<PAGE>
As filed with the Securities and Exchange Commission on April 5, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PEOPLEPC INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 443120 13-4048510
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
100 Pine Street, Suite 1100
San Francisco, California 94111
(415) 732-4400
</TABLE>
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Nick Grouf
Chief Executive Officer
PeoplePC Inc.
100 Pine Street, Suite 1100
San Francisco, California 94111
(415) 732-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
Larry Sonsini Frank Golay
Mark Bertelsen Sullivan & Cromwell
Neil Wolff 1888 Century Park East
Wilson Sonsini Goodrich & Rosati Los Angeles, California 90067
650 Page Mill Road (310) 712-6600
Palo Alto, California 94304
(650) 493-9300
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
--------------
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration 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 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,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of Each Class of Amount to be Amount of Registration
Securities to be Registered Registered(1) Fee
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<S> <C> <C>
Common Stock, $0.0001 par
value per share............ $100,000,000 $26,400
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- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
--------------
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 the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated April 5, 2000.
Shares
[PEOPLEPC LOGO]
Common Stock
----------
This is an initial public offering of shares of common stock of PeoplePC Inc.
All of the shares of common stock are being sold by PeoplePC.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price will be
between $ and $ . PeoplePC has applied for quotation of the common stock
on the Nasdaq National Market under the symbol "PEOP".
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of the common stock.
----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to PeoplePC.......................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from PeoplePC at the initial public offering price, less the
underwriting discount.
----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co. Merrill Lynch & Co.
Chase H&Q
Thomas Weisel Partners LLC
----------
Prospectus dated , 2000.
<PAGE>
[Inside Front Cover, Gate Fold-out and Inside Back Cover]
Inside Front Cover: The table of contents
- ------------------
Gate Fold-out:
- -------------
Top Caption: People PC offers enterprises and consumers an affordable
package of products and services that makes it easy to get a
computer and get online.
Left: Pictures--Three pictures along left side.
Picture 1--Picture 1 is of a computer system bundle. To the left of
Picture 1 is the caption "Our members receive a complete
multimedia computer system that includes a high-quality
personal computer (made by IBM, HP, Compaq or Toshiba) with
peripherals such as a color monitor, modem, CD-ROM and floppy
diskette drives. They are pre-loaded with software from
Quicken, McAfee, Microsoft and other leading vendors. What's
more, we provide a new, up-to-date computer system every
three years from PeoplePC members."
Picture 2--Picture 2 is of software loaded on our computer system
bundles.
Picture 3--Picture 3 is of an in-home service van. Below Picture 3 is
the caption "Easy set-up, comprehensive support (even in-home
service.) PeoplePC's aim is to make our members' experience
hassle free and worry free. Our easy-to-follow instructions
and telephone support are designed to minimize the difficulty
of computer and Internet set-up. A three-year parts and labor
warranty on hardware, including in-home service, together with
24x7 tech support and customer assistance ensure every member
gets help when they need it."
Center: Picture of PeoplePC spokesperson with a diagram summarizing
PeoplePC's service offerings as including "PC, Internet,
Deals and Service."
Right: Pictures--Two pictures along right side
Picture 1--Picture 1 is of a home page with links to PeoplePC's vendor
offerings. To the left of Picture 1 is the caption
"Unlimited, Fast and Reliable Internet Access. We have
working relationships with the world's largest Internet
providers to offer our members Internet access 24x7. Our
membership package includes unlimited use of this access.
Additionally, our members have their own personal email
accounts and can host their own web sites."
Picture 2--Picture 2 is of shopping bags. To the right of Picture 2 is
the caption "The power (and savings) of aggregated buying.
The vast collective online purchasing power of our rapidly
expanding membership lets members receive discounts and
benefits typically reserved for large organizations. Through
the PeoplePC Buyer's Club, members can get deals on goods and
services from merchants like E*Trade, Gap and 1-800-Flowers."
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.
Our Business
Our business model addresses the increasing need for people to access the
Internet, while delivering significant value to consumers, enterprises and
merchants. We believe that long-term customer relationships are more valuable
than the cost of providing customers with the tools they need to participate in
the digital economy. We offer an affordable and convenient membership package
that includes a new brand-name computer system, unlimited Internet access,
customer support and in-home technical service, as well as the opportunity to
benefit from discounts and special offers from merchants that participate in
our buyer's club. For enterprises, we provide an integrated solution that
enables companies to communicate with their employees, customers and affiliated
parties online by providing these parties with the tools to access the Internet
away from their workplace. We believe that by providing our package of products
and services, enterprises can save money, operate more efficiently and improve
employee relations, helping to instill a sense of corporate pride and community
among their workforces. In addition, we offer our merchants and suppliers a way
to reduce their customer acquisition and retention costs by providing them
access to a large group of potential customers and the opportunity to establish
long-term relationships with our growing community of members. As the value and
size of the PeoplePC membership grows, we believe that more consumers,
enterprises, merchants and suppliers will want to participate in our program,
which will further enhance the quality and experience of the PeoplePC
community.
Our virtual business model utilizes the capabilities of well-established
companies, enabling us to grow rapidly, build on our providers' expertise and
maintain efficient cost structures. Once a PeoplePC membership application is
processed, our core infrastructure providers help new customers finance their
membership, supply members with their computer systems and software, ship the
entire package to their homes, connect them to the Internet and provide
telephone support and in-home technical service. We have established
relationships with leading suppliers such as Compaq, Hewlett-Packard, IBM,
Toshiba, Yahoo!, Intuit, McAfee, Microsoft, MBNA, Ingram Micro, UUNet, an MCI
WorldCom company, Sykes Enterprises and Critical Path to provide our members
with high-quality products and services.
We provide enterprises with an integrated solution that scales easily and
quickly, requires little additional infrastructure investment and provides the
enterprise's employees, customers and affiliated parties with the same
convenience, quality assurance and valuable benefits enjoyed by all PeoplePC
members. We recently entered into agreements with Ford Motor Company and Delta
Air Lines, Inc. to provide our products and services to up to 380,000 Ford
employees and up to 75,000 Delta employees worldwide who are eligible to
participate. We intend to begin distributing our offering to Ford and Delta
employees during 2000.
Through the PeoplePC buyer's club, members can take advantage of discounts
and special offers on products and services from our rapidly growing list of
merchants. As of March 31, 2000, we have signed agreements with over 50
merchants, including providers of brand-name goods and services such as 1-800-
flowers.com, Budget Rent a Car, BUY.COM, E*TRADE, E-LOAN, FTD.COM, Gap Inc.,
MCI WorldCom, Mondera.com, more.com, priceline.com, The Sports Authority,
Tickets.com, wine.com and ZDNet.
As of March 31, 2000, we had over 130,000 members. From our inception until
December 31, 1999, we had gross sales of memberships and products of $24.9
million, total revenues of $4.7 million and a net loss of $64.3 million. We
only began offering our products and services on a commercial basis in October
1999 and we cannot be certain that we will generate sufficient revenues to
achieve profitability.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by PeoplePC........... shares
Shares to be outstanding after the
offering............................ shares
Proposed Nasdaq National Market
symbol.............................. "PEOP"
Use of proceeds...................... General corporate purposes, including
working capital and the expansion of our
core business. See "Use of Proceeds".
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on 94,988,764 shares outstanding as of March 31, 2000 and excludes:
. 9,468,252 shares of Series C preferred stock issued after March 31, 2000
that will convert into 9,468,252 shares of common stock;
. 8,436,250 shares issuable upon exercise of options outstanding as of
March 31, 2000 at a weighted average exercise price of $0.879 per share;
. 500,000 shares issuable upon exercise of a warrant outstanding as of
March 31, 2000 at an exercise price of $6.225 per share;
. 1,905,000 shares issuable to Ford Motor Company upon the exercise of a
right to purchase shares at the initial public offering price upon the
closing of this offering and, if Ford exercises this right in full,
2,857,500 shares issuable to Ford upon the exercise of a warrant to be
outstanding as of the closing of this offering at an exercise price
equal to the initial public offering price; and
. 16,821,000 shares available for future issuance under our stock plans,
as well as the automatic annual increases in the number of shares
authorized under our 2000 stock plan.
Except as otherwise noted, we have presented the information in this
prospectus based on the following assumptions:
. each share of preferred stock converts into one share of common stock
upon the closing of this offering;
. the underwriters do not exercise their overallotment option;
. the completion of a two-for-one forward stock split; and
. the number of shares outstanding includes 8,180,026 shares of common
stock issued upon the early exercise of stock options subject to
repurchase rights held by us as of March 31, 2000.
---------------
Other Information
We incorporated in Delaware on March 2, 1999. Our principal executive offices
are located at 100 Pine Street, Suite 1100, San Francisco, California 94111,
and our telephone number at that address is (415) 732-4400. Our Web site is
located at www.peoplepc.com. Information contained on our Web site does not
constitute part of this prospectus.
This prospectus contains service marks, trademarks and trade names of
PeoplePC, including PeoplePC and the PeoplePC logo.
4
<PAGE>
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
March 2, 1999
to
December 31,
1999
-------------
<S> <C>
Statement of Operations Data:
Gross sales of memberships, products and services (see note 1 of
notes to financial statements)................................. $ 24,947
========
Membership revenues earned (gross sales of $21,410)............. $ 1,180
Other revenues.................................................. 3,537
--------
Total revenues................................................ 4,717
Cost of revenues(1)............................................. 6,396
Total operating expenses........................................ 63,065
Net loss........................................................ (64,339)
Basic and diluted net loss per share............................ $ (1.99)
Shares used in computing basic and diluted net loss per share... 32,400
Pro forma basic and diluted net loss per share.................. $ (1.11)
Shares used in computing pro forma basic and diluted net loss
per share...................................................... 57,746
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 36,108 $ 36,108 $
Working capital................................ 7,624 7,624
Total assets................................... 52,870 52,870
Accumulated deficit............................ (64,339) (64,339)
Total stockholders' equity (deficit)........... (61,263) 6,676
</TABLE>
Because we recognize revenues from memberships over a 36-month membership
period, we deferred $20.2 million in revenues for the period from inception to
December 31, 1999.
You should read note 1 of the notes to our financial statements for an
explanation of the method used to calculate the number of shares used to
compute the per share data.
The pro forma balance sheet amounts reflect the conversion of all outstanding
shares of our preferred stock into common stock. The pro forma as adjusted
balance sheet amounts reflect the sale of the common stock offered by this
prospectus at an assumed initial public offering price of $ per share after
deducting the estimated underwriting discount and offering expenses payable by
us. The pro forma as adjusted amounts do not reflect the issuance in a private
placement of 1,893,880 shares of common stock to Ford Motor Company upon the
exercise of a right to purchase shares at the initial public offering price
upon the closing of this offering.
- --------
(1) Includes a nonrecurring charge of $2.0 million.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occurs, our business, financial
condition or operating results could be seriously harmed. In such case, the
trading price of our common stock could decline, and you may lose all or part
of your investment.
Risks Related to Our Business
Our limited operating history and our unproven business model make it difficult
to evaluate or predict our future business prospects.
We were incorporated in March 1999 and began selling our products and
services on a commercial basis in October 1999. We have a limited operating
history and, therefore, limited historical data or operating history upon which
to base our forecasts. Since we began selling our products and services, most
of our revenues have been derived from the sale of PeoplePC memberships to
consumers. While we currently have a relatively small number of members who
have purchased our products and services, our business model requires us to
increase our membership rapidly. In addition, we anticipate that a significant
amount of our future revenues will be derived from payments made to us by
merchants who have entered into agreements to participate in our buyer's club.
To date, we have not generated meaningful revenues from our buyer's club and we
may not generate such revenues in the future.
As part of our strategy to expand our membership base, we seek to enter into
agreements with large enterprises to provide our products and services to
employees, customers and affiliated parties of these enterprises. We recently
entered into agreements with Ford Motor Company and Delta Air Lines, Inc. to
provide our products and services to the employees of these companies. We have
not yet begun to deliver our products and services under these agreements and
we cannot be certain that we will be able to do so in the future on a timely
basis. In order to execute our enterprise strategy, we will need to enter into
and perform additional agreements with other large enterprises.
Our limited operating history, unproven business model and rapidly evolving
business make it difficult to evaluate or predict our future business
prospects. You should consider our business and prospects in light of the risks
and difficulties typically encountered by companies in the early stages of
development, particularly those in the rapidly changing markets for personal
computers, Internet access and Internet commerce. These challenges include our:
. need to increase brand awareness;
. need to attract and retain new members rapidly and at a reasonable cost;
. dependence on third parties to provide our products, services and
operations infrastructure;
. need to manage growth;
. need to compete effectively; and
. limited experience in providing the products and services we offer or
plan to offer.
6
<PAGE>
We depend on third parties to provide most of our services and operations
infrastructure. If any of these third parties is unwilling or unable to
continue providing services to us, our business could be seriously harmed.
Our business model relies on third parties, both in terms of our operations
infrastructure and also in terms of services that we provide. We currently
depend on a number of third parties to execute various parts of our business
plan, including:
. Member Financing. We recently established a relationship with MBNA
America Bank, N.A. to provide a 36-month loan with a $24.95 monthly
payment to qualified members who wish to finance their membership fees.
Our agreement may be terminated by MBNA upon 90 days notice or by us
upon 90 days notice after we have submitted a predetermined number of
credit applications to MBNA. Either party may terminate our agreement
for a material breach following a 45-day cure period. Prior to our
relationship with MBNA, we relied on another financial institution to
provide credit to our members. We experienced significant difficulties
with this institution in administering and implementing our member
financing program. If we experience similar difficulties with MBNA, our
growth would be slowed.
. Distribution. We rely on Ingram Micro to provide our computer products,
maintain inventory, process orders, prepare merchandise for shipment and
distribute our products to individual customers in a timely and accurate
manner. Our agreement with Ingram Micro terminates in August 2000 and
may be terminated sooner by either party with 90 days written notice or
immediately for cause by Ingram Micro, provided that we are given a ten-
day cure period.
. Product Delivery. Ingram Micro uses Federal Express Corporation and
United Parcel Service to deliver substantially all of our computer
systems.
. Internet Access. We rely on UUNET Technologies, Inc., an MCI WorldCom
company, to provide Internet access to our members. Our agreement with
UUNET expires in June 2002, but will be renewed for an additional year
unless either party provides notice of its intent not to renew 60 days
prior to the end of the term. Either party may terminate the agreement
at any time for material breach, provided that the other party is
provided a 60-day cure period.
. Customer Service and Technical Support. We rely on Sykes Enterprises,
Incorporated and Ron Weber and Associates, Inc. to operate call centers
to provide customer service and technical support for our members. We
also rely on DecisionOne to provide telephone and email technical
support. Our agreement with Sykes terminates in July 2000 and
automatically renews for one-year periods. Either party may terminate
the agreement at any time with 90 days written notice or if a default
occurs. Our agreement with Ron Weber and Associates expires in February
2002 and either party may terminate the agreement with 60 days written
notice. Our agreement with DecisionOne may be terminated at any time by
either party.
. Technical Service and Warranty. We rely on Service Net, Inc. to provide
our members a three-year hardware warranty covering parts and labor and
in-home technical service. Our agreement with Service Net terminates in
November 2002 and is automatically renewed for two-year terms. After
November 2002, either party may terminate the agreement with 90 days
written notice.
. Email Hosting. All email services provided to our members are hosted by
Critical Path, Inc. Our agreement with Critical Path expires in October
2000 and may be terminated by either party with 90 days written notice.
Either party may terminate the agreement at any time for material breach
provided that the other party is provided a 30-day cure period.
7
<PAGE>
We have limited control over the internal operations and procedures of these
third parties. Our agreements with these parties do not require them to give
our orders priority over those of other parties with whom they may do business.
The third parties upon which we rely may breach or terminate their agreements
with us or fail to perform their obligations thereunder. If the parties with
whom we contract are unable or unwilling to fulfill these obligations, we may
experience delays if we are required to find other entities that can provide
such services. Further, we may have failed to contract with third parties for
an adequate level of service and these third parties may be unable or unwilling
to provide the level of service we require. In addition, there can be no
guarantee that we would be able to contract for such services from other
providers in a timely manner and on acceptable commercial terms, if at all. Our
business interruption insurance may not be sufficient to compensate us for
losses that could occur as a result of non-performance by any of the entities
upon which we rely, and does not cover situations where we have contracted for
inadequate levels of service.
Our future success is dependent on our ability to provide timely and accurate
order fulfillment and high-quality service to our members. We depend on third
parties to fulfill our orders and provide our services. If the services
provided by any of these third parties become unsatisfactory, our reputation,
brand name and revenues may be harmed.
We depend on third-party computer suppliers. If these suppliers are unwilling
or unable to provide us with their products in the future, our business would
be seriously harmed.
We rely on third parties, including Compaq, Hewlett-Packard, IBM and Toshiba,
to supply the computer systems we provide to our customers. In the future, we
may rely on these and other suppliers to provide our systems. We may not be
successful in managing our relationships with these suppliers, and if existing
suppliers cannot provide the products we require at commercially reasonable
prices and we are not able to find suitable alternative suppliers, our business
would be harmed. Moreover, we may not be able to monitor or control effectively
the quality of the computers manufactured by our suppliers or the speed and
accuracy of their distribution. Low-quality products, slow distribution or
similar inadequacies may harm our reputation and brand name, and demand for our
products would decline. In addition, we may need to spend money and expend
other resources to remedy these problems. For example, in 1999 Ingram Micro
received a shipment of computers from one of our suppliers for distribution to
our members that did not conform to product specifications. We currently are
holding discussions with Ingram Micro and the supplier to determine the
disposition of the nonconforming products. The receipt of nonconforming
computers caused us to cancel a direct-mail promotional campaign and other
advertising. We have incurred losses due to the canceled advertisements,
recorded a provision relating to the cost of resolving any potential dispute
over the nonconforming computers and expended a significant amount of money and
management's time in connection with the matter.
Our relationships with Ford Motor Company and Delta Air Lines, Inc. are complex
and involve many risks. If we are not successful in managing these
relationships or if we are unable to enter into relationships with other large
enterprises in the future, our business will be harmed.
We entered into an agreement with Ford in April 2000 and an agreement with
Delta in January 2000 to provide our products and services to the employees of
these companies worldwide. We have not yet performed our obligations under the
Ford and Delta agreements and the breadth and complexity of our obligations
will require a great deal of effort and coordination to achieve successful
execution. As a result, there are many risks related to these agreements,
including:
. Rapid Expansion. The Ford and Delta agreements require us to expand our
operations rapidly in a very short time. For example, we have agreed to
provide computer systems and other membership services to up to 380,000
Ford employees and up to 75,000 Delta
8
<PAGE>
employees worldwide who are eligible to participate. We have not begun
delivering products under these agreements and we may not be successful
in delivering products at the required times.
. International Expansion. We do not currently offer our products and
services internationally. While international expansion is a key part of
our business strategy, the global nature of these agreements requires us
to expand our operations for our enterprise customers into international
markets on an accelerated time frame. We may encounter difficulties with
our international expansion, including high costs, unreliable Internet
access, complex international operations and differing regulatory
requirements.
. Customized Product Offerings. The Ford and Delta agreements require us
to provide products and services that we currently do not offer to our
general membership. For example, we have agreed to offer laptop
computers and premium packages that include higher performance computer
systems, customized software and other customized features of our
products and services. Customizing these features, especially where the
services of third parties are required, can be complicated and difficult
to complete accurately and in a timely manner.
In the event that we do not realize the intended benefits of these
relationships or we do not deliver on our obligations, we will have spent a
great deal of time and resources that may otherwise have been directed to more
profitable activities. In addition, customer perceptions and our business will
be adversely impacted if these relationships are not successful.
In addition to our relationships with Ford and Delta, we intend to enter
into agreements with other large enterprises to acquire new customers and to
promote our brand. Any future agreements with large enterprises will involve
additional risks, some of which will be unique to the specific enterprises,
and will require us to expand our operations rapidly to support the large
incremental increases in PeoplePC members associated with these agreements. If
we are unable to enter into agreements with large enterprises in the future or
if we are unable to maintain these relationships successfully, our business
would be harmed.
We have incurred significant losses and expect to incur additional losses in
the future.
We have incurred a net loss of $64.3 million for the period from our
inception until December 31, 1999. We expect to continue to incur operating
and net losses for the forseeable future, and we may not be able to generate
sufficient revenue to achieve profitability. We anticipate that our operating
expenses will increase substantially as we:
. increase our sales and marketing activities;
. expand our product and service offerings;
. increase our general and administrative functions to support our growing
operations;
. expand our operations outside of the United States;
. develop enhanced technologies and features to improve our Web site; and
. establish relationships with enterprises and merchants.
Our business model allows us to subsidize the cost of products and services
with merchant and other revenues, including revenues from peripherals and
upgrades. We offer aggressive pricing in order to establish customer
relationships that we believe will provide the means for longer term
profitability. As a result, we will need to generate significant revenues to
achieve and maintain profitability. If we fail to generate such revenues, we
will not attain profitability.
9
<PAGE>
If we are not able to generate or accurately track or collect revenues earned
from merchants that offer products and services through our Web site, our
ability to achieve profitability will suffer.
Our business model relies on revenues earned from merchants that participate
in our buyer's club. Members may purchase products and services from
participating merchants by clicking on links that connect the members to a
merchant's Web site. Members enter into transactions directly with
participating merchants. We typically receive a percentage of sales revenues
generated by our members' purchases from our merchants or a fixed fee when a
member opens an account or executes his or her first transaction with a
merchant. In some cases, we receive both a customer acquisition fee and a
portion of sales revenue. We may not be successful in generating revenues from
merchants participating in our buyer's club and our failure to do so would harm
our ability to achieve profitability.
We currently do not track sales that occur between members and merchants that
participate in our buyer's club. We are developing systems to track these
sales, but our efforts are in their early stages and may not be successful.
Currently, we rely on participating merchants to gather this sales information
and report it to us. If we or the participating merchants are unable to
accurately track sales information, our revenues will suffer. To date, we have
not generated meaningful revenues from our buyer's club.
We may not be able to develop and support our member community on our Web site,
which could adversely affect demand for our products and services.
Our Web site is designed to create and support a community of PeoplePC
members. To this end, we intend to develop additional community features in the
future for our Web site, including online chat and special interest
directories. If we are unable to develop these community features successfully
or if our members do not respond positively to such features, our ability to
maintain and attract new members may be harmed.
We rely on merchants on our Web site to provide high-quality products and
services to our members on favorable terms. If they do not do so, our
reputation and our revenues will be harmed.
As of March 31, 2000 we had entered into agreements with more than 50
merchants to offer products and services to our members through our buyer's
club. We depend on these merchants to provide our members with a high-quality
customer experience. All of our merchant relationships are in their early
stages and we cannot be certain that our merchants will provide this high-
quality service. If our merchants do not provide satisfactory customer
experiences for our members, our reputation and our revenues would be harmed.
We may not succeed in establishing the PeoplePC brand, which would adversely
affect customer demand.
Developing and maintaining awareness of our "PeoplePC" brand name is critical
to achieving widespread acceptance of our product and service offerings and
rapidly building our customer base, as required by our business model.
Promoting and enhancing our brand will depend largely on our marketing efforts,
our ability to provide reliable and desirable products and services to
consumers, and our ability to provide consistent, high-quality customer
experiences. To promote our brand name, we have incurred and expect to continue
to incur substantial expenses from our advertising efforts on television, print
and other forms of media. Even if our brand promotion efforts are successful,
adverse publicity about the merchants that participate in our buyer's club or
our suppliers and service providers could damage our brand and negatively
affect demand for our offerings. In addition, if merchants do not perceive our
reputation among consumers to be good, they may not be willing to
10
<PAGE>
participate in our buyer's club, which would adversely affect our revenues. The
importance of brand recognition will increase as competition in the personal
computer, Internet access and buyer's club markets increases.
Our business would be harmed if we are unable to compete successfully.
The markets for personal computers, Internet access and buyer's clubs are
highly competitive and we expect competition to intensify in the future. While
we compete across a variety of markets, all of the markets in which we
participate are characterized by an increasing number of entrants. We compete
for customers with the following types of companies:
. vendors that bundle computer products, Internet access and customer
service in a single offering pursuant to a specific multi-year plan,
such as Directweb and Gobi;
. vendors of personal computers, some of which currently supply us with
our products, such as Apple, Compaq, Dell, Gateway, Hewlett-Packard, IBM
and Toshiba;
. Internet service providers, such as America Online, EarthLink,
Microsoft, Mindspring and NetZero; and
. buyer's clubs such as Accompany, Costco, C-Tribe and Mercata.
