized from time to time by the board of directors in
its sole discretion for employees of the Company.
1.5. Bonus. In addition to the base compensation provided
under Section 1.4 hereof, Employee shall be entitled to receive from the
Company during the Employment Term bonus compensation for each complete
calendar year during the Employment Term, such bonus compensation to be
approved by a majority of the board of directors (excluding Employee), less
withholding required by law or agreed to by Employee.
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<PAGE> 3
2. Expenses. Employee shall be reimbursed for the reasonable
business expenses incurred by him in connection with his performance of
services hereunder during the Employment Term upon presentation of an
itemized account and written proof of such expenses in accordance with
policies established by the Company.
3. Developments. All developments, including inventions, whether
patentable or otherwise, trade secrets, discoveries, improvements, ideas and
writings which either directly or indirectly relate to or may be useful in
the business of the Company or any of its affiliates (the "Developments")
which Employee, either by himself or in conjunction with any other person or
persons, shall conceive, make, develop, acquire or acquire knowledge of
during the Employment Term or at any time thereafter during which he is
employed by the Company, shall, on and after the closing of the Transaction,
become the sole and exclusive property of the Company. Employee hereby
assigns, transfers and conveys, and agrees to so assign, transfer and convey
to the Company, all of his right, title and interest in and to any and all
such Developments and to disclose fully as soon as practicable, in writing,
all such Developments to the board of directors of the Company. At any time
and from time to time, upon the request and at the expense of the Company,
Employee will execute and deliver any and all instruments, documents and
papers, give evidence and do any and all other acts which, in the opinion of
counsel for the Company, are or may be necessary or desirable to document
such transfer or to enable the Company to file and prosecute applications for
and to acquire, maintain and enforce any and all patents, trademark
registrations or copyrights under United States or foreign law with respect
to any such Developments or to obtain any extension, validation, reissue,
continuance or renewal of any such patent, trademark or copyright. The
Company will be responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such proceedings and will
reimburse Employee for all reasonable expenses incurred by him in compliance
with the provisions of this Section.
4. Confidential Information. Employee recognizes and acknowledges
that by reason of his employment by and service to the Company he will
continue to have (both during the Employment Term and at any time thereafter
during which he may be employed by the Company), access to confidential
information of the Company and its affiliates, including without limitation,
information and knowledge pertaining to products and services offered,
inventions, innovations, designs, ideas, plans, trade secrets, proprietary
information, advertising, distribution and sales methods and systems, sales
and profit figures, customer and client lists, and relationships between the
Company and its affiliates and dealers, customers, clients, suppliers and
others who have business dealings with the Company and its affiliates
("Confidential Information"). Employee acknowledges that such Confidential
Information is a valuable and unique asset and covenants that he will not,
either during or at any time after the Employment Term, disclose any such
Confidential Information to any person for any reason whatsoever (except as
his duties described herein may require) without the prior written
authorization of the board of directors of the Company, unless such
information is in the public domain through no fault of Employee or except as
may be required by law.
5. Non-Competition.
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<PAGE> 4
(a) During the Employment Term and for the one-year
period following the date the employment of Employee by the Company or any of
its affiliates has ended (whether or not such employment is pursuant to this
Agreement), Employee will not, unless acting pursuant hereto or with the
prior written consent of the board of directors of the Company, directly or
indirectly, own, manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of, or be
connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any business or enterprise engaged in the business
in which the Company is engaged at the date of termination of Employee's
employment by the Company in any portion of the United States.
(b) The foregoing restriction shall not be construed to
prohibit the ownership by Employee of not more than five percent (5%) of any
class of securities of any corporation which is engaged in any of the
foregoing businesses having a class of securities registered pursuant to the
Securities Exchange Act of 1934, provided that such ownership represents a
passive investment and that neither Employee nor any group of persons
including Employee in any way, either directly or indirectly, manages or
exercises control of any such corporation, guarantees any of its financial
obligations, otherwise takes any part in its business, other than exercising
his rights as a shareholder, or seeks to do any of the foregoing.