Existing or future competitors may develop or offer products or services that
are comparable or superior to ours at a lower price, which could significantly
harm our business. There are relatively few barriers preventing our competitors
from capitalizing on the convergence of the personal computer and Internet
access markets, as shown by the fact that most major computer vendors have
begun to offer Internet access services and some computer vendors are adopting
programs that offer rebates in exchange for entering into multi-year Internet
access service contracts. As a result, new integrated computing and Internet
service offerings pose a threat to our business. In addition, a number of
competitors in the United States and in other countries offering free Internet
access have experienced rapid growth in recent periods.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources and substantially larger customer bases than we do. In addition, many
of our competitors have nationally known brands, well-established relationships
and extensive knowledge of the markets in which we compete. Our competitors may
be able to use these advantages to expand their offerings more quickly, adapt
to new or emerging technologies more quickly, enter strategic relationships to
bundle products and services or address consumer needs, devote greater
resources to the marketing and sale of their offerings and adopt more
aggressive pricing and incentive programs.
The unpredictability of our quarterly results may adversely affect the trading
price of our common stock.
We expect our quarterly operating results to vary significantly from quarter
to quarter due to a number of factors. Slight variations in the costs of our
computer systems, Internet access or our other operating expenses could
significantly affect our operating margins in future periods. Some of the other
factors that could affect our quarterly operating results include:
. our ability to achieve and maintain a low-cost business model and manage
the third-party relationships necessary to do so;
. the revenue we generate from our buyer's club;
. the popularity of the computer systems we sell;
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<PAGE>
. our key suppliers' ability to manufacture sufficient quantities of the
computer systems we offer; and
. general economic conditions, as well as those specific to the Internet,
technology and related industries.
Our limited operating history makes it difficult for us to predict trends
accurately in our business and to plan our operations accordingly. Furthermore,
because our operating expenses are based on our expectations of future
revenues, unexpected quarterly fluctuations in revenue could significantly harm
our operating results. If our operating results in any future quarter do not
meet the expectations of securities analysts or investors, the price of our
common stock could significantly decline.
Seasonal fluctuations may also affect our quarterly operating results.
Historically, demand for personal computers and consumer retail sales over the
Internet have been significantly stronger in the fourth quarter of each year
and weaker in the first and second quarters of each year. Because we expect to
derive most of our revenue from the sale of membership packages that include
computer systems and related services and from the sale of products and
services by merchants participating in our buyer's club, we believe our
business could be subject to the seasonal impact of this cycle.
Our international expansion plans may not succeed.
A key element of our strategy is to expand our operations into international
markets. We have no experience in marketing, selling and delivering our
services internationally, and we may have difficulty managing our international
operations because of distance, language and cultural differences. If we do not
expand our revenues through these international operations, we could suffer
losses due to the costs associated with such endeavors and could potentially
lose any investments we make in establishing an international infrastructure.
Other risks related to our international operations include:
. Complex International Operations. We rely on third parties to provide
our operations infrastructure and to supply our products and services.
Managing our third-party providers is complex and will become more
complex as we expand our operations outside the United States.
. Financing in International Markets. Our business model depends on our
ability to arrange financing for our members for the purchase of our
products and services. The laws related to lending in the countries in
which we wish to conduct business may differ from laws in the United
States. As a result, we may not be able to provide credit to potential
members or we may incur additional legal expenses to comply with laws
and regulations in these countries.
. Telecommunications Infrastructure. Our business model depends on our
ability to offer our customers a membership that includes Internet
access. The telecommunications infrastructure in countries in which we
wish to conduct business may make it difficult to provide Internet
access as part of an integrated offering. Alternatively, the
telecommunications infrastructure in foreign countries may encourage
free Internet access, which may result in numerous competitors and
decrease the value of our offering to consumers.
. Currency Exchange Rates. If we are compensated for our services overseas
in U.S. dollars, we may need to convert these funds into the local
currency in order to pay our employees and certain foreign taxes.
Alternatively, if we are compensated for our services in the applicable
local currency, we may need to convert that currency into U.S. dollars
in order to pay costs that we incur in U.S. dollars and U.S. taxes. In
either event, fluctuations in currency exchange rates could adversely
affect our revenues and operating margins.
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. Autonomy and Integration of International Offices. Currently our
operations are managed from our San Francisco office, but as we continue
to expand we may grant an amount of autonomy to international offices.
If we grant such autonomy, we may experience difficulties integrating
and managing the operations of international offices with those of our
U.S. operations. This problem could divert the attention of management
and cause unforeseen delays in the implementation of strategy or
collection of revenues.
. Differing Regulatory Requirements. The legal and regulatory requirements
of countries in which we may conduct business in the future may differ
from those in the United States, particularly in the areas of
communications, lending, tax and labor laws. As a result, we may incur
additional legal expenses to comply with these laws and regulations. In
addition, laws relating to the protection and enforcement of
intellectual property rights in many countries are not as advanced and
offer significantly less protection than those in the United States.
. Political and Economic Instability. Several countries in which we wish
to conduct business have experienced political and economic instability
in the past and may continue to experience such instability in the
future.
. Tariffs and Trade Barriers. There may be tariff or trade barriers in
certain countries in which we wish to do business that may significantly
increase our operating costs in these countries.
We are growing rapidly, and if we fail to manage expansion effectively, our
business could be seriously harmed.
We have experienced rapid expansion and anticipate that we must continue to
expand our operations to address market opportunities. Our new employees
include a number of key managerial and technical employees who have recently
joined our management team, and we expect to add additional key personnel in
the near future. Our growth has placed, and will continue to place, a
significant strain on our management systems, infrastructure, resources and
planning and management processes. We will not be able to implement our
business strategy without an effective planning and management process. In
addition, we will not be able to increase revenues unless we continue to
improve our operational, financial and managerial controls and reporting
systems and procedures, expand, train and manage our work force and manage
multiple relationships with third parties. Many of our senior management have
no prior management experience at public companies, and we cannot be sure that
we will be able to manage our expansion effectively.
If we lose senior management and key personnel or are unable to attract and
retain skilled employees when needed, we may not be able to operate our
business successfully.
Our future success depends on the skills, experience and performance of our
senior management and key personnel, particularly of our Chief Executive
Officer, Nick Grouf. We must retain these individuals and be able to attract
and retain additional key personnel when needed in the future. We do not have a
Chief Financial Officer, and we are currently conducting a search to fill this
position. Competition for individuals with business and technical expertise is
high, especially in the San Francisco Bay Area where our operations are
located. All of our senior management and key personnel are at-will employees
and may terminate their employment with us at any time without warning.
Further, we do not maintain "key person" life insurance with respect to any of
our employees. If we lose key personnel or if we are not able to attract and
retain additional personnel when needed, we may be unable to successfully
introduce new products and services or otherwise implement our business
strategy.
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Our success is also dependent on our ability to recruit, integrate and
motivate highly skilled employees in other areas of our business. In
particular, our ability to attract and retain qualified sales, marketing,
operations and finance personnel is critical to the success of our planned U.S.
and international expansion. Competition for these people is intense, and we
may not be able to successfully recruit, train or retain qualified personnel.
The loss of the services of any of our key employees, the inability to attract
or retain qualified personnel in the future or delays in hiring required
personnel could constrain the expansion of our business operations.
Technology changes rapidly and we must continually introduce new products and
services to remain competitive or our business will be significantly harmed.
The personal computer and Internet access markets are both characterized by
rapid ongoing technological change, changes in user requirements and
preferences and frequent new service introductions involving new processes and
technologies and evolving industry standards that could render our existing
products and services obsolete. As a result, we must regularly introduce new
products and services, including new personal computer configurations and
enhanced Internet services, to maintain consumer interest in our products and
services. There can be no assurance that any new computer products or services
that we introduce will be successful. In addition, the successful introduction
of new products or services by us or our competitors may adversely affect the
sale of, or revenue from, our existing products or services. If we do not have
access to new technology in the future, we may not be able to successfully
incorporate new technology into our products or deliver new products or
features in a timely and cost-effective manner, which could adversely affect
demand for our products and services.
Expanding the breadth and depth of our product and service offerings is
expensive and difficult, and we may receive no benefit from our expansion.
To compete effectively, we will need to expand our operations by promoting
new or complementary products and by expanding the breadth and depth of our
services. For example, while we currently offer a single computer system to our
customers, we intend to expand our computer offerings to include high-
performance personal computers, laptop computers and a broader range of
printers and other peripheral components. We also intend to offer high-speed
access to the Internet in the future. Expanding our operations in this manner
will require significant resources and this expansion may strain our
management, financial and operational systems. Our expansion into new product
and service offerings may not be timely or may not generate sufficient revenues
to offset their cost. If this occurs, our business could be harmed.
Online security breaches could result in a loss of consumer confidence, which
could hurt our ability to implement our business strategy.
The secure transmission of confidential information over the Internet is
essential to maintaining consumer confidence in our business. We currently ask
consumers to provide us with registration and other information and we rely on
encryption and authentication technology to transmit this confidential
information securely. Our computer servers may be vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions. We may incur
substantial expense to protect against and remedy security breaches and their
consequences, but our efforts to prevent such security breaches may not be
successful. Any misappropriation of confidential information, whether during
the transmission of data or while it is stored on our servers or the servers of
our merchants, could damage our reputation, expose us to a risk of loss,
litigation or liability, and deter people from using the Internet. Our
insurance policies may not be adequate to reimburse us for losses caused by
security breaches.
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Our servers are vulnerable to natural disasters and other events that could
cause interruptions of our services.
We depend on the efficient and uninterrupted operations of our Web servers
and other hardware systems. Most of our Web servers and other hardware systems
are not redundant and are located at the facilities of a third party in
Sunnyvale, California. Our Web servers and other hardware systems are
vulnerable to damage from earthquakes, fire, floods, power loss,
telecommunications failures and similar events. If any of these events results
in damage to our Web servers or other hardware systems, we may be unable to
deliver our services to our customers until the damage is repaired. In such a
case, we may lose customers and participating merchants, as well as incur
substantial costs in repairing any damage.
If we are not able to protect our intellectual property, we may not be able to
compete effectively.
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to establish and protect our intellectual property.
These afford only limited protection. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to obtain and use
information that we regard as proprietary, such as technology used to operate
our Web site, our content and our trademarks. We also may be subject to claims
by third parties that we have infringed their intellectual property rights. We
could be involved in these claims even in instances where our connection with
the intellectual property in dispute arises only as a licensee from other
companies.
We have filed for U.S. trademark registrations for "PeoplePC" and five other
trademarks. We also have applied to register marks in 16 countries. We may be
unable to secure these registrations. It is also possible that our competitors
or others will adopt service names similar to ours, thereby impeding our
ability to build brand identity and possibly leading to customer confusion. In
addition, there could be potential trade name or trademark infringement claims
brought by owners of other registered trademarks or trademarks that incorporate
variations of the term PeoplePC or our other trademark applications.
Enforcement of trademark rights against unauthorized use, particularly over the
Internet and in other countries, may be impractical or impossible. In addition,
litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Further, our operations providers and the
merchants participating on our Web site may be engaged in litigation in the
future that would require our involvement. Any litigation could result in
substantial costs and diversion of our resources and could seriously harm our
business and operating results.
We may be unable to protect our Internet domain names, which could decrease the
value of our brand and harm our overall success.
As of March 31, 2000, we held over 200 domain names relating to our brand,
including PeoplePC.com. If we are unable to protect these domain names, our
competitors could capitalize on our brand recognition. The acquisition and
maintenance of domain names generally are regulated by governmental agencies
and their designees. The regulation of domain names in the United States and
foreign countries has changed and is subject to further change in the near
future. As a result, we may be unable to acquire or maintain relevant domain
names in the United States and other countries where we conduct business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to protect our own domain names or prevent third
parties from acquiring domain names that are similar, infringe upon or
otherwise decrease the value of our domain names, trademarks and other
intellectual property rights.
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We may become involved in litigation that may be costly and time-consuming.
From time to time, third parties may assert lawsuits or claims against us,
including those related to product liability, intellectual property, Internet
content, privacy, safety and health and employment matters. Litigation is
expensive and time consuming regardless of the merits of the claim and could
divert management's attention from our business. Moreover, we cannot predict
the outcome of any litigation. Lawsuits, claims or proceedings may result in
liability to us.
Products that contain, or are rumored to contain, defects could result in
significant costs to us, decreased sales of our products, damage to our brand
and lawsuits.
The design and production of personal computer components is highly complex.
We rely on third-party suppliers to provide us with high-quality products. If
any of the personal computers or peripherals we distribute contain defective
components, we could experience delays in shipment of these products and
increased costs. Further, the design of software is highly complex, and
software often contains defects that may be undiscovered for long periods of
time. If our third-party software providers are not successful in designing
software, or if defects in the software or in the personal computer products we
distribute are discovered after we have shipped our products in volume, we
could be harmed in the following ways:
. upgrades, replacements or recalls could impose substantial costs on us;
. rumors, false or otherwise, could be circulated by the press and other
media, which could cause a decrease in sales of our products and
significant damage to our brand; and
. our members could file suits against us alleging damages caused by
defective products and services.
Risks Related to Our Industry
Our business will be significantly harmed if growth in the use of the Internet
does not continue.
We believe a significant number of our members are purchasing our products
and services as a means of connecting to the Internet. Because we expect to
derive a large portion of our revenues from transactions between our members
and our merchants, our future success is substantially dependent upon continued
growth in Internet use, particularly as a means to buy and sell goods. The use
and acceptance of the Internet may not increase for a number of reasons,
including the following:
. actual or perceived lack of security of information, such as credit card
numbers, which are transmitted over the Internet;
. congestion of traffic or other usage delays on the Internet;
. inconsistent quality of service;
. possible outages due to damage to the Internet;
. uncertainty regarding intellectual property ownership; and
. government regulation of the Internet.
Capacity constraints caused by growth in the use of the Internet may impede
further development of the Internet to the extent that users experience delays,
transmission errors and other difficulties. If the necessary infrastructure,
products, services or facilities are not developed to mitigate the effects of
these factors, or Internet usage does not continue to increase as expected, we
may not be able to successfully implement our business model.
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If demand for personal computers does not continue to grow, demand for our
products and services would be adversely affected.
The future success of our business model depends on the continued strong
demand for personal computers. The personal computer market is characterized by
rapid new product and technology introductions and generally declining prices
for existing products. Demand for personal computers may be significantly
reduced if consumers perceive little technological advantage in new products or
believe that the price of a new product is not worth the perceived technical
advantage. Alternatively, if consumers view anticipated changes as significant,
such as the introduction of a new operating system or microprocessor
architecture, overall market demand for personal computers may decline because
potential consumers may postpone their purchases until release of the new
product or in anticipation of lower prices on existing products following the
introduction of new models. Reduced demand could result in excessive
inventories and it could take several quarters to sell this inventory, which
could delay the introduction of new products.
We could be exposed to liability or increased costs if new case law is decided,
or new government regulation regarding the Internet is enacted.
The law relating to our Internet business and operations is evolving, and no
clear legal precedents have been established. For example, tax authorities in a
number of states are currently reviewing the appropriate tax treatment of
companies engaged in electronic commerce, and new state tax regulations may
subject us to additional state sales or other taxes. In addition, laws relating
to the Internet in foreign countries may subject us to taxes in those
countries. The adoption of any new Internet laws and regulations or the
application of existing laws and regulations to the Internet and electronic
commerce could decrease the demand for our products and services, increase the
cost of doing business or prevent our transaction of business in specific
jurisdictions. In addition, the applicability to the Internet of existing laws
in various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. We could be found in violation of federal, state or foreign civil or
criminal law and, even if we could successfully defend such claims, our defense
could occupy significant amounts of management's time, harm our business
reputation and negatively affect our operating results and financial condition.
Risks Related to the Offering
Our stock price may be volatile and may decline following this offering, and we
cannot guarantee that an active market will develop following completion of
this offering.
Prior to this offering, there has not been a public market for our common
stock. We cannot predict the extent to which a market will develop or how
liquid that market will eventually become. The initial public offering price
for the shares of our common stock will be determined by negotiations among us
and the representatives of the underwriters and may not be indicative of prices
that will prevail in the trading market.
In addition, the stock markets in general, and the Nasdaq National Market and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of some comparable
technology companies' stocks are at or near historical highs. These trading
prices are volatile and may not be sustained. These broad market and industry
factors may seriously impact the market price of our common stock, regardless
of our actual operating performance. If our stock price declines, we may be
sued in a securities class action law suit, which could be costly, divert our
resources and seriously harm our business.
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Our principal stockholders can exercise a controlling influence over our
business and affairs.
Immediately after the offering, our directors and executive officers, and our
principal stockholders, will together control approximately % of our common
stock. If these stockholders acted or voted together, they would have the power
to elect our directors and to exercise a controlling influence over all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. In addition, this concentration
of ownership may delay or prevent a change in control of our company, even when
a change may be in the best interests of our stockholders. In addition, the
interests of these stockholders may not always coincide with our interests as a
company or the interests of other stockholders. Accordingly, these stockholders
could cause us to take action or omit to take action, even if doing otherwise
would benefit our stockholders as a whole.
Substantial future sales of our common stock in the public market may depress
our stock price.
Our current stockholders hold a substantial number of shares of our common
stock that they will be able to sell in the public market in the future. All of
the shares sold in this offering will be freely tradable. Our officers,
directors and current stockholders, representing an aggregate of shares,
have agreed with the underwriters not to sell or otherwise dispose of any of
their shares for a period of 180 days from the date of this prospectus, subject
to early release of portions of the shares that are covered by the lock-up
agreements after specified dates, which early release will be contingent on our
stock price, and subject to early release by the written consent of Goldman,
Sachs & Co. When these lock-up agreements expire, these shares and the shares
underlying any options held by these individuals will become eligible for sale,
in some cases subject only to the volume, manner of sale and notice
requirements of Rule 144 of the Securities Act of 1933. Sales of a substantial
number of shares of our common stock after this offering could cause our stock
price to fall. In addition, the sale of these shares could impair our ability
to raise capital through the sale of additional stock. You should read "Shares
Eligible for Future Sale" for a full discussion of shares that may be sold in
the public market in the future.
Our management will have broad discretion over the use of the proceeds from
this offering.
Our management will have broad discretion over the use of the proceeds of
this offering. Accordingly, it is possible that our management may allocate the
proceeds differently than investors in this offering would approve, or that we
will fail to maximize our return on the proceeds. See "Use of Proceeds" for a
more complete description of our current intention regarding the net proceeds
of this offering.
Investors in this offering will experience immediate and substantial dilution.
Investors who purchase common stock in this offering will pay more for their
shares than the amount paid by existing stockholders who acquired shares before
this offering. As a result, the value of an investment based on the value of
our net tangible assets, as recorded on our books, will be less than the amount
an investor pays for shares of common stock in this offering. Accordingly, if
an investor purchases common stock in the offering, the investor will incur
immediate dilution of approximately $ . See "Dilution" for a more complete
description of the dilution of an investment in our common stock upon the
completion of this offering.
Our charter documents and Delaware law could make it more difficult for a third
party to acquire us, and discourage a takeover.
Provisions of our certificate of incorporation, bylaws, and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be of benefit to our stockholders. See "Description of Capital Stock--
Anti-Takeover Effects of Some Provisions of Delaware Law and Our Charter
Documents" for a more complete description of these provisions.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words
such as "expect", "anticipate", "estimate", "believe", "intend" and "plan". Our
actual results may differ materially from those discussed in these statements.
Factors that could contribute to such differences include those discussed in
"Risk Factors" and elsewhere in this prospectus.
You should rely only on the information contained in this prospectus when
making a decision about whether to invest in our common stock. We have not
authorized anyone to provide you with information that is 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. Although we believe that the expectations reflected in our forward-
looking statements are reasonable, we cannot guarantee future results, levels
of activity or performance of achievements. We assume no duty to update any of
the forward-looking statements after the date of this prospectus or to conform
these statements to actual results.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock that we are selling in this offering will be approximately $ million
($ if the underwriters' over-allotment option is exercised in full) based on
an assumed initial public offering price of $ per share and after deducting
the estimated underwriting discount and offering expenses payable by us.
We plan to use the net proceeds of this offering for general corporate
purposes, including working capital, the expansion of our core business and
capital expenditures. The amounts and timing of our expenditures will depend
upon numerous factors, including the amount of proceeds actually raised in this
offering, the amount of cash generated by our operations, and sales and
marketing activities. Until the funds are used as described above, we intend to
invest the net proceeds of this offering in short-term, interest-bearing
securities.
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets. As of the date of this
prospectus, we cannot specify with certainty of all of the particular uses for
the net proceeds we will have upon completion of this offering. Accordingly,
our management will have broad discretion to allocate the net proceeds from
this offering.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings for the expansion and operation of our
business.
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CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1999. Our capitalization is also presented:
. on a pro forma basis to give effect to the conversion of all outstanding
shares of convertible preferred stock into shares of common stock upon
the closing of this offering; and
. on a pro forma as adjusted basis to reflect the sale of
shares of common stock at an assumed initial public offering price of
$ per share in this offering, less the estimated underwriting
discount and offering expenses payable by us.
You should read this information together with our financial statements and
the notes to those financial statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Preferred stock, $0.0001 par value, 54,000,000
shares authorized; 53,816,514 shares issued
and outstanding actual; 50,000,000 shares
authorized, none issued or outstanding pro
forma and as adjusted......................... $ 67,939 $ --
-------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value, 120,000,000
shares authorized; 33,760,000 shares issued
and outstanding actual; 87,576,514 shares
issued and outstanding pro forma;
shares issued and outstanding as adjusted... 3 8 $
Additional paid-in capital................... 21,713 89,647
Deferred stock-based compensation............ (18,640) (18,640)
Accumulated deficit.......................... (64,339) (64,339)
-------- -------- ----
Total stockholders' equity (deficit)....... (61,263) 6,676
-------- -------- ----
Total capitalization..................... $ 6,676 $ 6,676 $
======== ======== ====
</TABLE>
The number of shares of common stock outstanding after this offering is based
on the number of shares outstanding at December 31, 1999 and excludes:
. 9,189,200 shares of common stock issuable upon exercise of stock options
outstanding as of December 31, 1999 at a weighted average exercise price
of $0.066 per share;
. 9,468,252 shares of Series C preferred stock issued after December 31,
1999;
. 500,000 shares of common stock issuable upon exercise of a warrant
issued after December 31, 1999;
. 1,905,000 shares of common stock issuable to Ford Motor Company upon the
exercise of Ford's right to purchase shares at the initial public
offering price upon the closing of this offering and, if Ford exercises
this right in full, 2,857,500 shares of common stock issuable to Ford
upon the exercise of a warrant to be outstanding upon the closing of
this offering at an exercise price equal to the initial public offering
price; and
. 7,921,000 shares of common stock available for future issuance under our
1999 stock plan as of December 31, 1999, as well as the automatic annual
increases in the number of shares authorized under our 2000 stock plan.
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DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price of our
common stock and the pro forma net tangible book value per share of our common
stock after this offering. We calculate pro forma net tangible book value per
share by dividing the net tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of common stock after giving
effect to the conversion of all outstanding shares of our preferred stock into
common stock upon the closing of the offering.
Our pro forma net tangible book value at December 31, 1999, was $6.7 million,
or $0.08 per share based on 87,576,514 shares of common stock outstanding after
giving effect to the conversion of all outstanding shares of our preferred
stock into common stock upon the closing of this offering.
After giving effect to the sale of shares of common stock by us at
an assumed initial public offering price of $ per share and subtracting the
estimated underwriting discount and offering expenses, our pro forma as
adjusted net tangible book value at December 31, 1999 would be $ million,
or $ per share. This represents an immediate increase in the pro forma as
adjusted net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to new investors. Dilution is
determined by subtracting pro forma net tangible book value per share after the
offering from the assumed initial public offering price of $ per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share as of December 31,
1999.............................................................. $
Increase per share attributable to this offering...................
----
Pro forma net tangible book value per share after this offering......
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table shows on a pro forma as adjusted basis at December 31,
1999, the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by our existing
stockholders and by new investors purchasing common stock in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 87,576,514 % $67,976,000 % $0.78
New investors..................