6. No Solicitation. During the Employment Term and for the
one-year period following the date the employment of Employee by the Company
or any of its affiliates has ended (whether or not such employment is
pursuant to this Agreement), Employee will not, either directly or
indirectly, (i) call on or solicit any person, firm, corporation or other
entity who or which at the time of such termination was, or within two years
prior thereto had been, a customer of the Company with respect to the
activities prohibited by Section 5 hereof or (ii) solicit the employment of
any person who was employed by the Company on a full or part-time basis at
any time during the last year of Employee's employment, unless such person
prior to such solicitation of employment was involuntarily discharged by the
Company.
7. Equitable Relief.
(a) Employee acknowledges that the restrictions contained
in Sections 3, 4, 5 and 6 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates, that the Company
would not have entered into this Agreement or the Purchase Agreement, in the
absence of such restrictions, and that any violation of any provision of
those Sections will result in irreparable injury to the Company. Employee
represents that his experience and capabilities are such that the
restrictions contained in Sections 5 and 6 hereof will not prevent Employee
from obtaining employment or otherwise earning a living at the same general
level of economic benefit as is provided by his current employment or as is
anticipated by this Agreement. EMPLOYEE FURTHER REPRESENTS AND ACKNOWLEDGES
THAT (i) HE HAS BEEN ADVISED BY THE COMPANY TO CONSULT HIS OWN LEGAL COUNSEL
IN RESPECT OF THIS AGREEMENT, (ii) THAT HE HAS HAD FULL OPPORTUNITY, PRIOR TO
EXECUTION OF THIS AGREEMENT, TO REVIEW THOROUGHLY THIS AGREEMENT WITH HIS
COUNSEL, AND (iii) HE
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<PAGE> 5
HAS READ AND FULLY UNDERSTANDS THE TERMS AND PROVISIONS OF THIS AGREEMENT.
(b) Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits
and other benefits arising from any violation of Sections 3, 4, 5 or 6
hereof, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company may be entitled. In the event that any of
the provisions of Sections 3, 4, 5 or 6 hereof should ever be adjudicated to
exceed the time, geographic, product or service, or other limitations
permitted by applicable law in any jurisdiction, then such provisions shall
be deemed reformed in such jurisdiction to the maximum time, geographic,
product or service, or other limitations permitted by applicable law.
(c) Employee irrevocably and unconditionally (i) agrees
that any suit, action or other legal proceeding arising out of this
Agreement, including without limitation, any action commenced by the Company
for preliminary or permanent injunctive relief or other equitable relief, may
be brought in any court of general jurisdiction in the Commonwealth of
Pennsylvania, (ii) consents to the non-exclusive jurisdiction of any such
court in any such suit, action or proceeding, and (iii) waives any objection
which Employee may have to the laying of venue of any such suit, action or
proceeding in any such court. Employee also irrevocably and unconditionally
consents to the service of any process, pleadings, notices or other papers in
a manner permitted by the notice provisions of Section 12 hereof.
(d) Employee agrees that he will provide, and that the
Company may similarly provide, a copy of Sections 3, 4, 5 and 6 of this
Agreement to any business or enterprise (i) which he may directly or
indirectly own, manage, operate, finance, join, participate in the ownership,
management, operation, financing, or control of, or (ii) with which he may be
connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, or in connection with which he may
use or permit his name to be used; provided, however, that this provision
shall not apply in respect of Sections 5 and 6 of this Agreement after
expiration of the time periods set forth therein.
8. Termination. This Agreement shall terminate prior to the
expiration of its term set forth in Section 1.1 above upon the occurrence of
any one of the following events:
8.1. Disability. In the event that Employee is unable fully to
perform his duties and responsibilities hereunder to the full extent required
by the Company by reason of illness, injury or incapacity for 90 consecutive
days, during which time he shall continue to be compensated as provided in
Section 1.4 hereof (less any payments due Employee under disability benefit
programs, including Social Security disability, worker's compensation, and
disability retirement benefits), this Agreement may be terminated by the
Company, and the Company shall have no further liability or obligation to
Employee for compensation hereunder; provided, however, that Employee will be
entitled to receive the payments prescribed under any disability benefit plan
which may be in effect for employees of the Company and in which he
participated. Employee agrees, in the event of any dispute under this
Section 8.1, to submit to a physical
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<PAGE> 6
examination by a licensed physician selected by the board of directors of the
Company.
8.2. Death. In the event that Employee dies during the
Employment Term, the Company shall pay to his executors, legal
representatives or administrators any amounts due and owing to the date of
death to Employee as part of the salary set forth in Section 1.4(a) hereof
through the date of death, and thereafter the Company shall have no further
liability or obligation hereunder to his executors, legal representatives,
administrators, heirs or assigns or any other person claiming under or
through him; provided, however, that Employee's estate or designated
beneficiaries shall be entitled to receive the payments prescribed for such
recipients under any death benefit plan which may be in effect for employees
of the Company and in which Employee participated.
8.3. Cause. Nothing in this Agreement shall be construed to
prevent its termination by the Company at any time for "cause." For purposes
of this Agreement, "cause" shall mean the failure of Employee to perform or
observe any of the terms or provisions of this Agreement in any material
respect after written notice of such failure and an opportunity to cure,
dishonesty to the board of directors of the Company, conviction of a crime
involving moral turpitude, substance abuse which affects Employee's
performance of his duties under this Agreement, misappropriation of funds or
disparagement of the Company (or its management). In the event of
termination for cause, the Company shall have no further liability or
obligation to Employee for compensation hereunder. Such termination shall be
effected by notice thereof delivered by the Company to Employee and shall be
effective as of the date of such notice.
8.4. Without Cause by the Company. The Company may terminate
this Agreement upon not less than 90 days' notice to Employee at and for the
Company's sole convenience and in its sole discretion and without specifying
any cause as set forth in Section 8.3 hereof. In such event, and contingent
upon the resignation of Employee from all positions of any nature which
Employee may then have held with the Company and any of its affiliates, the
Company (i) shall continue to pay Employee until the end of the notice period
plus severance equal to 18 months base salary set forth in Section 1.4(a)
hereof which Employee was receiving prior to the effective date of such
termination or (ii) in lieu of 90 days' notice, pay Employee severance equal
to 21 months (amount in (i) plus 3 months base salary set forth in Section
1.4(a) hereof which Employee was receiving prior to the effective date of
such termination.
9. Survival. Notwithstanding the termination of this Agreement by
the Company by reason of Employee's disability under Section 8.1, for cause
under Section 8.3, or without cause under Section 8.4, his obligations under
Sections 3, 4, 5, and 6 hereof shall survive and remain in full force and
effect for the periods therein provided, and the provisions for equitable
relief against Employee in Section 7 hereof shall continue in force, along
with the provisions of Sections 9 through 17 hereof.
10. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of Delaware without giving effect to
any conflict of laws provisions.
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<PAGE> 7
11. Litigation Expenses. In the event of a lawsuit by either party
to enforce the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable costs, expenses and attorney's fees from the
other party.
12. Notices. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall
be in writing and shall be deemed to have been given when hand delivered or
mailed by registered or certified mail, as follows (provided that notice of
change of address shall be deemed given only when received):
If to the Company, to:
Secure Commerce Services, Inc.
29 Emmons Drive, Suite E10
Princeton, NJ 08540
Attn: President
Telecopy: (609) 720-1819
With a required copy to:
Morgan, Lewis & Bockius LLP
214 Carnegie Center
Princeton, NJ 08540
Attn: Steven M. Cohen
Telecopy: (609) 520-6639
If to Employee, to:
Flint A. Lane
57 Danville Drive
Princeton Jct. NJ 08550
or to such other names or addresses as the Company or Employee, as the case
may be, shall designate by notice to each other person entitled to receive
notices in the manner specified in this Section.