---------- ----- ----------- -----
Total........................ 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
These tables assume no exercise of the underwriters' overallotment option and
no exercise of stock options outstanding as of December 31, 1999. As of
December 31, 1999, there were 9,189,200 shares of common stock issuable upon
exercise of outstanding stock options at a weighted average exercise price of
$0.066 per share. These tables also do not reflect the issuance of 9,468,252
shares of Series C preferred stock issued after December 31, 1999 and up to
1,905,000 shares of common stock issuable to Ford Motor Company upon the
exercise of Ford's right to purchase these shares at the initial public
offering price upon the closing of this offering. These tables also do not
reflect 500,000 shares of common stock issuable upon the exercise of a warrant
issued after December 31, 1999 at an exercise price of $6.225 per share and
2,857,500 shares of common stock issuable to Ford upon the exercise of a
warrant at an exercise price equal to the initial pubic offering price to be
outstanding upon the closing of this offering if Ford exercises its right to
purchase shares of common stock in full at the close of this offering. If these
options and warrants are exercised, there will be further dilution to new
public investors.
22
<PAGE>
SELECTED FINANCIAL DATA
This section presents our historical financial data. We derived the statement
of operations data for the period from March 2, 1999 to December 31, 1999 and
the balance sheet data at December 31, 1999 from the audited financial
statements included in this prospectus. PricewaterhouseCoopers LLP, our
independent auditors, audited these financial statements. When you read this
selected financial data, it is important that you also read the historical
financial statements and related notes included in this prospectus, as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Historical results are not necessarily indicative of future
results. See the notes to the financial statements for an explanation of the
method used to determine the number of shares used in computing basic and
diluted and pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
Period from March 2, 1999
(date of inception) to
December 31, 1999
-------------------------
(in thousands, except
share and per share data)
<S> <C>
Statement of Operations Data:
Gross sales of memberships, products and services
(see note 1 of notes to financial statements)(1).... $ 24,947
========
Membership revenues earned (gross sales of $21,410).. $ 1,180
Other revenues....................................... 3,537
--------
Total revenues..................................... 4,717
Cost of revenues(2).................................. 6,396
--------
Gross loss(2)........................................ (1,679)
Operating expenses:
Sales and marketing (exclusive of stock-based
compensation of $1,361 in 1999)................... 38,268
General and administrative (exclusive of stock-
based compensation of $1,665 in 1999)............. 5,433
Member experience (exclusive of stock-based
compensation of $13 in 1999)...................... 775
Other operating expenses........................... 15,550
Amortization of deferred stock-based compensation.. 3,039
--------
Total operating expenses.......................... 63,065
Loss from operations:................................ (64,744)
Interest income and other.......................... 405
--------
Net loss.......................................... $(64,339)
========
Basic and diluted net loss per share................. $ (1.99)
Shares used in computing basic and diluted net loss
per share........................................... 32,400
Pro forma basic and diluted net loss per share....... $ (1.11)
Shares used in computing pro forma basic and diluted
net loss per share.................................. 57,746
<CAPTION>
December 31, 1999
-----------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $ 36,108
Working capital...................................... 7,624
Total assets......................................... 52,870
Accumulated deficit.................................. (64,339)
Total stockholders' deficit.......................... (61,263)
</TABLE>
- --------
(1) Because we recognize revenues from memberships over the 36-month membership
period, we deferred $20.2 million in revenues for the period from inception
to December 31, 1999.
(2) Includes a nonrecurring charge of $2.0 million.
23
<PAGE>
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 in conjunction with the financial statements and notes to the
financial statements included elsewhere in this prospectus.
Overview
Our business model addresses the increasing need for people to access the
Internet, while delivering significant value to consumers, enterprises,
merchants and suppliers. We believe that long-term customer relationships are
more valuable than the cost of providing customers with the tools they need to
participate in the digital economy. We were incorporated in March 1999. We
began offering our products and services on a limited basis in September 1999
and on a commercial basis in October 1999. Until September 1999, we had no
revenues and our operating activities consisted primarily of developing
relationships with vendors, suppliers and merchants.
Our members enter into a three-year contract and pay as little as $24.95 per
month in membership fees plus a one-time shipping charge for a new brand-name
computer system, unlimited Internet access, customer support and in-home
warranty. In addition, our members receive discounts and special offers from
merchants that participate in our buyer's club. Customers who do not wish to
purchase a new computer system may still take advantage of our services through
our PeoplePC Online program for $9.95 per month or less. This offering includes
unlimited Internet access, participation in our buyer's club, email services
and a hosted Web site.
In addition to our offering to consumers, we offer a program for enterprises
to provide our products and services to their employees, customers and
affiliated parties. We recently entered into agreements with Ford Motor Company
and Delta Air Lines, Inc. to provide our products and services to the employees
of these companies. As employees register to become PeoplePC members, Ford and
Delta will pay us for the entire 36-month membership at negotiated rates. We
have agreed to provide Ford and Delta employees with several options to upgrade
their computer systems for an additional charge. We recognize these revenues
and associated costs over the three-year term of the relevant membership
agreement.
Gross sales consist of membership fees and other revenues from the sale of
peripherals and shipping and are expected to include fees from merchants
participating in our buyer's club. Revenues and the related cost of revenues
for personal computers and warranties are deferred and recognized over the
three-year term of the membership agreement. Other revenues from peripherals
such as color printers and larger monitors sold at the time of the initial
membership application are recognized in the period shipped. Cost of revenues
primarily consists of the cost of personal computers, monitors, printers,
software licensing costs, shipping costs, and costs of providing Internet
access, email services, warranty service and Web site hosting. The cost of
providing Internet access and email service to members and the cost of customer
service and support are expensed as incurred. Our business model allows us to
subsidize the cost of products and services with merchant and other revenues,
including revenues from peripherals and upgrades. We offer aggressive pricing
in order to establish customer relationships that we believe will provide the
means for longer-term profitability.
Revenues from merchants will be recognized in the period when a transaction
occurs. We typically receive a percentage of sales revenues generated by our
members' purchases from our merchants or a fixed fee when a member opens an
account or executes his or her first transaction with a merchant. In some
cases, we receive both a fixed fee for generating new customers and a
percentage of subsequent sales revenues. We also receive a referral fee for
directing our members to other companies' Web sites. Referral revenues are
recognized as referrals are made to these Web sites.
24
<PAGE>
We currently operate only in the United States, but expect to expand our
operations into international markets. To date, all of our sales and all of our
purchases from our suppliers have been made in U.S. dollars. As a result,
changes in currency exchange rates do not generally have a direct effect on our
financial position.
For financial reporting purposes, we have determined that the estimated value
of common stock determined in anticipation of this offering was in excess of
the exercise price, which exercise price was considered to be the fair market
value as of the date of grant for 11,509,200 options issued to employees in the
year ended December 31, 1999. In connection with the grant of such options, we
have recorded deferred compensation of $21.7 million during 1999. Deferred
stock-based compensation will be amortized over the vesting period which is
generally 48 months from the date of grant. $3.0 million was expensed in the
year ended December 31, 1999 and the balance is expected to be amortized as
follows:
<TABLE>
<CAPTION>
Deferred stock-based
Year compensation
---- --------------------
<S> <C>
2000................................................ $12,197,000
2001................................................ 4,392,000
2002................................................ 1,677,000
2003................................................ 369,000
</TABLE>
In April 2000, we raised $49.7 million in gross proceeds from the sale of
9,468,252 shares of Series C preferred stock. Ford Motor Company purchased
4,765,650 shares of Series C preferred stock in connection with this financing
and other investors purchased 4,702,602 shares. Ford also received the right to
purchase 1,905,000 shares of common stock in a private placement effected at
the closing of this offering at the same price per share as this offering. If
Ford exercises this right in full, Ford will also receive a warrant to purchase
2,857,500 shares of common stock, exercisable at the same price per share as
this offering at any time for a period of 200 days following the date of this
offering. The value of the right, the warrant and the excess of the value of
the common stock into which the Series C preferred stock is exercisable over
the price paid for the Series C preferred stock will be charged to sales and
marketing expense in the second quarter of 2000. We expect this charge to be
substantial. In the quarter ending June 30, 2000, we expect to incur a
substantial one-time charge to additional paid-in capital as a result of a
beneficial conversion feature of preferred stock issued to the other investors.
Results of Operations
Period from March 2, 1999 (Inception) to December 31, 1999
Revenues
Gross sales of memberships, products and services were $24.9 million for the
period from inception to December 31, 1999. Because we recognize revenues from
memberships over the 36-month membership period, we deferred $20.2 million and
recognized $4.7 million in revenues for the period from inception to December
31, 1999. We did not recognize any revenues until September 1999 and
substantially all our revenues for the period from inception to December 31,
1999 were derived from membership fees and the sale of other products and
services. We expect revenues will increase as a percentage of gross sales of
memberships, products and services as we recognize revenues derived from
merchants participating in our buyer's club in the future.
25
<PAGE>
Cost of Revenues
Cost of revenues was $6.4 million for the period from inception to December
31, 1999 after a deferral of $17.8 million related to the cost of deferred
revenues. Our gross loss was 35.6% of total revenues for the period from
inception to December 31, 1999 and included one-time expenses of $2.0 million
relating to a temporary increase in the cost of memory and storage costs. Our
gross margins are primarily affected by the cost of personal computers,
printers, monitors and Internet access costs. In the future, our gross margins
may also be affected by pricing of our memberships and revenues derived from
merchants participating in our buyer's club.
Operating Expenses
Sales and Marketing. Sales and marketing expenses include fees paid to third-
party advertising sales agents, marketing, sales support functions, travel and
related expenses and related salaries and benefits. Marketing costs associated
with increasing our membership base are expensed in the period incurred. Sales
and marketing expenses were $38.3 million for the period from inception to
December 31, 1999. These expenses include a charge of $2.3 million in the
period from inception to December 31, 1999 in connection with the cancellation
of an advertising campaign. In an effort to increase our revenues, membership
base and brand awareness, we expect to continue to expend significant resources
on sales and marketing in the future.
General and Administrative. General and administrative expenses include
payroll and related expenses for management and administrative personnel,
facilities costs, professional service fees, travel and other general corporate
expenses. General and administrative expenses were $5.4 million for the period
from inception to December 31, 1999. We anticipate that general and
administrative expenses will increase in absolute dollars due to increased
expenses associated with the addition of personnel and additional professional
fees, including costs associated with being a public company.
Member Experience. Member experience expenses include salaries and related
expenses for our Web site development staff, expenses related to our member
support help-line and other member-related expenses. In addition, we include
the amortization of our capitalized Web site development expenses in member
experience expenses. Member experience expenses were $775,000 for the period
from inception to December 31, 1999. We anticipate that member experience
expenses will increase as we continue to develop our products and services.
Other Operating. We generally place orders for products based on demand
projections and we refuse to accept products that fail to meet the
specifications ordered. Other operating expenses consist of a contingent
liability of $15.6 million for the period from inception to December 31, 1999
for costs to resolve any potential dispute resulting from a non-conforming
order.
Interest Income and Other
Interest income and other consists of interest income from cash equivalents
and short-term investments. Interest income and other was $405,000 for the
period from inception to December 31, 1999.
Income Taxes
As a result of our operating losses and the uncertainties related to our
ability to recognize a benefit from our deferred tax assets, we have not
recorded a provision for income tax for the period from inception to December
31, 1999. We have provided a full valuation allowance on our deferred tax
assets, consisting primarily of net operating loss carry-forwards of $43.4
million.
26
<PAGE>
Liquidity and Capital Resources
To date, we have financed our operations by the issuance of preferred stock.
As of December 31, 1999, our sources of liquidity consisted of $36.1 million in
cash and cash equivalents, excluding $15.8 million in restricted cash.
Net cash used in operating activities was $15.4 million for the period from
inception to December 31, 1999. Cash provided by operating activities for this
period consisted primarily of membership fees. Cash used in operating
activities for these periods consisted primarily of advertising expenses, costs
of our computer systems and peripherals and payroll and other employee-related
expenses.
Net cash used in investing activities was $16.4 million for the period from
inception to December 31, 1999. Net cash used in investing activities for this
period consisted primarily of accounts collateralizing letter of credit
agreements.
Net cash provided by financing activities was $68.0 million for the period
from inception to December 31, 1999 and consisted of the proceeds from the
issuance of a note and preferred stock.
We currently rely on MBNA America Bank, N.A. to provide a 36-month loan with
a $24.95 monthly payment to qualified members who wish to finance their
membership fees. Peripherals, upgrades and shipping charges are not currently
financed. We refer member credit information we collect in connection with
membership applications to MBNA. Applications may be declined or a higher than
standard interest rate may be offered based on the creditworthiness of the
applicant, which may result in a monthly payment of more than $24.95. Once we
notify MBNA that products have been shipped to a new member, MBNA makes payment
to us of the principal amount financed. We generally bear no credit risk in the
event of installment default.
We rely on Ingram Micro to distribute computer systems and peripherals from
our suppliers to our customers. Ingram Micro purchases inventory on our behalf
based on sales projections made by us. We are obligated to purchase inventory
held by Ingram Micro purchased on our behalf.
We currently anticipate that the net proceeds of this offering, together with
our available funds as of December 31, 1999, will be sufficient to meet our
anticipated needs for at least the next 12 months. If additional funds are
required, financing may not be available on acceptable terms, if at all, and
may be dilutive to our stockholders.
Quantitative and Qualitative Discussion of Market Risk
We are exposed to fluctuations in interest rates and market values of our
investments. Our exposure to fluctuations in interest rates and market values
of our investments relates primarily to our short-term investment portfolio,
which is included in cash and cash equivalents and short-term investments. We
have not used derivative financial instruments in our investment portfolio. We
invest our excess cash in highly liquid commercial paper and U.S. Government
debt securities with maturities of less than one year, and, by policy, we limit
the amount of credit exposure to any one issuer. Due to the short-term nature
of our investments, the impact of interest rate changes would not generally be
expected to have a significant impact on the value of these investments. The
effect of interest rate and investment risk on us has not been significant.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
27
<PAGE>
We have limited our investments to short-term, highly rated, fixed income
facilities such as repurchase agreements collateralized by government
securities and A-1/P-1 commercial paper. We intend to maintain our current
investment policy, which is designed to preserve principal while at the same
time maximizing the after-tax income we receive from our investments without
significantly increasing risk. Some of the securities that we may invest in may
be subject to market risk. This means that a change in prevailing interest
rates may cause the principal amount of the investment to fluctuate. For
example, if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities.
We currently have no floating rate indebtedness, hold no derivative
instruments and do not earn significant foreign sourced income. Accordingly,
changes in interest rates or currency exchange rates do not generally have a
direct effect on our financial position. In addition, we have primarily
operated in the United States and all purchases and sales to date have been
made in U.S. dollars. Foreign currency exchange rates, however, may affect the
cost of our personal computers, printers and monitors purchased from our
foreign suppliers, thereby indirectly affecting consumer demand for our
products and our net revenues. In addition, to the extent that changes in
interest rates and currency exchange rates affect general economic conditions,
we would also be affected by such changes.
Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We have not engaged in
derivative and hedging activities to date. We are currently evaluating the
impact of this pronouncement and will adopt SFAS No. 133 in the third quarter
of 2000.
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements". SAB 101 summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We are in process of evaluating the impact of this
pronouncement.
28
<PAGE>
BUSINESS
Overview
Our business model addresses the increasing need for people to access the
Internet, while delivering significant value to consumers, enterprises and
merchants. We believe that long-term customer relationships are more valuable
than the cost of providing customers with the tools they need to participate in
the digital economy. We offer an affordable and convenient membership package
that includes a new brand-name computer system, unlimited Internet access,
customer support and in-home technical service, as well as the opportunity to
benefit from discounts and special offers from merchants that participate in
our buyer's club. For enterprises, we provide an integrated solution that
enables companies to communicate with their employees, customers and affiliated
parties online by providing these parties with the tools to access the Internet
away from the workplace. We believe that by providing our package of products
and services, enterprises can save money, operate more efficiently and improve
employee relations, helping to instill a sense of corporate pride and community
among their workforces. In addition, we offer our merchants and suppliers a way
to reduce their customer acquisition and retention costs by providing them
access to a large group of potential customers and the opportunity to establish
long-term relationships with our growing community of members. As the value and
size of the PeoplePC membership grows, we believe that more consumers,
enterprises, merchants and suppliers will want to participate in our program,
which will further enhance the quality and experience of the PeoplePC
community.
Industry Background
Expected Growth of the Online Population
The growth and rapid adoption of the Internet continues to revolutionize the
way in which people communicate, share information and conduct business.
International Data Corporation, or IDC, estimates that the number of Internet
users in the United States will increase from approximately 81 million in 1999
to approximately 177 million in 2003. Additionally, the number of Internet
users worldwide is projected to increase from approximately 196 million in 1999
to approximately 502 million in 2003. This rapid growth in Internet users is
driven by a number of factors including:
. a large and growing installed base of personal computers;
. easier, faster, more reliable and more affordable access to the
Internet; and
. the proliferation of content, commerce and services being offered on the
Internet.
The widespread acceptance and usage of the Internet by consumers and
businesses is fueling a new digital economy where goods, services and
information are being exchanged through electronic communications. As more
business transactions and information move online, those who lack access to the
Internet will be unable to participate in this increasingly important and
growing electronic marketplace.
While the number of Internet users is growing rapidly, the majority of
consumers have not yet connected their households to the Internet. According to
IDC, in 1999 only 52% of U.S. households owned a personal computer and only 32%
of U.S. households had access to the Internet.
The Wired Enterprise
Enterprises are increasingly relying on the Internet and online strategies to
streamline their business processes. As enterprises move their operations and
communications to the Internet, it is becoming more important for their
employees, customers and affiliates to be able to receive or access online
information from work or from home. Greater efficiency and other cost savings
29
<PAGE>
encourage enterprises to provide their employees, customers and affiliates with
the technology and skills to communicate and collaborate with each other on the
Internet while away from the workplace. Establishing a technological base to
facilitate such communication and collaboration requires enterprises to find a
solution that is reliable, scalable and cost-effective and that does not strain
enterprise resources to implement and maintain. In addition, we believe that
providing a computer system and Internet access will help to instill a sense of
corporate pride and community among enterprise workforces.
Growth of Electronic Commerce and Value of the Consumer
The widespread adoption of the Internet has enabled the formation of a large
and rapidly expanding electronic commerce market. IDC estimates that annual
worldwide business-to-consumer commerce over the Internet will increase from
$31.0 billion in 1999 to $177.7 billion in 2003, while annual worldwide
business-to-business commerce over the Internet will increase from $80.4
billion in 1999 to $1.1 trillion in 2003. As the number of merchants conducting
business online proliferates and competition for online customers intensifies,
the costs of acquiring and retaining customers will increase as well. IDC
estimates that U.S. advertising spending on the Internet will continue to grow,
reaching $10.8 billion in 2003, an increase from $3.4 billion in 1999.
Because the cost of acquiring new customers is high, maintaining customer
relationships and maximizing the value of those customers is paramount to a
merchant's success. These customer relationships are most often acquired
through advertising. However, traditional methods of advertising can be a
costly and inefficient means of acquiring new customers since merchants are
required to pay for advertising regardless of whether the advertising is
successful in delivering new customers. In addition, traditional advertising
often does little to retain customers. As a result, merchants are increasingly
seeking ways to reduce the costs of customer acquisition and retention as well
as improve the efficiency of their spending.
Barriers to Getting Online
Traditionally, to connect their homes to the Internet, consumers have been
required to purchase a computer, choose an Internet provider and sign up for
Internet access in a series of independent transactions. After these steps, the
consumer still has to install the computer system and solve technical problems,
often without the benefit of product expertise or technical assistance.
Accordingly, we believe that many households have been discouraged from
purchasing a computer system and obtaining Internet access due to a number of
factors including the:
. traditionally high cost of a new computer system;
. difficulty involved in installing and maintaining a home computer
system;
. confusion involved in selecting an Internet access provider;
. anxiety over choosing appropriate products and services;
. threat of technological obsolescence; and
. concern about the privacy of personal information.
Enterprises face these same barriers, but the challenge is compounded by the
large scale of providing employees, customers and affiliated parties with
computer systems and Internet access and the difficulty and complexity of
implementing and managing an enterprise program.
30
<PAGE>
Our Market Opportunity
As the proliferation of the Internet makes it increasingly important and
advantageous for individuals to have access to this commercial and
informational medium, we believe an opportunity exists for a solution that can
address the related needs of:
. consumers who require a computer and Internet access to participate in
the digital economy;
. enterprises that can derive significant financial benefits and increased
efficiency from their employees, customers and affiliated parties having
access to the Internet; and
. merchants that need a cost-effective way to acquire new customers and to
develop profitable, long-term relationships with them.
The PeoplePC Solution
PeoplePC has created a business model that addresses the increasing need for
people to access the Internet and provides significant value to consumers,
enterprises, merchants and suppliers. Our integrated solution:
. makes it easier, more convenient and more affordable for people to
participate in the digital economy by providing them with a new brand-
name computer system, unlimited Internet access, customer support and
in-home technical service and the opportunity to participate in our
buyer's club, all for a single low monthly membership fee;
. enables enterprises to communicate with their employees, customers and
affiliated parties online by providing the tools to access the Internet
away from the workplace through our scalable, cost-effective, integrated
solution; and
. offers suppliers a wider base of customers and provides merchants access
to a community of potential customers through a pay-for-performance
model in which merchants pay only when a new customer is acquired or a
transaction is completed, thereby enabling merchants to effectively
reduce customer acquisition and retention costs.
Our Value Proposition to Members
We offer our members an affordable package of products and services that
reduces the hassle of purchasing a computer and getting online. In addition, as
a benefit of joining our community, members receive value in the form of
discounts and special offers from merchants that participate in our buyer's
club. For as little as $24.95 per month over three years, or less in the case
of members whose membership fees are subsidized through enterprise programs,
members receive:
. A new high-quality, name-brand computer system, replaced every three
years. Our members receive a complete, multimedia computer system that
includes a high-quality personal computer with peripherals such as a
color monitor, modem and CD-ROM and floppy diskette drives. Our computer
systems are supplied by leading vendors, such as Compaq, Hewlett-
Packard, IBM and Toshiba, and are pre-loaded with software from Intuit,
McAfee, Microsoft and other leading vendors. We provide our members with
a new, up-to-date computer system every three years for as long as they
remain PeoplePC members.
. Unlimited Internet access. We have teamed up with UUNET, a leading
provider of Internet service, to offer our members Internet access 24
hours a day, 7 days a week, or 24x7. Our membership package includes
unlimited use of this Internet access. In addition to fast, reliable and
easy-to-use Web browsing capabilities, our members have their own
personal email accounts and the ability to build and host their own Web
sites.
31
<PAGE>
. Easy setup, comprehensive customer support and in-home service. We aim
to make our members' PeoplePC experience as hassle-free and worry-free
as possible. Our easy-to-follow instructions and telephone support
services are designed to minimize the difficulty of computer and
Internet setup. A three-year parts and labor warranty on hardware
including in-home technical service, together with 24x7 technical
support and customer assistance, ensures that members receive help when
they need it.
Aggregated Buying Power and Cost Savings. By pooling the collective online
purchasing power of the PeoplePC community, we enable our members to receive
discounts and benefits typically reserved for large organizations. Through the
PeoplePC buyer's club, members can take advantage of consumer deals on goods
and services from our rapidly growing list of merchants. We strive to form
relationships with leading merchants that provide our members with discounts
and benefits in exchange for the opportunity to offer their products and
services to our members. As the PeoplePC membership community grows, we believe
that more merchants will want to participate in our program, offering our
members an increasingly attractive combination of value and choice.
Commitment to Privacy. Our business model does not require members to view
intrusive advertising on their computers. We periodically inform our members of
offers that might be of interest and value to them through our Web site and
email, but members may choose to receive more or less information at any time.
In addition, we do not distribute or sell our members' personal data to other
companies for advertising or direct mailing purposes without permission or
allow advertisers to solicit them within our community without their consent.
Our Value Proposition to Enterprises
Enterprises can generate tangible benefits if their employees, customers and
affiliated parties own computers and have access to the Internet away from the
workplace. We offer an easy and affordable way for enterprises to bring all of
these parties online. Members that join through an enterprise program receive a
computer system and related products and services selected by the enterprise
and become full PeoplePC members. We strive to offer competitive pricing and
anticipate that enterprises will share the cost of PeoplePC membership with
their employees, customers and affiliated parties.
Scalable, Cost Effective, One-Stop Solution. We provide enterprises with an
integrated solution from a single source that scales easily and quickly,
requires little additional infrastructure investment and provides the
enterprise's employees, customers and affiliated parties with the same
convenience, quality assurance and value benefits enjoyed by all PeoplePC
members. In addition, we believe that our packaged offering costs enterprises
less than it would for them to purchase each component of our offering
separately.