13. Entire Agreement; Contents of Agreement.
(a) This Agreement supersedes all prior agreements and
sets forth the entire understanding among the parties hereto with respect to
the subject matter hereof and cannot be changed, modified, extended or
terminated except upon written amendment executed by Employee and approved by
the board of directors of the Company and executed on behalf of the Company
by a duly authorized officer. Employee acknowledges that the effect of this
provision is that no oral modifications of any nature whatsoever to this
Agreement shall be permitted.
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<PAGE> 8
(b) Employee acknowledges that from time to time, the
Company may establish, maintain and distribute employee manuals or handbooks
or personnel policy manuals, and officers or other representatives of the
Company may make written or oral statements relating to personnel policies
and procedures. Such manuals, handbooks and statements are intended only for
general guidance. No policies, procedures or statements of any nature by or
on behalf of the Company (whether written or oral, and whether or not
contained in any employee manual or handbook or personnel policy manual), and
no acts or practices of any nature, shall be construed to modify this
Agreement or to create express or implied obligations of any nature to
Employee.
14. Assignment. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto, except that the duties and
responsibilities of Employee hereunder are of a personal nature and shall not
be assignable or delegable in whole or in part by Employee.
15. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect any other provision or application of this Agreement which can be
given effect without the invalid or unenforceable provision or application
and shall not invalidate or render unenforceable such provision or
application in any other jurisdiction.
16. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Agreement is intended to be exclusive of any other remedy,
and each and every such remedy shall be cumulative and shall be in addition
to any other remedy given hereunder or now or hereafter existing at law or in
equity. No delay or omission by the Company in exercising any right, remedy
or power hereunder or existing at law or in equity shall be construed as a
waiver thereof, and any such right, remedy or power may be exercised by the
Company from time to time and as often as may be deemed expedient or
necessary by the Company in its sole discretion.
17. Miscellaneous. All section headings are for convenience only.
This Agreement may be executed in several counterparts, each of which is an
original. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement as of the date first above written.
SECURE COMMERCE SERVICES, INC.
By /s/ Edward G. McLaughlin
---------------------------
Name: Edward G. McLaughlin
Title: President
EMPLOYEE
/s/ Flint A. Lane
---------------------------
Flint A. Lane
<PAGE> 1
Exhibit 10.7(b)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is
entered into this 28th day of May, 1999 by and between Secure Commerce Services,
Inc. ("Paytrust") and Flint A. Lane ("Employee").
WHEREAS, Employee entered into an Employment Agreement, dated
February 4, 1999, with Paytrust;
WHEREAS, Employee and Paytrust acknowledge and agree that it
is in the best interests of the parties to renew such Employment Agreement and
amend the severance provision therein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. Definitions. All capitalized terms used but not
otherwise defined in this Amendment shall have the meanings set forth in the
Notes.
2. Section 1.1 of the aforementioned Employment
Agreement is hereby amended and restated in its entirety as follows:
Employment Term. The term of this Agreement including the original and
any renewal terms (the "Employment Term") shall commence upon May 28,
1999, and shall continue for two years, unless terminated prior thereto
in accordance with Section 8 hereof. Unless either party elects to
terminate this Agreement at the end of the original or any renewal term
by giving the other party written notice of such election at least 90
days before the expiration of the then current term, this Agreement
shall be deemed to have been renewed for an additional term of one year
commencing on the day after expiration of the then current term.
Nothing in this Agreement shall be construed as giving Employee any
right to be retained in the employ of the Company beyond the expiration
of the Employment Term, and Employee specifically acknowledges that he
shall be subject to discharge pursuant to Section 8 hereof.
3. Section 8.4 of the aforementioned Employment
Agreement is hereby amended and restated in its entirety as follows:
Without Cause by the Company. The Company may terminate this Agreement
upon not less than 90 days' notice to Employee at and for the Company's
sole convenience and in its sole discretion and without specifying any
cause as set
<PAGE> 2
forth in Section 8.3 hereof. In such event, and contingent upon the
resignation of Employee from all positions of any nature which Employee
may then have held with the Company and any of its affiliates, the
Company shall continue to pay Employee until the end of the notice
period plus severance equal to the base salary set forth in Section
1.4(a) hereof which Employee was receiving prior to the effective date
of such termination for the greater of (i) six months or (ii) the
remainder of the Employment Term.
4. Counterparts. This Amendment may be executed in separate
counterparts, each of which shall, collectively, constitute one agreement.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of the date first above written.
SECURE COMMERCE SERVICES, INC.
By: /s/ Edward G. McLaughlin
----------------------------
Name: Edward G. McLaughlin
Title: President
FLINT A. LANE
/s/ Flint A. Lane
----------------------------
<PAGE> 1
EXHIBIT 10.8
[PAYTRUST LOGO]
EMPLOYMENT AGREEMENT, dated May 8, 1999, between Secure Commerce
Services ("Paytrust"), Inc., a Delaware corporation (the
"Employer"), and MR. JOHN YAPAOLA (the "Employee").
Paytrust, a corporation organized under the laws of United States
and the Employee are parties to an Employment Agreement, dated June 14, 1999.
The parties hereto agree as follows:
1. Services; Term.
(a) The Employer hereby employs the Employee, and the Employee
hereby agrees to be employed by the Employer, as "Executive Vice President
Business Development" of the Employer, and the Employee will use his best
efforts to perform services for the Employer in accordance with directions given
to the Employee from time to time by the Chief Executive Officer ("CEO").
(b) As Executive Vice President of Business Development of the
Employer, the Employee shall primarily be responsible for the development and
coordination of the Employer's business development (including sales) worldwide.
Notwithstanding the foregoing, during the Employment Period (as defined below),
the Employee shall perform such other or additional duties and responsibilities
as may be requested by the Employer from time to time that are consistent with
Employee's title and position, and in such event, the "Services" shall be deemed
to include such additional duties or responsibilities.
(c) The Employee shall commence employment no later than June 14,
1999 (the "Effective Date") and ending on the date of termination of employment
by either party in accordance with the terms of this Agreement (such period
being referred to as the "Employment Period"). The Employee is an "employee at
will" of the Employer, and nothing set forth herein shall be deemed to guarantee
the Employee any particular term of employment.
2. Performance by Employee.
(a) During the Employment Period, the Employee shall devote all of
his business time, attention, knowledge and skills to, and use his best efforts
to perform the Services and shall promote the interests of the Employer in
carrying out the Services.
(b) Except for the activities described on Annex A, the Employee
shall not engage in any professional full-time or part-time activities, whether
or not remunerated, without the prior written consent of the CEO of the
Employer. Employee's role in the activities listed on Annex A shall in no way
interfere with Employee's performance as described in Section 2(a).
<PAGE> 2
The Employee shall not engage in any other full-time or part-time activities,
including the activities described on Annex A, that involve the use of the
Employer's infrastructure or personnel, without the prior written consent of the
CEO of Paytrust. Notwithstanding the foregoing, the Employee may make personal
investments in other businesses, as long as those investments do not require the
Employee to participate in the operation of the companies in which the Employee
invests or otherwise materially interfere with the Employee's employment under
this Agreement.
3. Reporting. The Employee shall regularly report to the CEO of
Paytrust.
4. Compensation and Benefits.
(a) Salary. As compensation for the Services, the Employer shall pay
to the Employee during the Employment Period a base salary, which shall be at
the annual rate of $100,000 (the "Base Salary"), payable in U.S. dollars on a
biweekly basis. The Base Salary includes all compensation for overtime. In
addition the Employee will draw $50,000 in an annualized draw, paid on a
biweekly basis. The draw is a non-refundable advance against bonuses earned in
accordance with Section 4(b).
(b) Bonus. As additional compensation for the Services, the Employer
shall pay to the Employee a performance related bonus (the "Bonus").
The Bonus will be calculated based on the number of paying subscribers that
signup for Paytrust service through initiatives completed by the employee.
Year 1 Year 2 Year 3
Bonus/Subscriber/Month $.50 $.25 .10
The Bonus will be paid on a quarterly basis and will be capped at $500,000 per
annum.