Connected Employees, Customers and Affiliated Parties. By offering the
PeoplePC package, enterprises can provide their employees, customers and
affiliated parties with computing capabilities and access to the Internet away
from the workplace. While this access facilitates communication for the
enterprise, having a computer and Internet access at home may also help
employees and their families accelerate the development of Internet and
electronic business skills, encouraging the development of a more
technologically savvy workforce that can participate in the digital economy.
Enhanced Enterprise Communications and Reduced Costs. By enabling their
employees, customers and affiliated parties to communicate and collaborate more
efficiently with each other, our enterprise customers can streamline certain
business processes and reduce infrastructure costs. For example, increased use
of electronic communications can reduce printing, mailing and other
administrative costs. A connected enterprise can also disseminate corporate
information more rapidly
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and effectively across businesses and geographies. In addition, we enable
enterprises to establish relationships with their employees, customers and
affiliated parties through contact points such as:
. desktop icons that connect members directly to the enterprise Web site
or Intranet;
. customized keyboards with buttons that connect members to the
enterprise's Web site;
. welcome pages that display enterprise information and promotions;
. email correspondence to enterprise employees, customers and affiliated
parties; and
. customer service to support enterprise services.
Improved Relationships. Using our solution, companies can provide their
employees, customers and affiliated parties with a computer system, Internet
access and the benefits of PeoplePC membership. We believe that by providing
our package of products and services, enterprises may improve employee
relations and help to instill a sense of corporate pride and community among
their workforces. In addition, by sponsoring a program that facilitates
communication and delivers value over the long term, we believe an enterprise
can build goodwill, maintain ongoing correspondence and develop deeper
relationships over time with its employees, customers and affiliates.
Our Value Proposition to Merchants and Suppliers
The PeoplePC business model is designed to help merchants and suppliers
reduce their customer acquisition and retention costs and build long-term
relationships with our members.
Reduced Customer Acquisition and Retention Costs. We help suppliers reach a
large number of customers without having to incur the typical selling costs. We
also provide merchants with the opportunity to reduce the costs of acquiring
and retaining customers by offering their products and services to our
membership community. Merchants compensate us only if our members transact
business with them. We encourage merchants to share the cost savings with our
members, thereby increasing the attractiveness of the consumer deals offered
through our buyer's club. Better deals in turn enhance the value of membership
and entice even more consumers to join.
Long-Term Customer Relationships. As our membership grows, we believe our
relationship with our members will become increasingly valuable to merchants.
We develop relationships with our members in a variety of ways over the course
of their membership and also enable our merchants and suppliers to develop
relationships with our members. These relationships are built with our members
through the following:
. Joint marketing. We market our offering together with the products and
services of our suppliers and participating merchants.
. Pre-loaded software. We install software from third-party suppliers on
our computers prior to shipment.
. Start-up materials. We pack coupons from our merchants in boxes
containing new computer systems and feature participating merchants in
our startup guide.
. Desktop icons. We place PeoplePC icons on computer desktops that link
members to the PeoplePC Web page when connecting to the Internet.
. Welcome page. Each time a member connects to the Internet, a welcome
page appears displaying the PeoplePC logo along with selected promotions
from participating merchants.
. Membership emails. We send regular emails to our members that provide
membership information and occasional promotions.
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. Customer service. We provide high-quality and reliable customer service
through our call centers and by email.
. Web site and billing statement. Our Web site and billing statement
provide additional channels through which we and merchants can
communicate with customers or take advantage of co-branding
opportunities.
In the future, we intend to offer a customized keyboard with buttons that will
enable one-touch access directly to the Web sites of a member's most important
or most visited vendors. While we do not allow merchants to solicit our members
without their consent, merchants can maintain promotional relationships with
consumers who wish to receive more detailed information about specific goods
and services.
Efficient and Flexible Pricing. We offer merchants efficient, flexible
pricing that enables them to maximize the return on their customer acquisition
investment. We currently offer a performance-based pricing system where we are
only compensated if our members actually transact business with participating
merchants. For example, we receive a portion of the revenue from each sale or a
customer acquisition fee for each member that becomes a customer of a given
merchant. In some cases, we receive both a customer acquisition fee and a
portion of sales revenue. In any case, merchants pay only for the specific
results that they receive through our relationship.
The PeoplePC Strategy
We believe that long-term customer relationships are far more valuable than
the cost of providing customers with the tools they need to participate in the
digital economy. Our business model allows us to subsidize the cost of products
and services with merchant and other revenues, including revenues from
peripherals and upgrades. We focus on the quality of our members' experience,
the scalability of our operations, and on building the critical mass required
to drive costs down for our members, enterprises, merchants, suppliers and our
company.
Leverage Virtual Business Model
Our virtual business model relies on multiple third-party vendors to expand
our operations infrastructure rapidly by using the strengths of leading
suppliers. Once a PeoplePC membership application is processed, our core
infrastructure providers help new members finance their computer systems,
supply members with their computer systems and software, ship the products to
our members' homes, connect members to the Internet and provide telephone
support and onsite technical assistance. These core providers currently
include:
. computer suppliers such as Compaq, Hewlett-Packard, IBM and Toshiba;
. software vendors such as Intuit, McAfee and Microsoft;
. financial institutions such as MBNA;
. distribution and delivery providers such as Ingram Micro;
. Internet access providers such as UUNET; and
. support and service providers such as Sykes Enterprises, DecisionOne and
Ron Weber.
We seek relationships with multiple providers to ensure redundancy and to offer
our members a complete, valuable and high-quality solution. We choose our
providers based on their global capabilities and their ability to expand
rapidly as our requirements increase. By utilizing the capabilities of well-
established providers, we believe we will be able to grow rapidly, build on our
providers' expertise, maintain efficient cost structures and focus on
developing our brand and signing up more members and merchants.
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Build a World-Class Brand
We believe that developing a premier global brand is critical to attracting
and retaining members and high-quality merchants, and we plan to continue to
focus on building our brand as a key component of our marketing strategy. As
part of our business model, we intend to continue to align ourselves with
leading suppliers and merchants so that PeoplePC will be associated with high-
quality products and companies. To reinforce the PeoplePC reputation for high-
quality service, user-friendliness, credibility and community, we intend to
promote PeoplePC extensively through various media, including television,
radio, print, direct mail, online advertising, personalized PeoplePC email
addresses and co-branding arrangements such as our relationship with Yahoo! on
the PeoplePC member welcome page.
Expand Enterprise Channel
We intend to continue to pursue enterprise customers, such as large
corporations, schools, municipalities and unions, through our PeoplePC
enterprise program in order to increase our membership and provide our members
with the additional collective buying power of large organizations. We have
already signed agreements with Ford and Delta and we intend to sign agreements
with other Fortune 500 companies to help promote mainstream adoption of the
PeoplePC solution in the business and global community. Finally, we intend to
market our offering through the sales channels of some of our merchants and
enterprise customers in joint-customer acquisition programs.
Deliver Quality Customer Experience
We strive to build long-term relationships with our members by establishing
multiple points of contact with them and by providing our members with
meaningful value, comprehensive customer service and a commitment to privacy.
Our products and services involve multiple communication channels, including
our Web site, email system, call center and billing statements. In addition,
from our initial membership benefits of an affordable personal computer and
convenient Internet access to the ongoing benefits of a growing buyer's club,
we seek to offer our members the best value that we can provide. Our three-year
parts and labor warranty and 24x7 customer service and technical support serve
to assure our members that we will be available to them whenever they need
help. Finally, we do not distribute or sell our members' personal data to other
companies for advertising or direct mail promotions without permission or allow
advertisers to solicit them within our community without their consent.
Expand Product Offerings
We intend to expand our product offerings to include high-performance
computer systems, laptop computers, imaging devices and other peripherals. In
addition, we intend to offer high-speed Internet access as it becomes more
common and affordable. Further, we intend to expand our product offering to
alternative Internet access devices as these products become more developed and
widespread. Since we are platform-independent, we do not require members to use
specific hardware, software, Web browsers or portals. In fact, through our
PeoplePC Online service, members can use their existing computer systems to
receive Internet access and enjoy the benefits of PeoplePC membership for $9.95
a month or less.
Target International Markets
We plan to take advantage of the international capabilities of our core
vendors and the global nature of the Internet to aggressively expand our
business into international markets. In addition, we intend to use our
relationship with SOFTBANK to establish additional relationships with
international suppliers and service providers.
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The global nature of our arrangements with Ford and Delta requires us to
expand our operations into international markets on an accelerated time frame.
Once we have established our international operations pursuant to the Ford and
Delta agreements, we intend to offer our products and services to the general
public in several of the countries in which we have established operations.
Products and Services
PeoplePC Membership Package
PeoplePC membership includes:
Computer System. We offer computer systems that deliver strong performance
and good value to our members. We believe that our expertise simplifies the
purchasing process for our members and our high purchasing volume allows us to
get low pricing from our suppliers. Our members receive a computer system that
currently includes at least a 400 megahertz processor with 64 megabytes of RAM
and 6 gigabytes of memory on the hard drive. Our systems currently include a
15-inch color monitor, a modem and CD-ROM and floppy diskette drives. We
currently offer our members the opportunity to upgrade to a 17-inch color
monitor and to purchase a color printer.
All of our systems include software which has been installed on the computer
prior to shipping. Currently, our systems come pre-loaded with Microsoft
Windows 98, Microsoft Works, Microsoft Money and McAfee's anti-virus software.
Our systems arrive ready to connect to the Internet. Our enhanced Internet
Explorer browser displays the PeoplePC logo and a button to access recommended
PeoplePC merchants.
Currently, we provide our members with computer systems from Compaq, Toshiba,
Hewlett-Packard and IBM, depending on the availability and pricing of these
systems at the time of shipment. In the future, we may offer computers from
other computer vendors. We plan to offer laptop computers and a line of very
high performance computers to our current enterprise customers and in the
future may offer them to our general members.
Unlimited Internet Access Services. We provide our members unlimited Internet
access. Our computer systems arrive ready to connect to the Internet. To use
our service, members initiate telephone connections between their personal
computers and computer hardware in local or regional telecommunications
facilities known as points of presence.
We currently contract for the use of points of presence around the country
from UUNET Technologies, Inc., an MCI WorldCom company. Through UUNET, we are
able to offer local dial-up phone connections to approximately 90 percent of
the U.S. population. Thus, our users typically bear no expense for Internet
communication beyond the cost, if any, of an ordinary local or regional phone
call. Our service provides full point-to-point protocol access to the Internet,
and supports the v.90 standard for 56 kbps connections. In the future, we may
contract with other wholesale providers in the United States and in other
countries in order to achieve more extensive coverage or more competitive
pricing.
Under our agreement with UUNET, we are charged for the aggregate number of
active PeoplePC members who connect to the Internet. Our agreement also
provides for additional charges for high volume usage. Our agreement with UUNET
expires in June 2002 and will be renewed for an additional year unless either
party provides notice 60 days prior to the end of the term of its intent not to
renew.
We provide our members with email services. PeoplePC membership includes an
"@peoplepc.com" email address that can be accessed through our Internet access
provider from a member's primary computer or through the Internet from any
computer with an Internet connection. Our email services are hosted by Critical
Path. We also provide our members with 10 megabytes of
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space to maintain their own Web site. Our computer systems include software to
assist members in the creation and maintenance of their Web site. Our members'
Web sites are hosted by Web Provider, an Interliant company.
Merchants. Our merchants offer our members discounts and other benefits in
exchange for the opportunity to offer their products and services to our
membership base. The collective purchasing power of our members enables us to
negotiate discounts and special offers typically reserved for large
organizations. We select merchants that we believe offer high-quality products
and services. The product and service offerings of participating merchants
appear in a directory on our Web site. Currently, more than 50 merchants have
signed agreements with us, but none of them has generated significant revenues
for us to date. Representative merchants include:
1-800-flowers.com FTD.COM priceline.com
Budget Rent a Car Gap Inc. The Sports Authority
BUY.COM MCI Worldcom Tickets.com
E*TRADE more.com wine.com
E-LOAN Mondera.com ZDNet
Our merchants compensate us either through a percentage of sales revenues
generated by our members' purchases or through a fixed fee when a member opens
an account or executes his or her first transaction with a merchant. In some
cases, we receive both a fixed fee for generating new customers and a
percentage of subsequent sales revenues.
We intend to continue to expand the number and variety of our merchants to
provide our members with a broad range of product and service offerings. As our
membership base grows, we believe we will be able to negotiate even more
favorable deals for our members and increase the revenues we earn through our
merchandise offerings.
Service and Warranty. We believe that a high level of customer service and
technical support is critical to retaining and expanding our membership base.
We offer 24x7 customer service and technical support services by telephone for
the three-year membership term. Our representatives address questions
concerning computer set-up and operation, Internet access and membership offers
and services.
In order to maintain low costs and enable rapid growth, we outsource most of
our customer service and technical support to multiple providers including
Sykes Enterprises, Incorporated, Ron Weber and Associates, Inc. and
DecisionOne. As of March 31, 2000, these providers had approximately 920 agents
dedicated exclusively to PeoplePC, comprised of approximately 230 agents
providing sales services and approximately 690 agents providing customer
service and technical support. Our agreement with Sykes terminates in July 2000
and automatically renews for one-year periods until terminated by either party
with 90 days written notice. Our agreement with Ron Weber and Associates
expires in February 2002 and either party may terminate the agreement on
60 days written notice. Our agreement with DecisionOne may be terminated at any
time by either party.
We also provide our members technical support and service and a three-year
hardware warranty covering parts and labor that includes in-home technical
service. Our technical support is provided by both our suppliers and Service
Net, Inc. Our agreement with Service Net terminates in November 2002 and is
automatically renewed for two-year terms. After November 2002 either party may
terminate the agreement with 90 days written notice during a renewal period.
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PeoplePC Online
Customers who do not wish to purchase a new computer system may still take
advantage of our product offerings through our PeoplePC Online program. This
offering includes unlimited Internet access, discounts through our
participating merchants, email services and a hosted Web site. PeoplePC Online
currently costs our members $9.95 per month or less.
Enterprise Sales
Our strategy is to enter into relationships with enterprises such as large
corporations, schools, municipalities, government entities and unions to
provide our offering to their employees, customers and other affiliated
parties.
Ford Motor Company
In April 2000, we entered into an agreement to be the sole provider for the
Employee Connectivity Program of the Ford Motor Company. We believe our
offering will help Ford employees to develop computing and Internet skills and
enable Ford to distribute information electronically and streamline business
processes. We agreed to provide up to 380,000 Ford employees worldwide who are
eligible to participate in the program with a personal computer, a printer,
unlimited Internet access, a customized Web portal, email services, program
management and administration, telephone and email customer service and
technical support, a three-year warranty on parts and labor and an in-home
service agreement for three years. Ford employees also will have the
opportunity to participate in our buyer's club. We have agreed to provide Ford
employees with several options to upgrade their computer systems for an
additional charge.
We intend to begin distributing products under the Ford Employee Connectivity
Program worldwide in 2000. Our agreement with Ford will expire in April 2003.
Either party may terminate the agreement at any time for cause, provided that
the other party is allowed a 60-day cure period. If the agreement is not
renewed, the program will continue until the completion of any outstanding
service terms.
In April 2000, Ford purchased 4,765,650 shares of our Series C preferred
stock. Ford also received the right to purchase 1,905,000 shares of common
stock in a private placement effected at the closing of this offering at the
same price per share as this offering. If Ford exercises this right in full,
Ford will also receive a warrant to purchase an additional 2,857,500 shares of
common stock exercisable at the same price per share as this offering, at any
time for a period of 200 days following the date of this offering.
Delta Air Lines, Inc.
We entered an agreement with Delta Air Lines, Inc. in January 2000 in which
we agreed to provide up to 75,000 Delta employees who are eligible to
participate in the program with a personal computer, email services, program
management and administration, telephone and email customer service and
technical support, a three-year warranty on parts and labor and in-home service
for three years. Delta employees also will have the opportunity to participate
in our buyer's club. Unlimited Internet access will be provided to Delta
employees by AT&T. We believe that our offering will enable Delta to
communicate and collaborate with its employees more effectively and enable
Delta employees to access company information conveniently. We have agreed to
provide Delta employees with several options to upgrade their computer systems
for an additional charge.
We intend to begin distributing products under the Delta program in 2000. Our
agreement with Delta will expire in January 2003. If the agreement is not
renewed, the program shall continue to allow the completion of the outstanding
service terms. Delta holds a warrant to purchase 500,000 shares of our common
stock at an exercise price of $6.225 per share.
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Customer Service
We believe consistent, high-quality customer service is critical to retaining
and expanding our membership base and building our brand. We strive to make our
members' PeoplePC experience as hassle-free and worry-free as possible. We
provide 24x7 customer service and technical support. We strive to minimize the
time members must wait for a customer service representative and strive to
resolve member questions as quickly as possible. We also provide in-home
technical service for hardware problems that cannot be resolved on the
telephone.
Our members receive easy-to-follow instructions to assist with the set-up and
operation of their computer systems and Internet access. We also have
customized a member's initial connection to the Internet to simplify the
registration process. Our Web site contains a customer service page that
outlines PeoplePC policies and provides answers to frequently asked questions.
Members also can email representatives for customer service and technical
support. In addition, we intend to launch live online customer service on our
Web site to assist customers as they apply for membership.
Sales and Marketing
Our sales and marketing strategy is designed to build brand recognition, to
add new customers, to establish strong customer loyalty and to encourage
transactions with merchants. Many of our members join PeoplePC on our Web site
or by calling our customer service centers after hearing about PeoplePC in
advertising or through word of mouth. In an effort to effectively position the
PeoplePC brand in the marketplace as a leading provider of bundled computer and
Internet access offerings and to accelerate the acquisition of new customers,
we are currently conducting a nationwide advertising campaign across a broad
range of media.
Traditional Advertising. We advertise on national television networks and
various cable channels and in a number of publications such as USA Today, the
Wall Street Journal and local and regional newspapers. Further, we engage in
targeted direct mail campaigns to promote both our full membership package and
our PeoplePC Online offering.
Online Advertising. We place advertisements on various high-profile and high-
traffic Web sites. Our advertisements on these sites are typically focused on
customer acquisition and encourage visitors to click through directly to our
Web site and apply for membership. We also engage in targeted direct email
campaigns to promote our product and service offerings.
An important part of our marketing strategy is to promote the PeoplePC brand
with our existing members. Our PeoplePC Web site is our primary means of
communicating with our members. In the future, we intend to enhance the
community features of our Web site, such as live online chat, links to news and
other information and the ability to locate members with similar interests.
Further, we promote our brand through the PeoplePC-My Yahoo! Web page which
appears as a welcome page when our members connect to the Internet.
Operations
Distribution. We believe that our outsourced distribution model is key to an
efficient and rapidly scalable operations model. As part of this strategy, we
entered into an agreement with Ingram Micro in August 1999 in which they agreed
to provide, process and distribute computer systems and peripherals to our
customers. Ingram Micro is one of the leading wholesalers of brand-name
computer hardware and software products worldwide. Our computer suppliers ship
their products directly to Ingram Micro's distribution centers around the
country. When a customer application is approved, products are picked from
inventory, packed and shipped to our customers from the distribution center
closest to the shipping address.
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We believe that our outsourced distribution model has been highly effective
at leveraging the inventory management, distribution and fulfillment
capabilities of Ingram Micro to deliver products to our customers. By using a
secure electronic connection, orders placed by our customers on our Web site or
through one of our call centers are transmitted directly to Ingram Micro after
being processed by us. These orders are processed and sent to a designated
distribution center to be picked, packed and shipped. The integrated electronic
connection with Ingram Micro also provides us with data on inventory
quantities, inventory location, shipping status and order tracking numbers. Our
Web site provides a direct link from a customer's order information to United
Parcel Service to provide information on order delivery status. Our agreement
with Ingram Micro expires in August 2000, and may be renewed for one-year terms
by mutual written consent of the parties.
Financing. We provide financing to our members through MBNA America Bank,
N.A. We entered into an agreement with MBNA in February 2000 in which MBNA
agreed to provide a 36-month loan with a $24.95 monthly payment to qualified
members who wish to finance their membership fees. Peripherals, upgrades and
shipping charges are not currently financed. We refer member credit information
we collect in connection with membership applications to MBNA. Applications may
be declined or a higher than standard interest rate may be offered based on the
creditworthiness of the applicant, which may result in a monthly fee more than
$24.95. Once we notify MBNA that products have been shipped to a new member,
MBNA makes payment to us of the principal amount financed. Our agreement may be
terminated by MBNA upon 90 days notice and by us upon 90 days notice after we
have submitted a predetermined number of credit applications to MBNA. Either
party may terminate our agreement for a material breach following a 45-day cure
period. In association with another financial institution, we have issued a
limited number of credit cards. We do not currently have a credit card program,
but we may begin a new credit card program in the future.
PeopleGive
We intend to establish PeopleGive, a non-profit organization, to help bridge
the digital divide by providing computer systems and Internet access to persons
in need. PeopleGive intends to distribute new and refurbished computer systems
with a bundled service package that includes Microsoft productivity software,
unlimited Internet access, technical support and educational software.
Initially, we intend to focus on families with children in the public schools.
PeopleGive intends to collaborate with computer recycling firms to refurbish
previously owned computer systems along with PeoplePC computer systems that are
donated by members who upgrade their memberships and receive newer systems.
PeopleGive also plans to work with training organizations to provide recipients
with computer skills.
We have launched a program to benefit 100 families in the Oakland, California
area through the Marcus A. Foster Educational Institute. We intend to launch
other programs in San Francisco, East Palo Alto, San Jose, Washington D.C., New
York, Chicago, Detroit, Atlanta and the state of Kentucky.
Competition
The markets for personal computers, Internet access and buyer's clubs are
intensely competitive, evolving and subject to rapid technological change.
These markets are characterized by an increasing number of entrants. We compete
for members with the following categories of competitors:
. vendors that bundle a computer, Internet access and customer service in
a single offering and provide a multi-year payment plan;
. vendors of personal computers, including some vendors that currently
supply our products;
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. Internet service providers; and
. buyer's clubs.
The primary competitive factors in the bundled computer, Internet access and
customer service market include scalability, price, brand, customer experience,
effective customer support, a reputation of reliable service, geographic
coverage and distribution. There are relatively few barriers preventing our
competitors from capitalizing on the convergence of the computer, Internet
access and customer service markets. As a result, new integrated offerings pose
a threat to our business.
Intellectual Property
We regard the protection of our copyrights, service marks, trademarks, trade
dress and trade secrets as critical to our success. We rely on a combination of
copyright, trade secret and trademark law and contractual restrictions to
establish and protect our proprietary intellectual property rights in our
products and services. We generally enter into confidentiality agreements with
our employees and consultants. Our confidentiality agreements generally require
our employees and consultants to hold in confidence and not disclose any of our
proprietary information. Despite our efforts to protect our proprietary
information, unauthorized parties may attempt to obtain and use our proprietary
information. Policing unauthorized use of our proprietary information is
difficult, and the steps we have taken might not prevent misappropriation,
particularly in foreign countries where the laws may not protect our
proprietary rights as fully as do the laws of the United States.
We have filed applications for the registration of some of our trademarks and
service marks, including PeoplePC, in the United States and in some other
countries. We have not secured registration of any of our marks to date. We may
be unable to secure such registered marks. It is also possible that our
competitors or others will use marks similar to ours, which could impede our
ability to build brand identity and lead to customer confusion. In addition,
there could be potential trade name or trademark infringement claims brought by
owners of other registered trademarks or trademarks that incorporate variations
of the term PeoplePC. Any claims or customer confusion related to our
trademark, or our failure to obtain trademark registration, would negatively
affect our business. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as do the laws of the United
States, and effective copyright, trademark and trade secret protection may not
be available in such jurisdictions. Our efforts to protect our intellectual
property rights may not prevent misappropriation of our content. Our failure or
inability to protect our proprietary rights could substantially harm our
business.
Facilities
Our principal executive offices are located in San Francisco, California. We
lease approximately 26,000 square feet at this facility pursuant to a lease
that expires in February 2005. We have an option to extend the term of the
lease for an additional five-year period. We intend to seek additional office
space by the end of 2000.
Employees
As of March 31, 2000, we had a total of 96 full-time employees. None of our
employees are represented by a labor union, and we have no collective
bargaining agreements. We consider our relations with our employees to be good.