(c) Reimbursement. The Employer shall reimburse the Employee for all
reasonable out-of-pocket expenses incurred by the Employee directly related to
the performance by the Employee of the Services, including for travel-related
expenses relating to the business of the Employer. The Employee shall account
for all reimbursable expenses in accordance with the Employer's record-keeping
requirements as amended from time to time, and reimbursement shall be made by
the Employer on a monthly basis against presentation of receipts by the
Employee.
(d) Benefits. During the Employment Period, the Employee shall be
entitled to receive health insurance and other employee benefits consistent with
the Employer's policies as amended from time to time.
(e) Vacation. During the Employment Period, the Employee shall be
entitled to take two weeks of paid vacation (ten working days) annually. The
vacation dates shall be subject to the prior approval of the Employer. The
Employee is also entitled to an additional eight paid holidays in accordance
with Paytrust's posted Holiday Schedule annually, not included in the two weeks
of vacation.
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<PAGE> 3
5. Termination.
(a) Termination by Employer With Cause. The Employer, at its option,
may terminate the Employment Period and all of the obligations of the Employer
hereunder for Cause. For the purposes of this Agreement, the Employer shall have
"Cause" to terminate the Employee's employment hereunder in the event of (i) the
Employee's conviction of, or plea of guilty or nolo contendere to, either a
felony or a crime for which a term of imprisonment of more than one year may be
imposed and which involves a fraudulent act, (ii) the Employee's gross
negligence in the performance of the Services, (iii) the Employee's knowingly
dishonest act, or knowing bad faith or willful misconduct in the performance of
the Services, or (iv) the Employee's other material breach of his obligations
under this Agreement.
(b) Termination by Employer Without Cause. The Employer, at its
option, may terminate the Employment Period without Cause at any time upon three
months' prior written notice to the Employee, effective at the end of the third
full calendar month following the month in which notice is given.
(c) Termination by Employee. The Employee, at its option, may
terminate the Employment Period for any reason at any time upon three months"
prior written notice to the Employer, effective at the end of the third full
calendar month following the month in which notice is given.
(d) Payments in the Events of Termination. If the employee is
terminated without cause, the Employer shall pay the Employee an amount equal to
50% of the Employee's total annual compensation (salary + bonus) earned to the
date of termination and in equal installments for a 3-month period thereafter as
severance compensation. Employer shall pay all bonuses, commissions and expenses
due employee at time of termination. Employee shall have the right to purchase
all vested options as set forth under the provisions in Section 7. Employee will
have 90-days from the date of termination to execute the purchase of all vested
options from Paytrust.
(e) Termination of Obligations. In the event of termination of the
Employment Period in accordance with this Section 5, all obligations of the
Employer under this Agreement shall terminate, except as specifically set forth
in Section 5(d). Notwithstanding the foregoing, the provisions of Sections 6 and
7 shall survive such termination in accordance with their respective terms and
the relevant provisions of Section 9 shall survive such termination
indefinitely. In the event of termination of the Employment Period in accordance
with this Section 5, the Employee agrees to cooperate with the Employer in order
to ensure an orderly transfer of the Employee's duties and responsibilities.
6. Confidentiality; Non-Disclosure; Inventions.
(a) (i) Except as provided in this Section 6(a), during and for
a period of one year after the term of this Agreement, the Employee shall not
disclose any confidential or proprietary information of the Employer or its
affiliates or subsidiaries to any person, firm, corporation or other entity
(other than the Employer or its affiliates or subsidiaries or any officers,
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<PAGE> 4
employees, agents, or representatives thereof) for any reason or purpose
whatsoever (other than in the normal course of business on a need-to-know basis
after the Employer has received assurances that the confidential or proprietary
information shall be kept confidential), nor shall the Employee make use of any
such confidential or proprietary information for his own purposes or for the
benefit of any person, firm, corporation or other entity, except the Employer.
As used in this Section, the term "confidential or proprietary information"
means all information which is or becomes known to the Employee and relates to
such matters as trade secrets, research and development activities, new or
prospective products or services (including expertise, copyright, trade secrets,
proprietary information, techniques, sketches, drawings, models, inventions,
know-how, processes, equipment, algorithms, software programs, software source
documents and formulae), books and records, financial data, customer lists,
marketing techniques, suppliers, purchases, potential business combinations,
distribution channels, services, procedures, pricing information and private
processes as they may exist from time to time; provided that the term
"confidential or proprietary information" shall not include information that is
or becomes generally available to the public (other than as a result of a
disclosure in violation of this Agreement by the Employee or by a person who
received such information from the Employee in violation of this Agreement).
(ii) If, at any time during or after the term of this Agreement, the
Employee is requested or (in the opinion of his counsel) required by law or
judicial order to disclose any confidential or proprietary information, the
Employee shall provide the Employer with prompt notice of any such request or
requirement so that the Employer may seek an appropriate protective order or
waiver of the Employee's compliance with the provisions of this Section 6(a).
The Employee will not oppose any reasonable action by, and will cooperate with,
the Employer to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the confidential or
proprietary information. If, failing the entry of a protective order or the
receipt of a waiver hereunder, he is, in the opinion of his counsel, compelled
by law to disclose a portion of the confidential or proprietary information, the
Employee may disclose to the relevant tribunal without liability hereunder only
that portion of the confidential or proprietary information which counsel
advises the Employee he is legally required to disclose, and each of the parties
hereto agrees to exercise such party's best efforts to obtain assurance that
confidential treatment will be accorded such confidential or proprietary
information.
(b) The Employee agrees that he will promptly and fully disclose to
the Employer all inventions, ideas, software, trade secrets or know-how (whether
patentable or copyrightable or not) made or conceived by the Employee (either
solely or jointly with others) during the term of this Agreement and for a
period of six months thereafter, and all tangible work product derived therefrom
(collectively, the "Ideas"). The Employee agrees that all such Ideas shall be
and remain the sole and exclusive property of the Employer. On the request of
the Employer, the Employee shall, during and after the term of this Agreement,
without charge to the Employer but at the expense of the Employer, assist the
Employer in any reasonable way to vest in the Employer, title to all such Ideas,
and to obtain any patents, trademarks or copyrights thereon in all countries
throughout the world. In this regard, the parties shall execute and deliver any
and all documents that the Employer may reasonably request.
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<PAGE> 5
7. Equity Interest of Employee. The Employee shall be granted
options to purchase 300,000 shares of common stock of Paytrust. The stock
options will vest in equal installments over a period of four years from the
Effective Date (25% of the stock options each year), on June 14th of each of
the years 2000, 2001, 2002, 2003. Notwithstanding the foregoing, all of the
Employee's stock options will vest immediately upon a sale of all or
substantially all of Paytrust to a third party in which the employee is not
offered a position of equal or greater compensation and responsibility, provided
that the Employee is employed by the Employer at the time of the sale and that
the sale results in a change in control of more than 50% of Paytrust. In the
event of an initial public offering of the stock of Paytrust("IPO"), the
Employee may exercise up to 10% of his vested stock options and sell the
underlying shares in the IPO with the permission of, and subject to any
restrictions imposed by, the underwriters.
The Employee will also be offered a loan so that he may purchase up
to 200,000 shares of Paytrust's common stock. A separate loan agreement will be
executed for this transaction, which will contain at a minimum the following
terms: the loan will collect fair market interest, will be repayable in full
after three years and will be collateralized by the shares of Paytrust common
stock that are purchased.
8. General Provisions.
(a) Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, although the Employee
and the Employer consider the restrictions contained in this Agreement to be
reasonable for the purpose of preserving the Employer's goodwill and proprietary
rights, if any particular provision of this Agreement shall be adjudicated to be
invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made.
(b) Withholding. The Employer shall withhold such amounts from any
compensation or other benefits referred to herein as payable to the Employee on
account of payroll and other taxes as may be required by applicable law or
regulation of any governmental authority.
(c) Assignment; Benefit. This Agreement is personal in its nature
and the parties hereto shall not, without the written consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Employer, whether by merger, consolidation,
transfer of all or substantially all of its assets, or otherwise.