Legal Proceedings
We are not presently involved in any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position with PeoplePC
- ---- --- ----------------------
<S> <C> <C>
Nick Grouf.............. 31 Chairman of the Board, Chief Executive Officer and Director
Daniel Kohler........... 43 Chief Operating Officer
Glen A. Kohl............ 44 Vice President and General Counsel
Ronald D. Fisher(1)..... 52 Director
John Sculley(2)......... 60 Director
Michael J. Price(1)..... 42 Director
Bradley A. Feld(1)(2)... 34 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Nick Grouf, one of our co-founders, has served as our Chairman of the Board,
Chief Executive Officer and a director since our founding in March 1999. From
January 1999 to May 1999, Mr. Grouf served as a Venture Partner and
Entrepreneur-in-Residence at SOFTBANK Technology Ventures, a venture capital
firm. In 1995, Mr. Grouf co-founded and served as President and Chief Executive
Officer of Firefly Network, Inc., a provider of personalization technologies
for the Internet, which was acquired by Microsoft Corporation in April 1998.
Mr. Grouf earned a B.A. from Yale University and an M.B.A. from Harvard
Business School.
Daniel Kohler has served as our Chief Operating Officer since July 1999. From
August 1998 to July 1999, Mr. Kohler served as Senior Vice President of
Operations and Administration of Ty, Inc., a toy manufacturer and distributor.
From May 1994 to August 1998, Mr. Kohler served as Vice President of Catalog
Operations of Office Max, Inc. Mr. Kohler earned a B.A. from the University of
Pittsburgh and an M.B.A. from Keller Graduate School.
Glen A. Kohl has served as our Vice President and General Counsel since March
2000. From May 1999 to March 2000, Mr. Kohl was Executive Director of Ernst &
Young LLP's National Office West. From January 1994 through November 1996, Mr.
Kohl served in the United States Treasury Department, first as Tax Legislative
Counsel, and then as Deputy Assistant Secretary for Tax Policy. From October
1984 to December 1993 and from January 1997 through April 1999, Mr. Kohl was an
associate and then a member of Wilson Sonsini Goodrich & Rosati, Professional
Corporation. Mr. Kohl earned a B.S. in Mathematics from Tufts University, a
J.D. from Yale Law School and a LL.M. in Taxation from New York University
School of Law.
Ronald D. Fisher has served as a director since October 1999. Mr. Fisher
currently serves as the Chief Executive Officer of SOFTBANK Global Ventures, a
global private equity organization. He joined SOFTBANK in October 1995. From
January 1990 to February 1996, Mr. Fisher was the Chief Executive Officer of
Phoenix Technologies, Ltd., a developer and marketer of system software
products for personal computers. Mr. Fisher is a director of SOFTBANK Corp.
(Japan), Ziff Davis, Inc., InsWeb Corp. and Global Sports, Inc. Mr. Fisher
earned a Bachelor of Commerce from the University of Witwatersand in South
Africa and an M.B.A. from Columbia University.
John Sculley has served as a director since May 1999. Since 1994, Mr. Sculley
has served as a partner of Sculley Brothers LLC, a venture capital firm. Mr.
Sculley previously served as the Chief Executive Officer of Apple Computer,
Inc. for ten years. Mr. Sculley is a director of Buy.com, Inc., Netobjects
Inc., Talk City, Inc. and NFO Worldwide, Inc. Mr. Sculley holds a B.S. in
Architectural Design from Brown University and an M.B.A. from the Wharton
Business School.
42
<PAGE>
Michael J. Price has served as a director since October 1999. Mr. Price is
Co-Chairman of FirstMark Communications International LLC, a broadband Internet
company. From March 1987 to March 1998, Mr. Price served first as a Vice
President and then as a Managing Director of Lazard Freres & Co. L.L.C., where
he founded its Global Telecommunications and Technology practice. Mr. Price is
a director of Amdocs Ltd. and SpectraSite. Mr. Price earned a B.A. in economics
from the Wharton School at the University of Pennsylvania and an M.B.A. from
Harvard Business School.
Bradley A. Feld has served as a member of our board of directors since March
1999. Since June 1996, Mr. Feld has served as managing director of SOFTBANK
Technology Ventures. Mr. Feld is a director and co-chairman of Interliant, Inc.
and MessageMedia, Inc. and a director of a number of privately held companies.
Since 1995, Mr. Feld has been the President of Intensity Ventures Inc., a
company that helps to establish, advise and operate software companies. From
1993 to 1995, Mr. Feld served as chief technology officer of AmeriData
Technologies, a publicly-traded company that was acquired by GE Capital in
1996. Mr. Feld holds S.B. and S.M. degrees from the Massachusetts Institute of
Technology.
Board of Directors
Our board of directors consists of five members. Upon the completion of this
offering, the terms of office of the board of directors will be divided into
three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 2001; Class II, whose term will expire at the annual
meeting of stockholders to be held in 2002; and Class III, whose term will
expire at the annual meeting of stockholders to be held in 2003. The Class I
directors are Messrs. Price and Feld. The Class II directors are Messrs.
Sculley and Fisher. The Class III director is Mr. Grouf. At each annual meeting
of stockholders after the initial classification, the successors to directors
whose term expires will be elected to serve a term of three years. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible,
each class will consist of one-third of the total number of directors. This
classification of directors may have the effect of delaying or preventing
changes in control of PeoplePC.
Executive officers are elected by the board of directors annually. There are
no family relationships among any of the directors, officers or key executives
of PeoplePC.
Board Committees
PeoplePC's board of directors has an audit committee and a compensation
committee. Messrs. Fisher, Price and Feld are members of the audit committee
and Messrs. Sculley and Feld are members of the compensation committee. The
audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants. The
compensation committee reviews and recommends to the board of directors the
compensation and benefits of all of our officers and establishes and reviews
general policies relating to compensation and benefits of our other employees.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
No interlocking relationship exists between the board of directors or
compensation committee of PeoplePC and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
Director Compensation
Our directors do not currently receive any cash compensation for their
service as directors, except reimbursement for reasonable travel expenses in
connection with attendance at board and committee meetings. Current and future
directors are eligible for option grants under our incentive plans.
43
<PAGE>
Executive Compensation
The following table sets forth the compensation paid to our chief executive
officer during the fiscal year ended December 31, 1999. No other executive
officer received compensation in excess of $100,000 in the fiscal year ended
December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ------------
-------------------- Securities
Name and Principal Fiscal Year Underlying All Other
Position Ended Salary ($) Bonus ($) Options (#) Compensation ($)
------------------ ----------- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Nick Grouf, Chairman of
the Board and Chief
Executive Officer..... 1999 $126,731 -- -- $2,450
</TABLE>
Grants of Stock Options
No grants of options to acquire shares were made to the executive officer
named in the executive compensation table during the fiscal year ended December
31, 1999.
Exercises of Stock Options
No exercise of options to acquire shares was made by the executive officer
named in the executive compensation table during the fiscal year ended December
31, 1999.
Employee Benefit Plans
1999 and 2000 Stock Plans
Our 1999 stock plan was adopted by our board of directors and approved by our
stockholders in May 1999. A total of 16,560,000 shares of common stock were
reserved for issuance under the 1999 stock plan. When the board adopted the
2000 stock plan in March 2000 and reserved 15,500,000 shares of common stock
for issuance under the plan, the board determined not to grant additional
options under the 1999 stock plan. As of March 31, 2000, options to purchase
5,546,050 shares of common stock were outstanding under the 1999 stock plan and
1,321,700 shares were available for future grant under the 1999 plan. All
1,321,700 shares have been added to the 15,500,000 shares available for future
grant under the 2000 plan for a total of 16,821,700 shares available for future
grant. The number of shares reserved for issuance under the 2000 plan increases
automatically as options granted under the 1999 plan terminate unexercised. The
2000 stock plan provides for an annual increase in the number of shares
reserved for issuance under the plan beginning on January 1, 2001, in an amount
equal to the lesser of:
. a maximum number of shares;
. four percent of our outstanding shares of common stock on the last day
of the prior fiscal year; or
. an amount determined by our board of directors.
The 1999 and 2000 stock plans provide for grants of incentive stock options
to our employees including officers and employee directors and nonstatutory
stock options to our consultants and non-employee directors. The purposes of
our stock plans are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to our
employees and consultants and to promote the success of our business. The
compensation committee
44
<PAGE>
administers our stock plan and determines the optionees and the terms of
options granted, including the exercise price, number of shares subject to the
option and the exercisability thereof.
The term of the options granted under the stock plans is stated in each
option agreement. However, the term of an incentive stock option may not exceed
ten years and, in the case of an option granted to an optionee who owns more
than ten percent of our outstanding stock at the time of grant, the term of an
option may not exceed five years. Options become exercisable as set forth in
each option agreement.
With respect to any optionee who owns more than ten percent of our
outstanding stock, the exercise price of any stock option granted must be at
least 110% of the fair market value on the grant date.
No incentive stock options may be granted to an optionee, which, when
combined with all other incentive stock options becoming exercisable in any
calendar year that are held by that person, would have an aggregate fair market
value in excess of $100,000. In any fiscal year, we may not grant any employee
options to purchase more than a maximum number of shares, and we are limited in
the number of shares we may grant in the case of an employee's initial
employment. The 1999 stock plan will terminate in May 2009, and the 2000 stock
plan will terminate in March 2010, unless our board of directors terminates it
sooner.
As of March 31, 2000, we had issued 9,692,250 shares of common stock upon the
exercise of options granted under our 1999 stock plan, we had outstanding
options to purchase 5,546,050 shares of common stock at a weighted average
exercise price of $1.316 per share and 1,321,700 shares remained available for
future option grants under our 1999 stock plan. As of March 31, 2000, no
options had been granted under the 2000 stock plan.
Our stock plan provides that in the event we merge with or into another
corporation, or we sell all or substantially all of our assets, each
outstanding option shall be assumed or substituted by the successor
corporation. If the successor corporation refuses to assume or substitute for
the option, then all outstanding options will become fully vested and
exercisable.
2000 Employee Stock Purchase Plan
Our 2000 employee stock purchase plan was adopted by our board of directors
in March 2000 and will become effective upon the closing of this offering. We
have reserved a total of 6,600,000 shares of common stock for issuance under
the 2000 employee stock purchase plan, together with an annual increase in the
number of shares reserved thereunder beginning on January 1, 2001 in an amount
equal to the lesser of:
. a maximum number of shares;
. three percent of our outstanding common stock on the last day of the
prior fiscal year; or
. an amount determined by our board of directors.
The employee stock purchase plan contains successive, overlapping 24-month
offering periods. Each offering period includes four six-month purchase
periods.
Our employee stock purchase plan is administered by our board of directors
and is intended to qualify under Section 423 of the Internal Revenue Code. Our
employees, including our officers and employee directors, but excluding our
five percent or greater stockholders, are eligible to participate if they are
customarily employed for at least 20 hours per week and for more than five
months in any calendar year. Our employee stock purchase plan permits eligible
employees to purchase common stock through payroll deductions.
45
<PAGE>
Our employee stock purchase plan provides that in the event we merge with or
into another corporation, or we sell all or substantially all of our assets,
each outstanding option shall be assumed or substituted by the successor
corporation. If the successor corporation refuses to assume or substitute for
the option, then any purchase periods in progress will be shortened by setting
a new exercise date, and any offering periods then in progress shall end on the
new exercise date.
Our employee stock purchase plan will terminate in March 2010, unless our
board of directors terminates it sooner.
401(k) Plan
In 1999, we adopted a retirement savings and investment plan, the 401(k)
plan, covering our eligible participants. The 401(k) plan is intended to
qualify under Section 401(a) and 401(k) of the Internal Revenue Code, so that
contributions to the 401(k) plan by employees or by us and the earnings thereon
are not taxable to the employees until withdrawn. If our 401(k) plan qualifies
under Section 401(k) of the Internal Revenue Code, our contributions will be
deductible by us for the tax year when made. Generally, employees may elect to
reduce their current compensation by up to the statutorily prescribed annual
limit of $10,500 in 2000 and to have those funds contributed to the 401(k)
plan. The 401(k) plan permits us, but does not require us, to make additional
matching contributions on behalf of all participants.
Limitation of Liability and Indemnification
Our certificate of incorporation limits the liability of our directors and
executive officers 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 our company or our 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 as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
The limits on a director or officer's liability in our certificate of
incorporation do not apply to liabilities arising under the federal securities
laws and do not affect the availability of equitable remedies such as
injunctive relief or rescission.
Our certificate of incorporation, together with our bylaws, provides that we
must indemnify our directors and executive officers and may indemnify our other
officers and employees and other agents to the fullest extent permitted by law.
We believe that indemnification under our bylaws covers at least negligence and
gross negligence on the part of indemnified parties. 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 that capacity,
regardless of whether our bylaws would otherwise permit indemnification. We
believe that the indemnification provisions of our certificate of incorporation
and bylaws are necessary to attract and retain qualified persons as directors
and officers. We also maintain directors' and officers' liability insurance.
We entered into agreements to indemnify our directors, executive officers and
other employees as determined by the board of directors. These agreements
provide for indemnification for related expenses including attorneys' fees,
judgments, fines and settlement amounts incurred by any such
46
<PAGE>
person in any action or proceeding arising out of his or her service as a
director, executive officer or employee. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as our
directors and executive officers.
At present we are not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of our company where indemnification
will be required or permitted. Nor are we aware of any threatened litigation or
proceeding that might result in a claim for indemnification.
47
<PAGE>
CERTAIN TRANSACTIONS
All future transactions, other than compensation, stock options pursuant to
the plans and other benefits available to employees generally, including any
loans from us to our officers, directors, principal stockholders or affiliates,
will be approved by a majority of our board of directors, including a majority
of our independent and disinterested members of our board of directors. If
required by law, such future transactions will be approved by a majority of the
disinterested stockholders. These future transactions will be on terms no less
favorable to us than we could obtain from unaffiliated third parties.
Stock Issuances to our Directors, Officers and Principal Stockholders
Series A Preferred Stock
On May 14, 1999 we sold 24,000,000 shares of our Series A preferred stock at
$0.125 per share. The purchasers of the Series A preferred stock included,
among others:
<TABLE>
<CAPTION>
Aggregate
Shares of Purchase
Investor Series A Stock Price
- -------- -------------- ----------
<S> <C> <C>
Michael J. Price(1).................................. 1,600,000 $ 200,000
Sculley Brothers LLC(2).............................. 4,000,000 $ 500,000
SOFTBANK Technology Ventures Entities(3)............. 14,400,000 $1,800,000
</TABLE>
- --------
(1) Represents the initial investment in the Series A preferred stock
financing. Current holdings consist of:
. 1,400,000 Series A shares held by Michael J. Price;
. 80,000 Series A shares held by Michael J. Price as Custodian for Allie
Price under the NJUTMA;
. 80,000 Series A shares held by Michael J. Price as Custodian for Jeffrey
Price under the NJUTMA; and
. 40,000 Series A shares held by a third-party transferee.
Michael Price is a member of our board of directors.
(2) Represents the initial investment in the Series A preferred stock
financing. Current holdings consist of:
. 3,990,000 Series A shares held by Sculley Brothers LLC; and
. 10,000 Series A shares held by a third-party transferee.
John Sculley, a partner of Sculley Brothers LLC, is a member of our board
of directors.
(3) Represents holdings of:
. 14,129,280 Series A shares held by SOFTBANK Technology Ventures IV LP;
and
. 270,720 Series A shares held by SOFTBANK Technology Advisors Fund LP.
Bradley Feld, a managing director of SOFTBANK Technology Ventures, is a
member of our board of directors. Mr. Feld disclaims beneficial ownership
of the securities held by these entities, except to the extent of his
pecuniary interest therein.
Each share of Series A preferred stock is convertible into one share of
common stock and contains a $0.125 per share liquidation preference.
Concurrently with the sale of the Series A preferred stock, the investors
entered into a co-sale agreement and an investor rights agreement with
48
<PAGE>
us. The co-sale agreement and the investor rights agreement were subsequently
amended in connection with the Series B and Series C preferred stock
financings. See "--Series C Preferred Stock" for more information about these
agreements.
In connection with the Series A preferred stock sale, we amended our
certificate of incorporation to, among other changes, provide for the election
of two directors by the holders of a majority of the Series A preferred stock.
Mr. Fisher and Mr. Feld were elected to the board as the Series A directors.
This voting arrangement will terminate on the date of this offering.
Loan Financing
On September 30, 1999 we entered into a convertible loan agreement with
SOFTBANK Capital Partners LP in which we borrowed $10,000,000 at 7% annual
interest accruing as of October 30, 1999. The convertible loan agreement
provided for the automatic conversion of the outstanding principal and accrued
but unpaid interest on the convertible note upon the closing of our next equity
financing. As a result of the Series B preferred stock financing that closed on
October 25, 1999, the principal amount of $10,000,000, according to the terms
of the agreement, into 4,587,156 Series B preferred shares. SOFTBANK Capital
Partners LP was issued that number of Series B preferred stock calculated by
dividing the principal amount and accrued interest by $2.18.
Series B Preferred Stock
On October 25, 1999 we sold 29,816,514 shares of our Series B preferred stock
at $2.18 per share. The purchasers of the Series B preferred stock included,
among others:
<TABLE>
<CAPTION>
Aggregate
Shares of Purchase
Investor Series B Stock Price
- -------- -------------- -----------
<S> <C> <C>
SOFTBANK Technology Ventures Entities(1)......... 2,293,578 $ 5,000,000
SOFTBANK Corp.(2)................................ 20,642,202 $45,000,000(3)
</TABLE>
- --------
(1) Represents holdings of:
. 2,250,458 Series B shares held by SOFTBANK Technology Ventures IV LP;
and
. 43,120 Series B shares held by SOFTBANK Technology Advisors Fund LP.
Bradley Feld, a managing director of SOFTBANK Technology Ventures, is a
member of our board of directors. Mr. Feld disclaims beneficial ownership
of the securities held by such entities, except to the extent of his
pecuniary interests therein.
(2) Represents holdings of:
. 20,347,018 Series B shares held by SOFTBANK Capital Partners LP; and
. 295,184 Series B shares held by SOFTBANK Capital Advisors Fund LP.
Ronald Fisher, the Chief Executive Officer of SOFTBANK Global Ventures, is
a member of our board of directors. Mr. Fisher disclaims beneficial
ownership of the securities held by such entities, except to the extent of
his pecuniary interest therein.
(3) $10,000,000 of the aggregate purchase price of $45,000,000 is in the form
of a cancelled note under the September 1999 convertible loan agreement
with SOFTBANK Capital Partners LP.
Each share of Series B preferred stock is convertible into one share of
common stock and contains a $2.18 per share liquidation preference.
Concurrently with the sale of the Series B preferred stock, the investors
entered into the existing co-sale and investor rights agreements. The co-sale
agreement and the investor rights agreement were subsequently amended in
connection with the Series C preferred stock financing. See "--Series C
Preferred Stock" for more information about these agreements.
49
<PAGE>
In connection with the Series B preferred stock sale, we amended our
certificate of incorporation to, among other changes, provide for the election
of a director by the holders of a majority of the Series B preferred stock.
There is currently no Series B director. This voting agreement will terminate
on the date of this offering.
SOFTBANK Corp., the controlling entity of SOFTBANK Capital Partners LP and
SOFTBANK Capital Advisors Fund LP, received the right to participate in any
joint venture relating to our operations outside the United States and Japan.
We received the right to invest in any entity formed by SOFTBANK in Japan with
a business model substantially similar to our business model. This arrangement
will terminate on the effective date of this offering.
Series C Preferred Stock
On April 5, 2000 we sold 9,468,252 shares of our Series C preferred stock at
$5.246 per share. The purchasers of the Series C preferred stock included,
among others:
<TABLE>
<CAPTION>
Shares of Aggregate
Investor Series C Stock Purchase Price
- -------- -------------- --------------
<S> <C> <C>
Ford Motor Company................................ 4,765,650 $25,000,599
SOFTBANK Technology Ventures Entities(1).......... 1,283,426 $ 6,732,853
SOFTBANK Corp.(2)................................. 1,587,000 $ 8,325,402
Michael J. Price Entities(3)...................... 153,760 $ 806,625
Sculley Brothers LLC.............................. 307,526 $ 1,613,281
</TABLE>
- --------
(1) Represents holdings of:
. 1,262,612 Series C shares held by SOFTBANK Technology Ventures IV LP;
and
. 20,814 Series C shares held by SOFTBANK Technology Advisors Fund LP.
(2) Represents holdings of:
. 1,564,306 Series C shares held by SOFTBANK Capital Partners LP; and
. 22,694 Series C shares held by SOFTBANK Capital Advisors Fund LP.
(3) Represents holdings of:
. 153,760 Series C shares held by PPC Holdings LLC, an entity as to which
Michael Price is the general partner.
Each share of Series C preferred stock is convertible into one share of
common stock and contains a $5.246 per share liquidation preference. Ford also
received the right to purchase 1,905,000 shares of common stock in a private
placement effected at the closing of this offering at the same price per share
as this offering. If Ford exercises this right in full, Ford will also receive
a warrant to purchase 2,857,500 shares of common stock exercisable at the same
price per share as this offering at any time for a period of 200 days following
the date of this offering.
Concurrently with the sale of the Series C preferred stock, the investors
entered into a co-sale agreement and an investor rights agreement with us. The
co-sale agreement provides the Series A, Series B and Series C preferred
stockholders the right to include a pro-rata share of stock in certain sales or
transfers made by key management members Nick Grouf, Max Metral and David
Waxman. The investor rights agreement provides the registration rights
described in "Description of Capital Stock--Registration Rights".
On April 5, 2000 we entered into an agreement to be the provider for Ford's
Employee Connectivity Program.
50
<PAGE>
Summary
The table below summarizes the foregoing transactions with officers,
directors and 5% stockholders. Upon closing of this offering, all shares of
outstanding preferred stock will be automatically converted into shares of
common stock.
<TABLE>
<CAPTION>
Series A Series B Series C
Common Preferred Preferred Preferred Aggregate
Investor Stock Stock Stock Stock Consideration
- --------- ------ ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Ford Motor Company....... -- -- -- 4,765,650 $25,000,599
SOFTBANK Technology
Ventures Entities....... -- 14,400,000 2,293,578 1,283,426 $13,532,853
SOFTBANK Corp............ -- -- 20,642,202 1,587,000 $53,325,402
Michael J. Price
Entities................ -- 1,600,000 -- 153,760 $ 1,006,625
Sculley Brothers LLC..... -- 4,000,000 -- 307,526 $ 2,113,281
</TABLE>
Option Grants and Loans to Our Directors and Executive Officers
The table below summarizes option grants to executive officers and directors.
In some instances, the recipients of option grants have elected to early
exercise their option. In such instances, the recipient of the optioned stock
has agreed to give us the right to repurchase any stock that would have been
unvested as of the date they cease to provide services to us if the option
grant had not been early exercised.
<TABLE>
<CAPTION>
Start Date for
Release from Number of
Officers, Directors and Repurchase Repurchase Number of Optioned Shares Aggregate
5% Stockholders Option Option Shares Optioned Exercised to Date Purchase Price
- ----------------------- ---------- -------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Glen Kohl............... (1) 3/6/00 400,000 400,000 $440,000
Daniel Kohler........... (1) 7/26/99 880,000 880,000 $ 11,000
Daniel Kohler........... (1) 2/8/00 600,000 400,000 $ 88,000
Michael J. Price........ (2) 5/14/99 1,160,000 1,160,000 $ 14,500
John Sculley............ (2) 5/14/99 1,160,000 1,160,000 $ 14,500
</TABLE>
- --------
(1) 1/4th of the shares are released from our repurchase option one year from
the release start date and a further 1/48th of such shares are subsequently
released from our repurchase option each month. In addition, upon a change
of control, an additional 12.5% of shares that continue to be subject our
right of repurchase shall be immediately released from our repurchase
option. This offering will not constitute such a change of control.
(2) 1/36th of such shares are released from our repurchase option each month.
In addition, upon a change of control, an additional 12.5% of shares that
continue to be subject to our right of repurchase shall be immediately
released from our repurchase option. This offering will not constitute such
a change of control.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership
of our common stock as of March 31, 2000, by the following individuals or
groups:
. each person, or group of affiliated persons, that we know beneficially
owns more than 5% of our outstanding stock;
. each of our current directors; and
. all of our executive officers and current directors as a group.
Unless otherwise indicated, the address for each stockholder on this table is
c/o PeoplePC Inc., 100 Pine Street, Suite 1100, San Francisco, California
94111. Except as otherwise noted, and subject to applicable community property
laws, to the best of our knowledge, the persons named in this table have sole
voting and investing power with respect to all of the shares of common stock
held by them.
This table lists applicable percentage ownership based on 86,808,738 shares
of common stock, which includes:
. 31,480,000 shares of our common stock outstanding as of March 31, 2000;
. 1,512,224 shares of common stock issued upon the early exercise of stock
options that are no longer subject to repurchase rights by us as of
March 31, 2000; and
. 53,816,514 shares of our common stock issuable upon the conversion of
all outstanding shares of preferred stock.