(d) Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, sent by overnight courier, or sent by facsimile (with
confirmation of receipt), addressed as follows:
5
<PAGE> 6
If to the Employer:
Secure Commerce Services, Inc.
29 Emmons Drive
Suite E10
Princeton, NJ 08540
If to the Employee:
John Yapaola
3 Sylvan Drive
Pine Brook, NJ 07058
Facsimile: 201.244.9390
or at such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If such notice
or communication is mailed, such communication shall be deemed to have been
given on the fifth business day following the date on which such communication
is posted.
(f) Amendments and Waivers. No modification, amendment or waiver, of
any provision of, or consent required by, this Agreement, nor any consent to any
departure herefrom, shall be effective unless it is in writing and signed by the
parties hereto. Such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
(g) Descriptive Headings; Certain Interpretations. (i) Descriptive
headings are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. (ii) Except as otherwise
expressly provided in this Agreement, the following rules of interpretation
apply to this Agreement: (A) the singular includes the plural and the plural
includes the singular; and (B) "or" and "either" are not exclusive and "include"
and "including" are not limiting.
(h) Counterparts; Entire Agreement. This Agreement may be executed
in any number of counterparts, and each such counterpart hereof shall be deemed
to be an original instrument, but all such counterparts together shall
constitute one agreement. This Agreement contains the entire agreement among the
parties with respect to the transactions contemplated by this Agreement and
supersedes all prior agreements or understandings among the parties with respect
to the Employee's employment by the Employer, including the Original Employment
Agreement.
(I) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW JERSEY.
(J) CONSENT TO JURISDICTION. EACH OF THE EMPLOYER AND THE EMPLOYEE
HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS
6
<PAGE> 7
TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW JERSEY AND OF ANY NEW JERSEY STATE COURT FOR PURPOSES OF ALL
LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND THE EMPLOYEE AGREES NOT TO COMMENCE ANY
LEGAL PROCEEDING RELATING THERETO EXCEPT IN SUCH A COURT. EACH OF THE EMPLOYER
AND THE EMPLOYEE IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT OR HE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
Secure Commerce Services, Inc.,
a Delaware corporation
By: /s/ Flint A. Lane
-------------------------------------
Name: Flint A. Lane
Title: co-CEO
/s/ John Yapaola
-------------------------------------
John Yapaola
Paytrust executes this Agreement for the sole purpose of
acknowledging and agreeing to the terms of Section 8 of this Agreement.
SECURE COMMERCE SERVICES, INC.,
By: /s/ Flint A. Lane
-------------------------------------
Name: Flint A. Lane
Title: co-CEO
8
<PAGE> 9
Annex A
PART-TIME ACTIVITIES
1. Completion of book.
2. Serving as President of CY Designs (a company that is not competitive with
the Employer). CY Designs is engaged in the development and sale of
educational software products.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
February 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 4-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> SEP-16-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 31,505 29,235,014
<SECURITIES> 0 0
<RECEIVABLES> 0 5,671
<ALLOWANCES> 0 240
<INVENTORY> 0 0
<CURRENT-ASSETS> 55,339 29,315,340
<PP&E> 33,713 877,764
<DEPRECIATION> 2,087 106,415
<TOTAL-ASSETS> 91,298 30,232,811
<CURRENT-LIABILITIES> 14,249 2,642,906
<BONDS> 0 0
0 36,668,233
0 0
<COMMON> 900 944
<OTHER-SE> 76,149 9,081,920
<TOTAL-LIABILITY-AND-EQUITY> 91,298 30,232,811
<SALES> 0 0
<TOTAL-REVENUES> 0 10,269
<CGS> 0 774,143
<TOTAL-COSTS> 124,126 9,633,167
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 7,534
<INCOME-PRETAX> (122,951) (9,479,669)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (122,951) (9,479,669)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (122,951) (9,479,669)
<EPS-BASIC> (0.01) (1.02)
<EPS-DILUTED> (0.01) (1.02)
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