The number of shares outstanding for purposes of this table excludes:
. 8,180,026 shares of common stock subject to repurchase rights held by us
as of March 31, 2000;
. 9,468,252 shares of Series C preferred stock issued after March 31, 2000
that will convert into 9,468,252 shares of common stock; and
. 500,000 shares issuable upon exercise of a warrant outstanding as of
March 31, 2000 at an exercise price of $6.225 per share.
This table also lists applicable percentage ownership following the issuance
and sale of shares of common stock in this offering.
52
<PAGE>
Options and warrants to purchase shares of our common stock that are
exercisable within 60 days of March 31, 2000 and shares of common stock which
were issued upon the early exercise of stock options that will be released from
our repurchase right within 60 days of March 31, 2000 are deemed to be
beneficially owned by the persons holding these options, warrants or shares for
the purpose of computing percentage ownership of that person, but are not
treated as outstanding for the purpose of computing any other person's
ownership percentage.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding
Shares ----------------------
Beneficially Prior to the After the
Beneficial Owner Owned Offering Offering
---------------- ------------ ------------ ---------
<S> <C> <C> <C>
5% Stockholders
Entities affiliated with
SOFTBANK Technology Ventures(1).................... 16,693,578 19.2%
c/o Bradley A. Feld
200 West Evelyn Street, Suite 200
Mountain View, CA 94043
Entities affiliated with SOFTBANK Corp.(2).......... 20,642,202 23.8%
c/o Ronald D. Fisher
10 Langley Road #403
Newton Center, MA 02159
Directors and Officers
Bradley A. Feld(1).................................. 16,693,578 19.2%
200 West Evelyn Street, Suite 200
Mountain View, CA 94043
Ronald D. Fisher(2)................................. 20,642,202 23.8%
10 Langley Road #403
Newton Center, MA 02159
Nick Grouf(3)....................................... 15,280,278 17.5%
John Sculley(4)..................................... 4,763,334 5.5%
90 Park Avenue, 32nd Floor
New York, NY 10016
Michael Price(5).................................... 2,333,334 2.7%
Firstmark Communications
660 Madison Avenue, 22nd Floor
New York, NY 10022
Dan Kohler(6)....................................... -- * *
Glen Kohl(7)........................................ -- * *
All directors and executive officers
as a group (7 persons)............................. 59,712,726 68.2%
</TABLE>
- --------
* Less than 1%.
(1) Includes 14,129,280 Series A and 2,250,458 Series B shares held by SOFTBANK
Technology Ventures IV L.P. and 270,720 Series A and 43,120 Series B
shares held by SOFTBANK Technology Advisors Fund L.P. Mr. Feld, one of our
directors, is a limited partner of SOFTBANK Technology Ventures IV L.P. Mr.
Feld disclaims beneficial ownership of the shares held by these funds
except to the extent of his pecuniary interest therein. Mr. Feld does not
hold any options to purchase any of our stock.
(2) Includes 20,347,018 Series B shares held by SOFTBANK Capital Partners LP
and 295,184 Series B shares held by SOFTBANK Capital Advisors Fund LP.
SOFTBANK Capital Partners LLC is the sole general partner of both SOFTBANK
Capital Partners LP and SOFTBANK Capital Advisors Fund LP. As a result,
securities beneficially owned by SOFTBANK Capital Partners LP and SOFTBANK
Capital Advisors Fund LP may be deemed beneficially owned by SOFTBANK
Capital Partners LLC. All investment decisions on behalf of SOFTBANK
Capital Partners LLC
53
<PAGE>
must be approved by SOFTBANK Capital Partners Investment Inc. and by any of
Mr. Ronald D. Fisher, Mr. Charles R. Lax or Mr. William L. Burnham, all of
whom are Members of SOFTBANK Capital Partners LLC. As a result, securities
beneficially owned by SOFTBANK Capital Partners LLC may be deemed
beneficially owned by SOFTBANK Capital Partners Investment Inc., Mr. Fisher,
Mr. Lax and Mr. Burnham. SOFTBANK Capital Partners Investment Inc. is a
wholly-owned subsidiary of SOFTBANK Holdings Inc. Accordingly, securities
owned by SOFTBANK Capital Partners Investment Inc. may be deemed
beneficially owned by SOFTBANK Holdings Inc. SOFTBANK Holdings Inc. is a
wholly-owned subsidiary of SOFTBANK Corp. Mr. Masayoshi Son, President and
Chief Executive Officer of SOFTBANK Corp., owns an approximately 38.27%
interest in SOFTBANK Corp. Accordingly, securities owned by SOFTBANK
Holdings Inc. may be deemed beneficially owned by SOFTBANK Corp. and Mr.
Son. SOFTBANK Capital Partners LP, SOFTBANK Capital Advisors Fund LP,
SOFTBANK Capital Partners LLC, SOFTBANK Capital Partners Investment Inc.,
Mr. Fisher, Mr. Lax, Mr. Burnham, SOFTBANK Holdings Inc., SOFTBANK Corp. and
Mr. Son disclaim beneficial ownership of shares owned directly by SOFTBANK
Capital Partners LP and SOFTBANK Capital Advisors Fund LP, respectively,
except to the extent of their respective pecuniary interest, if any,
therein. Mr. Fisher serves on our board of directors. Mr. Fisher does not
hold any options to purchase any of our stock.
(3) As of March 31, 2000, Mr. Grouf has purchased 22,270,000 shares of common
stock, a portion of which shares is subject to a repurchase option by us.
Accordingly, the number of shares beneficially owned by Mr. Grouf includes
14,661,666 shares no longer subject to a repurchase option by us and a
further 618,612 common shares that will no longer be subject to a
repurchase option by us within 60 days of March 31, 2000. The remaining
6,989,722 shares for which we still hold a repurchase option are not
included in the number of shares beneficially owned by Mr. Grouf. Mr. Grouf
does not hold any options to purchase any of our stock.
(4) As of March 31, 2000, Mr. Sculley had exercised options to purchase
1,160,000 shares of common stock, a portion of which shares is subject to a
repurchase option by us. Accordingly, the number of shares beneficially
owned by Mr. Sculley includes 741,112 common shares no longer subject to a
repurchase option by us and a further 32,222 common shares that will no
longer be subject to a repurchase option by us within 60 days of March 31,
2000. The remaining 386,666 shares for which we still hold a repurchase
option are not included in the number of shares beneficially owned by Mr.
Sculley. In addition, the number of shares beneficially owned by Mr. Scully
includes 3,990,000 shares held by Sculley Brothers LLC. Mr. Sculley, a
partner of Sculley Brothers LLC, serves on our board of directors.
(5) As of March 31, 2000, Mr. Price had exercised options to purchase 1,160,000
shares of common stock, a portion of which shares is subject to a
repurchase option by us. Accordingly, the number of shares beneficially
owned by Mr. Price includes 741,112 common shares no longer subject to a
repurchase option by us and a further 32,222 common shares that will no
longer be subject to a repurchase option by us within 60 days of March 31,
2000. The remaining 386,666 shares for which we still hold a repurchase
option are not included in the number of shares beneficially owned by Mr.
Price. The number of shares beneficially owned by Mr. Price includes an
additional 1,400,000 shares held by Mr. Price, 80,000 shares held by
Michael J. Price as Custodian for Allie Price under the NJUTMA and 80,000
shares held by Michael J. Price as Custodian for Jeffrey Price under the
NJUTMA. Mr. Price serves on our board of directors.
(6) As of March 31, 2000, Mr. Kohler had exercised options to purchase
1,280,000 shares of common stock, all of which are subject to a repurchase
option by us. Accordingly, the number of shares beneficially owned by Mr.
Kohler does not include any shares as of March 31, 2000 nor will any shares
be released from our repurchase option within 60 days of March 31, 2000.
(7) As of March 31, 2000 Mr. Kohl had exercised options to purchase 400,000
shares of common stock, all of which are subject to a repurchase option by
us. Accordingly, the number of shares beneficially owned by Mr. Kohl does
not include any shares as of March 31, 2000 nor will any shares be released
from our repurchase option within 60 days of March 31, 2000.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the closing of this offering, we will be authorized to issue 500,000,000
shares of common stock, $0.0001 par value, and 50,000,000 shares of
undesignated preferred stock, $0.0001 par value.
Common Stock
As of March 31, 2000, we had 94,988,764 shares of common stock outstanding,
assuming the automatic conversion of all outstanding shares of convertible
preferred stock into common stock. These shares were held of record by
approximately 112 stockholders. There will be shares of common stock
outstanding after giving effect to the sale of our common stock in this
offering, assuming no exercise of the underwriter's over-allotment option and
no exercise of outstanding options or warrants after March 31, 2000. This
number includes 8,180,026 shares of common stock issued upon the early exercise
of stock options subject to repurchase rights by us that have not vested as of
March 31, 2000.
The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably any dividends that may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up, the holders of
common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. After the closing of this offering, there will
be no shares of preferred stock outstanding.
Preferred Stock
Upon the closing of this offering, our board of directors will have the
authority, without action by our stockholders, to designate and issue preferred
stock in one or more series. The board of directors may also designate the
rights, preferences and privileges of each series of preferred stock, any or
all of which may be superior to the rights of the common stock. It is not
possible to state the actual effect of the issuance of any shares of preferred
stock upon the rights of holders of the common stock until the board of
directors determines the specific rights of the holders of the preferred stock.
However, these effects might include:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; and
. delaying or preventing a change in control of our company without
further action by the stockholders.
We have no present plans to issue any shares of preferred stock.
Registration Rights
Certain stockholders holding an aggregate of 94,724,766 shares are entitled
to rights with respect to registration of these shares under the securities
act. The rights are provided under the terms of an agreement between us and the
holders of registrable securities. Beginning six months following the
completion of this offering, holders of at least 30% of the then outstanding
registrable securities may
55
<PAGE>
require on up to three occasions that we register their shares for public
resale. We are obligated to register these shares only if the outstanding
registrable securities to be registered represent at least 20% of the then
outstanding registrable securities or have an anticipated public offering price
of at least $50,000,000. Also, each holder of registrable securities who hold
more than one percent of our outstanding registrable securities may require, on
one separate occasion in any 6-month period, that we register their shares for
public resale on Form S-3 or similar short-form registration if the value of
the securities to be registered is at least $5,000,000. Furthermore, in the
event we determine to register any of our securities under the Securities Act
of 1933, either for our own account or for the account of other security
holders exercising their registration rights, the holders of registrable
securities are entitled to include their common stock in the registration. The
registration rights are subject to conditions and limitations, among them our
right to limit the number of shares included in the registration in view of
market conditions. These registration rights are not triggered by this
offering. All expenses in connection with any registration, other than
underwriting discounts and commissions, will be borne by us. All registration
rights will terminate five years following the consummation of this offering.
Anti-Takeover Effects of Some Provisions of Delaware Law and Our Charter
Documents
Provisions of Delaware law and our certificate of incorporation and bylaws,
which are summarized below, may have an anti-takeover effect and may delay,
defer or prevent a takeover attempt that a stockholder might consider in its
best interest, including those attempts that might result in our stockholders
receiving a premium for their shares.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Section 203 generally 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 became
an interested stockholder, unless:
. prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
. the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding (a) shares
owned by persons who are directors and also officers, and (b) shares
owned by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or
. on or subsequent to the date of the transaction, the business
combination is approved by the board and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
A "business combination" generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a
corporation's outstanding voting securities. We expect the existence of this
provision to have an anti-takeover effect with respect to transactions our
board of directors does not approve in advance. We also anticipate that Section
203 may also discourage attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
56
<PAGE>
Charter Documents
Upon completion of this offering, our certificate of incorporation provides
for our board of directors to be divided into three classes serving staggered
terms. Approximately one-third of the board of directors will be elected each
year. The provision for a classified board could prevent a party who acquires
control of a majority of the outstanding voting stock from obtaining control of
the board of directors until the second annual stockholders meeting following
the date the acquirer obtains the controlling stock interest. The classified
board provision could discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of our company and could
increase the likelihood that incumbent directors will retain their positions.
Our certificate of incorporation provides that directors may be removed:
. with cause by the affirmative vote of the holders of at least a majority
of the outstanding shares of voting stock; or
. without cause by the affirmative vote of the holders of at least 66 2/3%
of the then-outstanding shares of the voting stock.
Our bylaws establish an advance notice procedure for stockholder proposals to
be brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board of directors. At an annual
meeting, stockholders may only consider proposals or nominations specified in
the notice of meeting or brought before the meeting by or at the direction of
the board of directors. Stockholders may also consider a proposal or nomination
by a person who was a stockholder of record on the record date for the meeting,
who is entitled to vote at the meeting and who has given to our Secretary
timely written notice, in proper form, of his or her intention to bring that
business before the meeting. The bylaws do not give the board of directors the
power to approve or disapprove stockholder nominations of candidates or
proposals regarding other business to be conducted at a special or annual
meeting of the stockholders. However, our bylaws may have the effect of
precluding the conduct of that item of business at a meeting if the proper
procedures are not followed. These provisions may also discourage or deter a
potential acquirer from conducting a solicitation of proxies to elect the
acquirer's own slate of directors or otherwise attempting to obtain control of
our company.
Only the following persons are authorized to call a special meeting of
stockholders:
. a majority of our board of directors;
. the chairman of the board; or
. the chief executive officer.
The limitation on the right of our stockholders to call a special meeting will
make it more difficult for a stockholder to force stockholder consideration of
a proposal over the opposition of the board of directors by calling a special
meeting of stockholders. The restriction on the ability of stockholders to call
a special meeting also will make it more difficult to replace the board until
the next annual meeting.
Our certificate of incorporation provides for the elimination of actions by
written consent of stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is . The
transfer agent's address is and their telephone number
is .
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have shares of common
stock outstanding assuming no exercise of the underwriters' over-allotment
option. Of this amount, the shares of common stock offered by this
prospectus will be available for immediate sale in the public market as of the
date of this prospectus. Approximately shares of common stock
available for sale to our employees in our directed shares program will be
available for sale in the public market following the expiration of a three-
month lock-up period. Approximately shares of common stock that are
currently subject to outstanding options and shares of common stock
will be available for sale in the public market following the expiration of
180-day lock-up agreements with the representatives of our underwriters,
subject in some cases to compliance with the volume and other limitations of
Rule 144.
<TABLE>
<CAPTION>
Shares
Days After Date of Eligible
this Prospectus for Sale Comment
------------------ -------- -------
<C> <C> <S>
Upon Effectiveness... Shares sold in the offering
90 days.............. Shares subject to Rule 144 and Rule 701,
subject in some cases to volume limitations
180 days............. Underwriter lock-up released; subject in some
cases to volume limitations
</TABLE>
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year is entitled to sell within any
three-month period commencing 90 days after the date of this prospectus a
number of shares that does not exceed the greater of (a) 1% of the then
outstanding shares of common stock (approximately shares immediately
after the offering) or (b) the average weekly trading volume during the four
calendar weeks preceding the sale, subject to the filing of a Form 144 with
respect to the sale. A person who is not deemed to have been an affiliate of
ours at any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least two years is entitled to sell
these shares under Rule 144(k) without regard to the limitations described
above. Persons deemed to be affiliates must always sell under Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to the offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
58
<PAGE>
Our directors, executive officers and other stockholders have agreed that
they will not sell any common stock without the prior written consent of
Goldman, Sachs & Co. for a period of 180 days from the date of this prospectus.
We have also agreed not to issue any shares during the lock-up period without
the consent of Goldman, Sachs & Co. except that we may, without this consent,
grant options and sell shares under our stock incentive and purchase plans
although the shares may not be resold into the public market during the lock-up
period. The lock-up agreements permit the stockholders who have signed those
agreements to sell portions of their shares prior to expiration of the 180-day
lock-up period without obtaining the prior written consent of Goldman, Sachs &
Co. according to the following schedule:
<TABLE>
<CAPTION>
Released Shares
---------------
<C> <S>
The date 90 days after the date of
this prospectus...................... 10% of shares owned by each
shareholder, provided that the stock
price is greater than twice the
initial public offering price for 20
of the 30 consecutive trading days
prior to such date.
Second trading day following the date
we release our earnings for the
quarter ending September 30, 2000.... 20% of shares owned by each
shareholder, provided that the stock
price is greater than twice the
initial public offering price for 20
of the 30 consecutive trading days
prior to such date.
The date 180 days after the date of
this prospectus...................... All shares released from lock-up.
</TABLE>
Sales of shares by these stockholders may nonetheless be subject to the
limitations of Rule 144 as described above.
We intend to file a registration statement on Form S-8 under the Securities
Act shortly after the completion of the offering to register the shares of
common stock subject to outstanding stock options that may be issued under
these plans, which will permit the resale of these shares in the public market
without restriction after the lock-up period expires.
59
<PAGE>
UNDERWRITING
PeoplePC and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Chase Securities Inc. and Thomas Weisel
Partners LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
Chase Securities Inc........................................
Thomas Weisel Partners LLC..................................
------
Total.....................................................
======
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from PeoplePC to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by PeoplePC. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by PeoplePC
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering
price. Any such securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount of up to
$ per share from the initial public offering price. If all the
shares are not sold at the initial offering price, the representatives may
change the offering price and the other selling terms.
PeoplePC has agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This agreement does not apply to
any existing employee benefit plans. See "Shares Eligible for Future Sale" for
a discussion of certain transfer restrictions.
PeoplePC currently anticipates that it will request the underwriters to
reserve up to shares of its common stock for sale at the initial
public offering price to persons designated by PeoplePC, substantially all of
whom have been or are expected to be vendors or service providers to PeoplePC,
through a directed share program. The number of shares available for sale to
the general public will be reduced by the number of reserved shares purchased.
Any reserved shares not so purchased will be offered by the underwriters to the
general public on the same basis as other shares offered hereby.
60
<PAGE>
Prior to the offering, there has been no public market for the common stock.
The initial public offering price will be negotiated among PeoplePC and the
representatives. Among the factors to be considered in determining the initial
public offering price of the common stock, in addition to prevailing market
conditions, will be PeoplePC's historical performance, estimates of PeoplePC's
business potential and earnings prospects of PeoplePC, an assessment of
PeoplePC's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
PeoplePC applied to have its common stock quoted on the Nasdaq National
Market under the symbol "PEOP".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed five
percent of the total number of shares offered.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
153 filed public offerings of equity securities, of which 109 have been
completed, and has acted as a syndicate member in an additional 80 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
Persons associated with Chase Securities Inc. will beneficially own 454,464
shares of common stock following the conversion of their shares of preferred
stock. Additionally, Access Technology Partners, L.P., a fund of outside
investors that is managed by an affiliate of Chase Securities Inc., will own
2,015,448 shares of common stock following the conversion of its common stock.
PeoplePC estimates that its share of the total expenses of the offerings,
excluding underwriting discounts and commissions, will be approximately
$ .
PeoplePC has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
61
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
PeoplePC by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California and for the underwriters by Sullivan & Cromwell, Los Angeles,
California. As of the date of this prospectus, attorneys and investment
partnerships associated with Wilson Sonsini Goodrich & Rosati beneficially
owned an aggregate of 94,696 shares of common stock.
EXPERTS
The financial statements as of December 31, 1999 and for the period then
ended included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given in the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares to be sold in the offering. This
prospectus does not contain all the information contained in the registration
statement. For further information with respect to PeoplePC and the shares to
be sold in the offering, reference is made to the registration statement and
the exhibits and schedules filed with the registration statement. We have
described in this prospectus material information for each contract, agreement
or other document that is filed as an exhibit with the registration statement
in this prospectus. However, statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. As a result, you should refer to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement for a complete description of the matter involved.
You may read and copy all or any portion of the registration statement or any
reports, statements or other information that we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement, are also available to you without charge
from the SEC Web site, which is located at http://www.sec.gov.
62
<PAGE>
PEOPLEPC INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Deficit......................................... F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of PeoplePC Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of PeoplePC Inc. at December 31,
1999, and the results of its operations and cash flows for the period from
March 2, 1999 (date of inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
April 5, 2000
F-2
<PAGE>
PEOPLEPC INC.
BALANCE SHEET
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
December 31, December 31,
1999 1999
------------ ------------
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 36,108 $ 36,108
Restricted cash......................................... 15,750 15,750
Accounts receivable..................................... 311 311
Prepaid expenses and other current assets............... 66 66
-------- --------
Total current assets.................................. 52,235 52,235
Property and equipment, net............................... 300 300
Deposits and other assets................................. 335 335
-------- --------
Total assets.......................................... $ 52,870 $ 52,870
======== ========
<CAPTION>
Liabilities, Preferred Stock and
Stockholders' Equity (Deficit)
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 9,766 $ 9,766
Accrued and other liabilities........................... 34,019 34,019
Current portion of deferred revenues, net............... 826 826
-------- --------
Total current liabilities............................. 44,611 44,611
Deferred revenues, net.................................... 1,583 1,583
-------- --------
Total liabilities..................................... 46,194 46,194
-------- --------
Commitments (Note 4)
Preferred stock........................................... 67,939 --
-------- --------
Stockholders' equity (deficit)
Common stock: $0.0001 par value; 120,000,000 shares
authorized; 33,760,000 shares issued and outstanding at
December 31, 1999...................................... 3 8
Additional paid-in capital.............................. 21,713 89,647
Deferred stock-based compensation....................... (18,640) (18,640)
Accumulated deficit..................................... (64,339) (64,339)
-------- --------
Total stockholders' equity (deficit).................. (61,263) 6,676
-------- --------
Total liabilities, preferred stock and stockholders'
equity (deficit)................................... $ 52,870 $ 52,870
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PEOPLEPC INC.
STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
March 2,
1999
(date of
inception)
to
December 31,
1999
------------
<S> <C>
Gross sales of memberships, products and services (see note 1).... $ 24,947
========
Membership revenues earned (gross sales of $21,410)............... $ 1,180
Other revenues.................................................... 3,537
--------
Total revenues................................................ 4,717
Cost of revenues (see note 1)..................................... 6,396
--------
Gross loss (see note 1)........................................... (1,679)
Operating expenses:
Sales and marketing (exclusive of stock-based compensation of
$1,361 in 1999)................................................ 38,268
General and administrative (exclusive of stock-based
compensation of $1,665 in 1999)................................ 5,433
Member experience (exclusive of stock-based compensation of $13
in 1999)....................................................... 775
Other operating expenses........................................ 15,550
Amortization of deferred stock-based compensation............... 3,039
--------
Total operating expenses...................................... 63,065
Loss from operations.............................................. (64,744)
Interest income and other......................................... 405
--------
Net loss.......................................................... $(64,339)
========
Basic and diluted net loss per share.............................. $ (1.99)
Shares used in computing basic and diluted net loss per share..... 32,400
Pro-forma basic and diluted net loss per share.................... (1.11)
Shares used in computing pro forma basic and diluted net loss per
share............................................................ 57,746
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PEOPLEPC INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(Amounts in thousands, except share data)
Period from March 2, 1999 (date of inception) to December 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional Deferred Total
----------------- Paid-In Stock Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Deficit
---------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common
Stock.................. 31,440,000 $ 3 $ 5 $ -- $ -- $ 8
Issuance of Common Stock
from exercise of
options................ 2,320,000 -- 29 -- -- 29
Deferred stock-based
compensation........... -- -- 21,679 (21,679) -- --
Stock-based compensation
expense................ -- -- -- 3,039 -- 3,039
Net loss................ -- -- -- -- (64,339) (64,339)
---------- ---- ------- -------- -------- --------
Balance at December 31,
1999................... 33,760,000 $ 3 $21,713 $(18,640) $(64,339) $(61,263)
========== ==== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PEOPLEPC INC.
STATEMENT OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Period from
March 2, 1999
(date of
inception) to
December 31,
1999
-------------
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $(64,339)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 40
Amortization of deferred stock-based compensation............. 3,039
Changes in current assets and liabilities:
Accounts receivable......................................... (311)
Prepaid expenses and other current assets................... (66)
Accounts payable............................................ 9,766
Accrued liabilities......................................... 34,019
Deferred revenues........................................... 2,409
--------
Net cash used in operating activities..................... (15,443)
Cash flows from investing activities:
Restricted cash................................................. (15,750)
Purchase of property and equipment.............................. (323)
Deposits and other assets....................................... (352)
--------
Net cash used in investing activities..................... (16,425)
Cash flows from financing activities:
Proceeds from issuance and common stock......................... 37
Proceeds from issuance of Series A preferred stock (net of
issuance costs of $21)......................................... 2,979
Proceeds from issuance of a note................................ 10,000
Proceeds from issuance of Series B preferred stock (net of
issuance costs of $40)......................................... 54,960
--------
Net cash provided by financing activities................. 67,976
Net increase in cash and cash equivalents....................... 36,108
Cash and cash equivalents at beginning of period................ --
--------
Cash and cash equivalents at end of period...................... $ 36,108
========
Supplemental noncash investing and financing activity:
Conversion of a note into Series B preferred stock.............. $ 10,000
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary of Significant Accounting Policies:
The Company
PeoplePC Inc. (the "Company"), provides an affordable and convenient
membership package that includes a brand-name computer, unlimited Internet
access, customer support and an in-home warranty. Members also have the
opportunity to benefit from discounts and special offers from merchants who
participate in PeoplePC's buyer's club. The Company also operates the PeoplePC
Online program which provides consumers who do not wish to purchase a computer
with all of the other benefits of a PeoplePC membership for a monthly fee. The
Company was incorporated in Delaware on March 2, 1999.
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
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
Revenues and the related cost of revenues for the initial membership package,
which includes the personal computer, internet access for three years and in-
home warranty, are deferred and recognized over the three-year term of the
membership agreement. The Company also offers peripherals and upgrades at the
time of the initial membership. The revenue and cost of revenues related to the
sale of peripherals and upgrades are recognized in the period shipped. Revenues
from the PeoplePC Online program are recognized in the period received. The
cost of providing Internet access and email services for all members is
expensed as incurred. For the period from inception to December 31, 1999, cost
of revenues, and consequently gross loss, included one-time expenses of $2.0
million relating to a temporary increase in the cost of memory and storage
costs.
Cash equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Restricted cash
Restricted cash represents funds deposited in a restricted account to secure
letters of credit established as collateral in favor of certain significant
vendors to the Company.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist primarily of cash, cash equivalents and accounts
receivable.
The Company maintains its cash and cash equivalents in accounts with a major
financial institution in the United States. The Company has not experienced any
losses on its deposits of cash and cash equivalents.
F-7
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Members who wish to finance their membership fees generally enter into a 36-
month loan agreement with a third party financial institution. The Company
receives the proceeds of the loan when it notifies the financial institution
that the related member's products have been shipped. In the event of default
by a member, the Company is obliged to terminate the service provided to the
defaulting member following notification from the financial institution. The
Company does not generally bear any credit risk with regard to these loan
agreements.
Some members elect to prepay the membership fee, in which case the amount is
charged to their credit card directly by the Company. Shipping charges and
peripheral upgrades are also charged to the member's credit card directly by
the Company. There is an accounts receivable balance while the payments are
being processed by the relevant financial institutions.
No member accounted for more than 10% of accounts receivable at December 31,
1999, or more than 10% of revenues in the period to December 31, 1999.
Fair value of financial instruments
The carrying amounts of the Company's financial instruments, including cash,
cash equivalents, restricted cash, accounts receivable, accounts payable and
accrued liabilities approximate fair value due to their short maturities.
Capitalized website development costs
Certain expenditures incurred in developing the Company's website have been
capitalized and are being amortized over two years. The capitalized cost
amounted to $144,000 (net of $17,000 in accumulated amortization) at December
31, 1999. Capitalized expenditures include the cost of services provided by
third parties and internal costs of staff directly involved in the development
of the website.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
two to five years. Leasehold improvements are depreciated on a straight-line
basis over the lesser of their estimated useful lives or the lease term. Repair
and maintenance costs are expensed as incurred.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", ("APB No. 25") and complies with
the disclosure provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
Net loss per share
Basic net loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of vested common shares outstanding
for the period. Diluted net loss per share is computed giving effect to all
dilutive potential common stock, including options, warrants and preferred
stock. Options, warrants, non-vested common stock and preferred stock were not
included in the computation of diluted net loss per share in the periods
reported because the effect would be antidilutive. Potentially dilutive
securities amounted to an equivalent of 36,401,000 shares.
F-8
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Comprehensive income
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. The Company has no comprehensive income
components other than its net loss.
Stock split
In October 1999, and again in March 2000, the Company approved a two-for-one
forward stock split. All share and per share amounts have been restated for
such splits.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company, to date, has
not engaged in derivative and hedging activities. The Company is currently
evaluating the impact of this pronouncement and will adopt SFAS No. 133 in the
third quarter of 2000.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements."
SAB 101 summarizes the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company is in
the process of evaluating the impact of this pronouncement.
2. Balance Sheet Components:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Property and equipment, net:
Computer equipment............................................. $ 97,000
Furniture and fixtures......................................... 121,000
Leasehold improvements......................................... 105,000
-----------
323,000
Less: Accumulated depreciation................................. (23,000)
-----------
$ 300,000
===========
Accrued and other liabilities:
Overhead and marketing expenditure accrual..................... $10,964,000
Reserve for settlement of potential dispute (see note 4)....... 15,550,000
Internet service provider accrual.............................. 979,000
Rent........................................................... 251,000
Bank advance................................................... 5,000,000
Other.......................................................... 1,275,000
-----------
$34,019,000
===========
</TABLE>
F-9
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The bank advance was provided by the bank that previously issued a co-branded
credit card with the Company. Net retail sales accumulated on the card will be
deducted from the advance which is non-interest bearing.
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Deferred revenues:
Current portion of deferred revenues.......................... $ 6,936,000
Current portion of deferred cost of products and services..... (6,110,000)
------------
826,000
------------
Long-term portion of deferred revenues........................ 13,294,000
Long-term portion of deferred cost of products and services... (11,711,000)
------------
1,583,000
------------
$ 2,409,000
============
</TABLE>
3. Income Taxes:
The provision for income taxes comprises a net deferred federal and state
benefit of $22.6 million and a current expense of the same amount respresenting
an increase in the valuation allowance against the net deferred tax assets. The
difference between the benefit at the statutory federal rate arises from the
non-deductibility of the Company's stock-based compensation expense and the
effect of state taxes.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
Period from
March 2,
1999 (date
of
inception)
to
December 31,
1999
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 19,742,000
Accruals and reserves......................................... 1,840,000
Deferred revenue.............................................. 1,020,000
Other......................................................... 22,000
------------
22,624,000
Deferred tax liabilities:
Capitalized website development costs......................... (58,000)
------------
Net deferred tax assets....................................... 22,566,000
Valuation allowance........................................... (22,566,000)
------------
$ --
============
</TABLE>
A valuation allowance has been provided against the net deferred tax assets.
At December 31, 1999, the Company had approximately $43.4 million of federal
and state net operating loss carryforwards available to offset future taxable
income which expire in 2019 for federal and 2006 for state tax purposes. Under
the Tax Reform Act of 1986, the amounts of and benefits
F-10
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
from net operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not
limited to, a cumulative ownership change of more than 50%, as defined, over a
three-year period.
4. Commitments:
Purchase commitments
The Company relies on Ingram Micro (the "Distributor") to provide its
computer products, maintain inventory, process orders, prepare merchandise for
shipment and distribute its products to customers in a timely and accurate
manner. The Distributor purchases inventory on behalf of the Company based on
sales projections made by the Company. The Company is obligated to purchase
inventory held by the Distributor purchased on its behalf. At December 31,
1999, the Company had approximately $53.6 million in noncancelable purchase
commitments with the Distributor, including certain computers held by the
Distributor which do not conform to specifications as ordered by the Company.
The Company has recorded a provision of $15.6 million relating to the cost of
resolving any potential dispute over such non-conforming computers. The Company
expects to sell all products that it has committed to purchase from the
Distributor.
Leases
The Company leases office space under an operating lease expiring in 2005.
Rent expense for the period ended December 31, 1999 was $294,000. The Company
recognizes rent expense on a straight-line basis over the lease period and has
accrued for rent expense incurred but not paid.
Future lease payments under operating leases, including lease commitments
entered into subsequent to December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating
Leases
----------
<S> <C>
December 31,
2000............................................................. $1,055,000
2001............................................................. 1,157,000
2002............................................................. 1,170,000
2003............................................................. 1,183,000
2004............................................................. 1,196,000
2005............................................................. 150,000
----------
Total future lease payments.................................... $5,911,000
==========
</TABLE>
5. Preferred Stock:
Preferred Stock at December 31, 1999, with a par value of $0.0001, consists
of the following:
<TABLE>
<CAPTION>
Proceeds
Shares Net of
---------------------- Liquidation Issuance
Series Authorized Outstanding Amount Costs
------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A............................ 24,000,000 24,000,000 $ 3,000,000 $ 2,979,000
B............................ 30,000,000 29,817,000 65,000,000 64,960,000
---------- ---------- ----------- -----------
54,000,000 53,817,000 $68,000,000 $67,939,000
========== ========== =========== ===========
</TABLE>
F-11
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The holders of Preferred Stock have various rights and preferences as
follows:
Voting
Each share of Series A and B has voting rights equal to an equivalent number
of shares of Common Stock into which it is convertible and votes together as
one class with the Common Stock.
As long as at least a majority of the shares of Preferred Stock remain
outstanding, the Company must obtain approval from a majority of the holders of
Preferred Stock in order to alter the articles of incorporation as related to
Preferred Stock, change the authorized number of shares of Preferred Stock,
repurchase any shares of Common Stock other than shares subject to the right of
repurchase by the Company, change the authorized number of Directors, authorize
a dividend for any class or series other than Preferred Stock, create a new
class of stock or effect a merger, consolidation or sale of assets where the
existing shareholders retain less than 50% of the voting stock of the surviving
entity.
Dividends
Holders of Series A and B Preferred Stock are entitled to receive
noncumulative dividends at the per annum rate of $0.01 and $0.1744 per share,
respectively, when and if declared by the Board of Directors. The holders of
Series A and B Preferred Stock will also be entitled to participate in
dividends on Common Stock, when and if declared by the Board of Directors,
based on the number of shares of Common Stock held on an as-if converted basis.
No dividends on Preferred Stock or Common Stock have been declared by the Board
from inception through December 31, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Preferred Stock own less than 51% of the
resulting voting power of the surviving entity, the holders of Series A and B
Preferred Stock are entitled to receive an amount of $0.125 and $2.18 per
share, respectively, plus any declared but unpaid dividends prior to and in
preference to any distribution to the holders of Common Stock.
After the payment of the full liquidation preference of the Series Preferred
as set above, before any distribution or payment shall be made to the holders
of any junior stock, the holders of the Series B Preferred Stock shall be
entitled to be paid out of the assets of the Company an additional amount per
share of Series B Preferred Stock equal to $2.18.
After the payment of the full liquidation preferences of the Series Preferred
as set above, the remaining assets of the Company legally available for
distribution, if any, shall be distributed ratably to the holders of the Common
Stock and Series B Preferred Stock on an as-converted basis. Notwithstanding
the foregoing, in the event that pursuant to the two above paragraphs and the
preceding sentence, the holders of the Series B Preferred Stock would be
entitled to receive an amount on account of each share of Series B Preferred
Stock equal to or greater than three times the $2.18, each holder of Series B
Preferred Stock shall instead have the right to receive on account of each
share of Series B Preferred Stock an aggregate amount equal to the greater of
(i) three times $2.18 and (ii) the amount that such holder would be entitled to
receive if, in lieu of the amounts distributable to such holder pursuant to the
two above paragraphs and the first sentence, such holders were instead entitled
to receive on account of each share of Series B Preferred Stock
F-12
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(A) $2.18 plus (B) the amount of the remaining assets of the Company legally
available for distribution, if any, distributed ratably to holders of the
Common Stock and Series B Preferred Stock, on an as-converted basis.
Conversion
Each share of Series A and B Preferred Stock is convertible, at the option of
the holder, according to a conversion ratio, and subject to an adjustment for
dilution. Each share of Series A and B Preferred Stock automatically converts
into the number of shares of Common Stock into which such shares are
convertible at the then effective conversion ratio upon: (1) the closing of a
public offering of Common Stock per share with gross proceeds of at least $50
million, (2) a merger, sale of substantially all of the assets or other
transactions which result in a change in control or (3) the consent of the
holders of at least 66 2/3% of Preferred Stock.
At December 31, 1999, the Company reserved 24,000,000 and 30,000,000 shares
of Common Stock for the conversion of Series A and B Preferred Stock,
respectively.
6. Common Stock:
The Company's Articles of Incorporation, as amended, authorize the Company to
issue 120,000,000 shares of $0.0001 par value Common Stock.
7. Stock Option Plans:
In 1999, the Company adopted the 1999 Stock Option Plan (the "Plan"). The
Plan provides for the granting of stock options to employees and consultants of
the Company. Options granted under the Plan may be either incentive stock
options or nonqualified stock options. Incentive stock options ("ISO") may be
granted only to Company employees (including officers and directors who are
also employees). Nonqualified stock options ("NSO") may be granted to Company
employees, directors and consultants. The Company has reserved 16,560,000
shares of Common Stock for issuance under the Plan.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and
(ii) the exercise price of an ISO and NSO granted to a 10% shareholder shall
not be less than 110% of the estimated fair value of the shares on the date of
grant, respectively. Options are exercisable immediately subject to a
repurchase right by the Company which lapses over the original vesting period
of the options. To date, options granted generally vest over four years.
At December 31, 1999, the Company's repurchase rights applied to 934,444
shares of Common Stock then outstanding.
For financial reporting purposes, the Company has determined that the
estimated value of common stock determined in anticipation of this offering was
in excess of the exercise price, which was considered to be the fair market
value as of the date of grant for 11,509,000 options issued in the year ended
December 31, 1999. In connection with the grants of such options, the Company
has recorded deferred stock based compensation of $21.7 million during 1999.
Deferred stock based compensation will be amortized over the vesting period,
which is generally 48 months from the date
F-13
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
of grant and $3.0 million was expensed in the year ended December 31, 1999.
Future amortization based on options granted through December 31, 1999 is
expected to be $12.2 million, $4.4 million, $1.7 million and $.4 million in the
years 2000, 2001, 2002 and 2003, respectively.
Activity for the period ended December 31, 1999 follows:
<TABLE>
<CAPTION>
1999
--------------------
Weighted
Average
Exercise
Shares Price
---------- --------
<S> <C> <C>
Options granted....................................... 11,509,000 $0.054
Options exercised..................................... (2,320,000) 0.0125
Options canceled...................................... -- --
---------- -------
Outstanding at December 31.............................. 9,189,000 0.065
========== =======
Options fully vested at December 31..................... -- $ --
========== =======
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding
at December 31, 1999
--------------------------------
Weighted
Average Weighted
Remaining Average
Range of Number Contractual Exercise
Exercise Price Outstanding Life Price
-------------- ----------- ----------- --------
<S> <C> <C> <C>
$0.0125-$0.22............................... 9,189,000 9.51 $0.065
========= ==== ======
</TABLE>
Fair value disclosures
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Net loss:
As reported................................................... $64,339,000
===========
Pro forma..................................................... $64,342,000
===========
Basic and diluted net loss per share:
As reported................................................... $ 1.99
===========
Pro forma..................................................... $ 1.99
===========
</TABLE>
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes options pricing model with the following
assumptions: dividend yield at 0%; weighted average expected option term of 5
years; risk free interest rate of 5.54% for the year ended December 31, 1999.
The weighted average fair value of options granted during 1999 was $1.87.
F-14
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Unaudited Pro Forma Loss Per Share and Pro Forma Stockholder's Equity:
Pro forma basic net loss per share has been computed as described in Note 1
and also gives effect to common equivalent shares from Preferred Stock that
will convert upon the closing of the Company's initial public offering (using
the as-if-converted-method).
A reconciliation of the numerator and denominator used on the calculation of
pro forma basic and diluted net loss per share follow;
<TABLE>
<CAPTION>
Period from
March 2, 1989
(date of inception)
to December 31, 1999
--------------------
<S> <C>
Pro forma net loss per share, basic and diluted:
Net loss............................................. $64,339,000
-----------
Shares used in computing net loss per share, basic
and diluted......................................... 32,400,000
Adjustment to reflect the effect of the assumed
conversion of preferred stock....................... 25,346,000
-----------
Shares used in computing pro forma net loss per
share, basic and diluted............................ 57,746,000
-----------
Pro forma net loss per share, basic and diluted...... $ 1.11
===========
</TABLE>
If the offering contemplated by this Prospectus is consummated as
contemplated, all of the Preferred Stock outstanding as of the closing date
will be converted into an aggregate of approximately 53,817,000 shares of
Common Stock based on the shares of Preferred Stock outstanding at December 31,
1999. Unaudited pro forma stockholders' equity at December 31, 1999, as
adjusted for the conversion of Preferred Stock, is disclosed on the balance
sheet.
9. Subsequent Events:
In March 2000 the Company approved filing a Registration Statement on Form S-
1 to register shares of common stock in an Initial Public Offering.
In January 2000, the Company entered into an agreement with Delta Air Lines,
Inc. ("Delta") to provide its products and services to Delta employees. The
Company also granted Delta a fully vested warrant exercisable for 0.5 million
shares of the Company's Common Stock at an exercise price per share of $6.225.
This warrant expires six months after the closing of the initial public
offering or three years after the effective date of the contract. The estimated
value of the warrant will be included in sales and marketing expenses in the
first quarter of 2000, as Delta has no performance requirements and the warrant
is exercisable upon issuance.
In April 2000, the Company entered into an agreement with Ford Motor Company
("Ford") to provide products and services to its employees. Ford also purchased
4.7 million shares of Series C Preferred Stock at $5.246 per share and has the
right to purchase up to 2% (on a fully diluted basis as of the closing of the
Series C Preferred Stock financing) of the Company's Common Stock at the
initial offering price paid by the public in the Company's Initial Public
Offering of Common Stock ("IPO") (the "Right"). In addition, Ford will receive
a warrant to purchase an additional 3% of the Company's Common Stock
(calculated in a similar manner) at the same price, contingent upon Ford
exercising its right to buy the 2% of Common Stock. The warrant will be
exercisable upon the completion of the Company's initial public offering and
will expire 200 days after the IPO. The value
F-15
<PAGE>
PEOPLEPC INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
of the Right, the warrant, and the excess of the value of the Common Stock into
which the Series C Preferred Stock is convertible over the price paid for the
Preferred Stock will be charged to marketing expense in the second quarter of
2000, as Ford has no performance requirements and the rights and the warrant
are exercisable upon issuance.
In April 2000, the Company issued 9.4 million shares of Series C Preferred
Stock to Ford and other investors for $5.246 per share for aggregate proceeds
of $49.7 million. The Series C Preferred Stock has similar rights and
privileges as the Series A and B Preferred Stock and will convert automatically
upon the completion of the Company's Initial Public Offering. In connection
with this issuance, the Company will record, in addition to the charges
discussed above with respect to Ford, a dividend related to the beneficial
conversion feature of the Series C Preferred Stock issued to the other
investors. The amount of the dividend as well as the charges related to the
Ford transaction will be based, in part, upon the price of the Company's Common
Stock in the IPO and may be substantial.
F-16
<PAGE>
Inside Back Cover:
- -----------------
Title: At PeoplePC, our goal is to build long-term relationships with
our members by providing them full participation in the
digital economy.
Top Left: Sketch of a factory with a caption below which reads
"Enterprises--PeoplePC provides integrated solutions that help
companies like Ford Motor Company and Delta Air Lines wire
their workforces so they can communicate with their employees,
customers and affiliates online."
Bottom Left: Sketch of shopping bags with a caption below which reads
"Merchants--PeoplePC offers merchants and suppliers a way to
reduce their customer acquisition and retention costs by
providing them access to customers and the opportunity to
establish long-term relationships with our growing community
of members."
Right: Sketch of a family gathered around a computer bundle with a
caption below which reads "Members--PeoplePC offers consumers
an affordable and convenient membership package that includes
a brand-name computer system, unlimited Internet access,
customer support and in-home technical service, as well as
special discounts and offers from merchants who participate
in our buyer's club."
Center: Picture of PeoplePC spokesperson.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information in this
Prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Information Regarding Forward-Looking Statements......................... 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial Data.................................................. 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 29
Management............................................................... 42
Certain Transactions..................................................... 48
Principal Stockholders................................................... 52
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 58
Underwriting............................................................. 60
Legal Matters............................................................ 62
Experts.................................................................. 62
Where You Can Find Additional Information................................ 62
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
PeoplePC Inc.
Common Stock
---------------
[PEOPLEPC LOGO]
---------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
Chase H&Q
Thomas Weisel Partners LLC
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
to be
Paid
-------
<S> <C>
SEC Registration fee................................................ $26,400
NASD filing fee..................................................... 10,500
Nasdaq National Market listing fee.................................. *
Blue sky qualification fees and expenses............................ *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Director and officer liability insurance............................ *
Transfer agent and registrar fees................................... *
Miscellaneous expenses.............................................. *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
*To be supplied by amendment.
Item 14. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees which would require the Registrant,
among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). The Registrant also intends to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreement to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant intends to obtain in conjunction with the effectiveness of the
Registration Statement a policy of directors' and officers' liability insurance
that insures the Registrant's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
. In March 1999, the Registrant sold a total of 31,440,000 shares of
common stock at a price of $0.00025 per share to 3 investors. The
aggregate purchase price of the sold securities was $7,860. The shares
of common stock are not convertible into any other security of the
Registrant. These shares were exempt from registration under section
4(2) of the Securities Act.
. In May 1999, the Registrant sold a total of 24,000,000 shares of Series
A preferred stock at a price of $0.125 per share to 15 investors. The
aggregate purchase price of the sold securities was $3,000,000. Each
share of Series A preferred stock is convertible into one share of
common stock at the option of the holder, and will automatically convert
into common stock at the consummation of Registrant's initial public
offering. These shares were exempt from registration under Rule 506 of
the Securities Act.
. In September 1999, the Registrant entered into a convertible note
agreement with SOFTBANK Capital Partners LP. Pursuant to this note
financing the Registrant borrowed an aggregate amount of $10,000,000 at
7% annual interest accruing as of October 30, 1999. In October 1999,
this note along with accrued interest converted according to its terms
into 4,587,156 shares of Series B preferred stock. Each share of Series
B preferred stock is convertible into one share of common stock. The
note financing was exempt from registration under Rule 506 of the
Securities Act.
. In October 1999, the Registrant sold a total of 29,816,514 shares of
Series B preferred stock at a price of $2.18 per share. The aggregate
purchase price of the sold securities was $65,000,000. Each share of
Series B preferred stock is convertible into one share of common stock
at the option of the holder, and will automatically convert into common
stock at the consummation of Registrant's initial public offering. These
shares were exempt from registration under Rule 506 of the Securities
Act.
. In April 2000, the Registrant sold a total of 9,468,252 shares of Series
C preferred stock at a price of $5.246 per share to 23 investors. The
aggregate purchase price of the sold securities was $49,670,449. Each
share of Series C preferred stock is convertible into one share of
common stock at the option of the holder, and will automatically convert
into common stock at the consummation of Registrant's initial public
offering. These shares were exempt from registration under Rule 506 of
the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of PeoplePC
3.2* Form of Amended and Restated Certificate of Incorporation of PeoplePC
to be filed immediately after the closing of the offering
3.3 Bylaws of PeoplePC
4.1* Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1* 1999 Stock Plan and forms of agreements thereunder
10.2* 2000 Stock Plan and forms of agreements thereunder
10.3* 2000 Employee Stock Purchase Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.4** Sales Finance Agreement, dated as of February 29, 2000, between
PeoplePC and MBNA America Bank, N.A.
10.5 Form of Indemnification Agreement
10.6 Office Lease, dated as of June 3, 1999, between PeoplePC and Pine
Street Investors, L.L.C.
10.7 First Amendment to Office Lease, dated as of January 14, 2000, between
PeoplePC and Pine Street Investors, L.L.C.
10.8* Amended and Restated Investor Rights Agreement, dated April 5, 2000
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1)
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment requested.
Financial Statement Schedules
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting 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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the 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
hereunder, 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 purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(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 the time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, County of
San Francisco, State of California, on the 5th day of April 2000.
PEOPLEPC
/s/ Nick Grouf
By: _________________________________
Nick Grouf
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Nick Grouf and Glen Kohl, and each of
them acting individually, as his true and lawful attorneys-in-fact and agents,
each with full power of substitution, for him in any and all capacities, to
sign any and all amendments to this Registration Statement (including post-
effective amendments or any abbreviated registration statement and any
amendments thereto filed pursuant to Rule 462(b) increasing the number of
securities for which registration is sought), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or his or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Nick Grouf Chairman of the Board, April 5, 2000
____________________________________ Chief Executive Officer
Nick Grouf and Director (Principal
Executive Officer,
Principal Financial and
Accounting Officer)
/s/ Ronald D. Fisher Director April 5, 2000
____________________________________
Ronald D. Fisher
/s/ John Sculley Director April 5, 2000
____________________________________
John Sculley
/s/ Michael J. Price Director April 5, 2000
____________________________________
Michael J. Price
/s/ Bradley A. Feld Director April 5, 2000
____________________________________
Bradley A. Feld
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of PeoplePC
3.2* Form of Amended and Restated Certificate of Incorporation of PeoplePC
to be filed immediately after the closing of the offering
3.3 Bylaws of PeoplePC
4.1* Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1* 1999 Stock Plan and forms of agreements thereunder
10.2* 2000 Stock Plan and forms of agreements thereunder
10.3* 2000 Employee Stock Purchase Plan
10.4** Sales Finance Agreement, dated as of February 29, 2000, between
PeoplePC and MBNA America Bank, N.A.
10.5 Form of Indemnification Agreement
10.6 Office Lease, dated as of June 3, 1999, between PeoplePC and Pine
Street Investors, L.L.C.
10.7 First Amendment to Office Lease, dated as of January 14, 2000, between
PeoplePC and Pine Street Investors, L.L.C.
10.8* Amended and Restated Investor Rights Agreement dated April 5, 2000
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1)
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment requested.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PEOPLEPC INC.
Nick Grouf hereby certifies that:
ONE: The original name of this corporation is PeoplePC Inc. and the date
of filing the original Certificate of Incorporation of this corporation with the
Secretary of State of the State of Delaware is March 2, 1999.
TWO: They are the duly elected and acting President and Secretary,
respectively, of PeoplePC Inc., a Delaware corporation.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated in its entirety to read as follows:
I.
The name of the corporation is PEOPLEPC INC. (the "Company").
II.
The address of the registered office of the Company in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the corporation in the State of Delaware at such address is Corporation
Service Company.
III.
The purpose of the Company is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of the
State of Delaware.
IV.
A. This Company is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Company is authorized to issue is ninety-two million
(92,000,000) shares, sixty million (60,000,000) shares of which shall be Common
Stock (the "Common Stock") and thirty-two million (32,000,000) shares of which
shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock shall have
a par value of $.001 per share and the Common Stock shall have a par value of
$.001 per share.
B. The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by the affirmative vote of the holders of a majority of the stock of the Company
(voting together on an as-if-converted basis).
<PAGE>
C. The first Series of Preferred Stock authorized by this Amended and
Restated Certificate of Incorporation shall be designated "Series A Preferred
Stock" and shall consist of Twelve Million (12,000,000) shares. The second
Series of Preferred Stock shall be designated "Series B Preferred Stock" and
shall consist of Fourteen Million Nine Hundred Eight Thousand Two Hundred Fifty-
Seven (14,908,257) shares. The third Series of Preferred Stock shall be
designated "Series C Preferred Stock" and shall consist of Four Million Eight
Hundred Thousand (4,800,000) shares. The Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock are collectively referred to
herein as the "Series Preferred". The Series B Preferred Stock and the Series C
Preferred Stock are collectively referred to herein as the "Senior Preferred".
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series Preferred are as follows:
1. Dividend Rights
---------------
(a) Holders of Series Preferred, in preference to the holders of
any other stock of the Company ("Junior Stock"), shall be entitled to receive,
when and as declared by the Board of Directors, but only out of funds that are
legally available therefor, cash dividends at the rate of eight percent (8%) of
the Original Issue Price (as defined below) per annum on each outstanding share
of Series Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). The "Original Issue
Price" of the Series A Preferred Stock shall be twenty-five cents ($0.25) per
share. The "Original Issue Price" of the Series B Preferred shall be four
dollars and thirty-six cents ($4.36) per share. The "Original Issue Price" of
the Series C Preferred shall be ten dollars and forty-nine and two-tenths
cents ($10.492) per share. Such dividends shall be payable only when, as and if
declared by the Board of Directors and shall be non-cumulative.
(b) So long as any shares of Series Preferred shall be
outstanding, except with the approval by vote or written consent of the holders
of at least a majority of outstanding Series Preferred, no dividend, whether in
cash or property, shall be paid or declared, nor shall any other distribution be
made, on any Junior Stock, nor shall any shares of any Junior Stock of the
Company be purchased, redeemed, or otherwise acquired for value by the Company
(except for acquisitions of Common Stock by the Company pursuant to agreements
that permit the Company to repurchase such shares upon termination of services
to the Company or in exercise of the Company's right of first refusal upon a
proposed transfer) until all dividends (set forth in Section 1(a) above) on the
Series Preferred shall have been paid or declared and set apart. In the event
dividends are paid on any share of Common Stock, an additional dividend shall be
paid with respect to all outstanding shares of Series Preferred in an amount
equal per share (on an as-if-converted to Common Stock basis) to the amount paid
or set aside for each share of Common Stock. The provisions of this Section 1(b)
shall not, however, apply to (i) a dividend payable in Common Stock, (ii) the
acquisition of shares of any Junior Stock in exchange for shares of any other
Junior Stock, or (iii) any repurchase of any outstanding securities of the
Company that is unanimously approved by the Company's Board of Directors.
-2-
<PAGE>
2. Voting Rights
-------------
(a) General Rights. Except as otherwise provided herein or as
--------------
required by law, the Series Preferred shall be voted equally with the shares of
the Common Stock of the Company and not as a separate class, at any annual or
special meeting of stockholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of Series Preferred shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Series Preferred are convertible
(pursuant to Section 4 hereof) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent.
(b) Separate Vote of Senior Preferred. For so long as at least a
---------------------------------
majority of the shares of Senior Preferred outstanding immediately after the
first date on which the Series C Preferred Stock is issued (the "Series C
Original Issue Date") (subject to adjustment for any stock split, reverse stock
split or other similar event affecting the Senior Preferred) remain outstanding,
in addition to any other vote or consent required herein or by law, the vote or
written consent of the holders of at least a majority of the outstanding Senior
Preferred, voting as a single class, shall be necessary for effecting or
validating the following actions:
(i) Any authorization or designation of any new Series of
Preferred Stock, or any action that reclassifies any outstanding shares into
shares ranking senior to the Senior Preferred in liquidation preference, voting
or dividends or any other preferences;
(ii) Any amendment, alteration, or repeal of any provision of
the Certificate of Incorporation or the Bylaws of the Company (including any
filing of a Certificate of Designation), that alters or changes the voting
powers, preferences, or other special rights or privileges, or restrictions of
the Senior Preferred so as to affect them adversely;
(iii) Any agreement by the Company or its stockholders regarding
an Asset Transfer or Acquisition (each as defined in Section 3(d));
(iv) Any action that results in the payment or declaration of a
dividend on any shares of Common Stock or Preferred Stock;
(v) Any voluntary dissolution or liquidation of the Company;
(vi) Any redemption or repurchase of shares of Common Stock
(other than pursuant to equity incentive agreements which granted the
corporation the right to repurchase shares upon termination of a person's
service with the corporation).
(c) Separate Vote of Series C Preferred. For so long as at least
-----------------------------------
forty-nine percent (49%) of the shares of Series C Preferred Stock outstanding
immediately after the Series C Original Issue Date (subject to adjustment for
any stock split, reverse stock split or other similar event effecting the Series
C Preferred Stock) remain outstanding, in addition to any other vote or
-3-
<PAGE>
consent required herein or by law, the vote or written consent of the holders of
at least sixty-five percent (65%) of the outstanding Series C Preferred, voting
as a single series, shall be necessary for effecting or validating the following
actions:
(i) any authorization or designation of any new Series of
Preferred Stock, or any action that reclassifies any outstanding shares into
shares ranking senior to the Series C Preferred Stock in liquidation preference,
voting or dividends or any other preferences;
(ii) any amendment, alteration, or repeal of any provision of
the Certificate of Incorporation or Bylaws of the Company (including any filing
of a Certificate of Designation), that alters or changes the voting powers,
preferences, or other special rights, or privileges, or restrictions of the
Series C Preferred Stock so as to affect them adversely; and
(iii) any agreement by the Company or its stockholders regarding
an Asset Transfer or Acquisition (each defined in Section 3(d)) such that the
per share consideration is less than $15.84 per share (as adjusted for any stock
splits, combinations, recapitalizations and the like).
(d) Election of Board of Directors. For so long as at least a majority
------------------------------
of the shares of Series Preferred outstanding on the Series C Original Issue
Date remain outstanding (subject to adjustment for any stock split, reverse
stock split or similar event affecting the Series Preferred), (i) the holders of
Series A Preferred, voting as a separate class, shall be entitled to elect two
(2) members of the Company's Board of Directors (or such number as provided for
in (w) of this paragraph) at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors, and to remove from office
such directors and to fill any vacancy caused by the resignation, death or
removal of such directors; (ii) the holders of Series B Preferred, voting as a
separate class, shall be entitled to elect one (1) member of the Company's Board
of Directors (or such number as provided for in (x) of this paragraph) at each
meeting or pursuant to each consent of the Company's stockholders for the
election of directors, and to remove from office such directors and to fill any
vacancy caused by the resignation, death or removal of such directors; (iii) the
holders of Common Stock, voting as a separate class, shall be entitled to elect
two (2) members of the Company's Board of Directors (or such number as provided
for in (y) of this paragraph) at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors, and to remove from office
such directors and to fill any vacancy caused by the resignation, death or
removal of such directors; and (iv) a majority of the holders of Common Stock
and a majority of the holders of Series Preferred, each voting as a separate
class, shall be entitled to mutually elect the remaining members of the Board of
Directors (or such other number as provided for in (z) of this paragraph) at
each meeting or pursuant to each consent of the Company's stockholders for the
election of directors, and to remove from office such directors and to fill any
vacancy caused by the resignation, death or removal of such directors. Any
increase in the authorized size of the Board of Directors shall be such that (w)
one third (1/3) of the total number of directors (rounded up, if necessary, to
the next whole number) are elected by holders of Series A Preferred, voting as a
separate class, that (x) one sixth (1/6) of the total number of directors
(rounded up, if necessary, to the next whole number) are elected by holders of
Series B Preferred, voting as a separate class, (y)
-4-
<PAGE>
one third (1/3) of the total number of directors (rounded up, if necessary, to
the next whole number) are elected by holders of Common Stock, voting as a
separate class and (z) the balance of the directors, if any, are mutually
elected by a majority of the holders of Common Stock and a majority of the
holders of Series Preferred, each voting as a separate class. Notwithstanding
anything else to the contrary, this paragraph (c) shall be amended only upon the
vote or written consent of a majority of the holders of Common Stock and a
majority of the holders of Series Preferred, each voting as a separate class.
3. Liquidation Rights
------------------
(a) Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any Junior Stock, the holders of Series
Preferred shall be entitled to be paid out of the assets of the Company an
amount per share of Series Preferred equal to the Original Issue Price plus all
declared and unpaid dividends on the Series Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) for each share of Series Preferred held by them. If, upon any such
liquidation, distribution, or winding up, the assets of the Company shall be
insufficient to make payment in full to all holders of Series Preferred of the
liquidation preference set forth in this Section 3(a), then such assets shall be
distributed among the holders of Series Preferred at the time outstanding,
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled.
(b) After the payment of the full liquidation preference of the
Series Preferred as set forth in Section 3(a) above, and subject to the
limitation set forth in the last sentence of Section 3(c) below, before any
distribution or payment shall be made to the holders of any Junior Stock, the
holders of the Senior Preferred shall be entitled to be paid out of the assets
of the Company an additional amount per share of Senior Preferred equal to the
Original Issue Price for the Senior Preferred. If, upon any such liquidation,
distribution, or winding up, the assets of the Company shall be insufficient to
make payment in full to all holders of Senior Preferred of the additional
liquidation preference set forth in this Section 3(b), then such assets shall be
distributed among the holders of the Senior Preferred at the time outstanding,
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled pursuant to this Section 3(b).
(c) After the payment of the full liquidation preferences of the
Series Preferred as set forth in Sections 3(a) and 3(b) above, the remaining
assets of the Company legally available for distribution, if any, shall be
distributed ratably to the holders of the Common Stock and Senior Preferred, on
an as-converted basis. Notwithstanding the foregoing, in the event that pursuant
to Sections 3(a) and 3(b) and the preceding sentence, the holders of the Senior
Preferred would be entitled to receive an amount on account of each share of
Senior Preferred equal to or greater than three times the Original Issue Price
for the Senior Preferred, each holder of Senior Preferred shall instead have the
right to receive on account of each share of Senior Preferred pursuant to
Sections 3(a), 3(b) and 3(c) an aggregate amount equal to the greater of (i)
three times the Original Issue Price for the Senior Preferred, respectively, and
(ii) the amount that such holder would be entitled to receive if, in lieu of the
amounts distributable to such holder pursuant to
-5-
<PAGE>
Sections 3(a) and 3(b) and the first sentence of this Section 3(c), such holder
were instead entitled to receive on account of each share of Senior Preferred,
(A) the amount specified in Section 3(a) above plus (B) the amount of the
remaining assets of the Company legally available for distribution, if any,
distributed ratably to holders of the Common Stock and Senior Preferred, on an
as converted basis.
(d) The following events shall be considered a liquidation under
this Section:
(i) any consolidation or merger of the Company with or into
any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or reorganization, or
any transaction or series of related transactions to which the Company is a
party in which in excess of fifty percent (50%) of the Company's voting power is
transferred, excluding any consolidation or merger effected exclusively to
change the domicile of the Company (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").
(e) In an Asset Transfer or Acquisition in which the
consideration received by the Company is other than cash, its value will be
deemed its fair market value as determined in good faith by the Board of
Directors. Any securities shall be valued as follows:
(i) For securities not subject to investment letter or
other similar restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange or through
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such quotation system over the thirty (30)
day period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(C) If there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) (A), (B) or (C) to reflect the approximate fair
market value thereof determined by the Board of Directors and the holders of at
least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
-6-
<PAGE>
4. Conversion Rights
-----------------
The holders of the Series Preferred shall have the following rights
with respect to the conversion of the Series Preferred into shares of Common
Stock (the "Conversion Rights"):
(a) Optional Conversion. Subject to and in compliance with the
-------------------
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the "Series Preferred Conversion Rate" then in effect (determined
as provided in Section 4(b)) by the number of shares of Series Preferred being
converted .
(b) Series Preferred Conversion Rate. The conversion rate in effect
--------------------------------
at any time for conversion of the Series Preferred (the "Series Preferred
Conversion Rate") shall be the quotient obtained by dividing the Original Issue
Price of the Series Preferred by the "Series Preferred Conversion Price,"
calculated as provided in Section 4(c).
(c) Series Preferred Conversion Price. The conversion prices for the
---------------------------------
Series Preferred shall initially be the respective Original Issue Price of the
Series Preferred (the "Series Preferred Conversion Price"). The initial Series
Preferred Conversion Price shall be adjusted from time to time in accordance
with this Section 4. All references to the Series Preferred Conversion Price
herein shall mean the Series Preferred Conversion Price as so adjusted.
(d) Mechanics of Conversion. Each holder of Series Preferred who
-----------------------
desires to convert the same into shares of Common Stock pursuant to this Section
4 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or any transfer agent for the Series Preferred, and
shall give written notice to the Company at such office that such holder elects
to convert the same. Such notice shall state the number of shares of Series
Preferred being converted. Thereupon, the Company shall promptly issue and
deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay (i) in cash or, to the extent sufficient funds are not then legally
available therefor, in Common Stock (at the Common Stock's fair market value
determined by the Board of Directors as of the date of such conversion), any
declared and unpaid dividends on the shares of Series Preferred being converted
and (ii) in cash (at the Common Stock's fair market value determined by the
Board of Directors as of the date of conversion) the value of any fractional
share of Common Stock otherwise issuable to any holder of Series Preferred. Such
conversion shall be deemed to have been made at the close of business on the
date of such surrender of the certificates representing the shares of Series
Preferred to be converted, and the person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date. Upon conversion
of only a portion of the number of shares of Series Preferred represented by a
certificate surrendered for conversion, the Corporation shall issue and deliver
to or upon the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series Preferred representing the unconverted portion of the
certificate so surrendered.
-7-
<PAGE>
(e) Adjustment for Stock Splits and Combinations. If the Company
--------------------------------------------
shall at any time or from time to time after the date that the first share of a
series of the Series Preferred is issued (the respective "Original Issue Date")
effect a subdivision of the outstanding Common Stock without a corresponding
subdivision of the Preferred Stock, the Series Preferred Conversion Price in
effect immediately before that subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares without a corresponding combination of the Preferred
Stock, the Series Preferred Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4(e) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) Adjustment for Common Stock Dividends and Distributions. If the
-------------------------------------------------------
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Series Preferred Conversion Price that is then in
effect shall be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Series Preferred Conversion Price then in effect by a fraction
(i) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Series Preferred Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Series Preferred Conversion Price shall be adjusted pursuant to this Section
4(f) to reflect the actual payment of such dividend or distribution.
(g) Adjustment for Reclassification, Exchange and Substitution. If at
----------------------------------------------------------
any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Series Preferred is changed into the same or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(d) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4), in any such event each holder
of Series Preferred shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable upon
such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Series
Preferred could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
-8-
<PAGE>
(h) Reorganizations, Mergers, Consolidations or Sales of Assets. If
-----------------------------------------------------------
at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than an Acquisition or Asset
Transfer as defined in Section 3(d) or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the holders of the Series Preferred shall
thereafter be entitled to receive upon conversion of the Series Preferred the
number of shares of stock or other securities or property of the Company to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of Series
Preferred after the capital reorganization to the end that the provisions of
this Section 4 (including adjustment of the Series Preferred Conversion Price
then in effect and the number of shares issuable upon conversion of the Series
Preferred) shall be applicable after that event and be as nearly equivalent as
practicable.
(i) Sale of Shares Below Series B or Series C Preferred Conversion
--------------------------------------------------------------
Price. The provisions of this Section 4(i) shall only apply to shares of Senior
- -----
Preferred.
(i) If at any time or from time to time after the date on which
this Certificate of Incorporation is filed with the Delaware Secretary of State,
the Company issues or sells, or is deemed by the express provisions of this
Section 4(i) to have issued or sold, Additional Shares of Common Stock (as
defined in subsection (iv) below)), other than as a dividend or other
distribution on any class of stock as provided in Section 4(f) above, and other
than a subdivision or combination of shares of Common Stock as provided in
Section 4(e) above, for an Effective Price (as defined in subsection (iv) below)
less than the then effective Series Preferred Conversion Price, then and in each
such case the then existing Series Preferred Conversion Price shall be reduced,
as of the opening of business on the date of such issue or sale, to a price
determined by multiplying such Series Preferred Conversion Price by a fraction
(i) the numerator of which shall be (A) the number of shares of Common Stock
deemed outstanding (as defined below) immediately prior to such issue or sale,
plus (B) the number of shares of Common Stock which the aggregate consideration
received (as defined in subsection (ii)) by the Company for the total number of
Additional Shares of Common Stock so issued or sold would purchase at such
Series Preferred Conversion Price, and (ii) the denominator of which shall be
the number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued or sold or deemed to be sold. For the purposes
of the preceding sentence, the number of shares of Common Stock deemed to be
outstanding as of a given date shall be the sum of (A) the number of shares of
Common Stock actually outstanding, (B) the number of shares of Common Stock into
which the then outstanding shares of Series Preferred could be converted if
fully converted on the day immediately preceding the given date, and (C) the
number of shares of Common Stock which could be obtained through the exercise or
conversion of all other rights, options, warrants and convertible securities
outstanding on the day immediately preceding the given date.
-9-
<PAGE>
(ii) For the purpose of making any adjustment required under
this Section 4(i), the consideration received by the Company for any issue or
sale of securities shall (A) to the extent it consists of property other than
cash, be computed at the fair value of that property as determined in good faith
by the Board of Directors, and (B) if Additional Shares of Common Stock,
Convertible Securities (as defined in subsection (iii) below) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, be computed as the
portion of the consideration so received that it is conclusively determined by
the Board of Directors to be allocable to such Additional Shares of Common
Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under this
Section 4(i), if the Company issues or sells any (A) stock or other securities
convertible into, Additional Shares of Common Stock (such convertible stock or
securities being herein referred to as "Convertible Securities") or (B) rights,
warrants or options for the purchase of Additional Shares of Common Stock or
Convertible Securities and if the Effective Price of such Additional Shares of
Common Stock is less than the Series Preferred Conversion Price, in each case
the Company shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such rights or options or Convertible Securities, plus, in the case of such
rights or options, the amounts of consideration, if any, payable to the Company
upon the exercise of such rights or options, plus, in the case of Convertible
Securities, the amounts of consideration, if any, payable to the Company (other
than by cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof; provided that if in the case of
Convertible Securities the amounts of such consideration cannot be ascertained,
but are a function of antidilution or similar protective clauses, the Company
shall be deemed to have received the amounts of consideration without reference
to such clauses; provided further that if the amount of consideration payable to
the Company upon the exercise or conversion of rights, options or Convertible
Securities is reduced over time or on the occurrence or non-occurrence of
specified events other than by reason of antidilution adjustments, the Effective
Price shall be recalculated using the figure to which such amount of
consideration is reduced; provided further that if the amount of consideration
payable to the Company upon the exercise or conversion of such rights, options
or Convertible Securities is subsequently increased, the Effective Price shall
be again recalculated using the increased amount of consideration payable to the
Company upon the exercise or conversion of such rights, options or Convertible
Securities. No further adjustment of the Series Preferred Conversion Price, as
adjusted upon the issuance of such rights, options or Convertible Securities,
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Series Preferred Conversion Price as adjusted upon
the issuance of such rights, options or Convertible Securities shall be
readjusted to the Series Preferred Conversion Price which would have been in
effect had an adjustment been made on the basis that the only Additional Shares
of
-10-
<PAGE>
Common Stock so issued were the Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such Convertible Securities, and such Additional Shares of Common
Stock, if any, were issued or sold for the consideration actually received by
the Company upon such exercise, plus the consideration, if any, actually
received by the Company for the granting of all such rights or options, whether
or not exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the conversion of such
Convertible Securities; provided that such readjustment shall not apply to
conversions of the Series Preferred Stock that took place prior to such
readjustment.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this Section 4(i), whether or not subsequently reacquired or retired by the
Company other than (A) shares of Common Stock issued upon conversion of the
Series Preferred; (B) shares of Common Stock and/or options, warrants or other
Common Stock purchase rights and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) after the Original Issue
Date to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board; (C) shares of Common Stock
issued pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date; (D) shares of Common Stock issued for
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination; (E) shares of Common Stock or Preferred Stock
issued pursuant to any equipment leasing arrangement or debt financing from a
bank or similar financial institution in which the equity coverage is 50% or
less of the debt financing amount; and (F) shares of the Company's Common Stock
or Preferred Stock issued at or above the fair market value of such stock (as
determined in good faith by the Board of Directors) in connection with strategic
transactions involving the Company and other entities, including, without
limitation, (i) joint ventures, marketing or licensing arrangements or (ii)
technology transfer or long term supply agreements arrangements; provided that
the issuance of shares referred to in Clauses (E) and (F), has been approved by
the Company's Board of Directors and provided, further that the issuance in
Clause (F) includes a material commercial component such as a license, a long
term supply agreement or the like which is entered into at the same time as the
issuance of the Common Stock. The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Company under this Section 4(i), into the aggregate consideration
received, or deemed to have been received by the Company for such issue under
this Section 4(i), for such Additional Shares of Common Stock.
(j) Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Series Preferred Conversion Price for the number of shares
of Common Stock or other securities issuable upon conversion of the Series
Preferred, if the Series Preferred is then convertible pursuant to this Section
4, the Company, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
-11-
<PAGE>
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series Preferred at the
holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (i) the
consideration received or deemed to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (ii) the Series Preferred Conversion Price at the time in effect, (iii)
the number of Additional Shares of Common Stock and (iv) the type and amount, if
any, of other property which at the time would be received upon conversion of
the Series Preferred.
(k) Notices of Record Date. Upon (i) any taking by the Company
----------------------
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(d)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 3(d)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall mail to
each holder of Series Preferred at least ten (10) days prior to the record date
specified therein (or such shorter period approved by a majority of the
outstanding Series Preferred) a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (C) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up.
(l) Automatic Conversion
--------------------
(i) Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Series
Preferred Conversion Price, immediately upon the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company in which the gross cash proceeds to
the Company (before underwriting discounts, commissions and fees) are at least
$50,000,000. Upon such automatic conversion, any declared and unpaid dividends
shall be paid in accordance with the provisions of Section 4(d).
(ii) Upon the occurrence of the event specified in Section
4(l)(i) above, the outstanding shares of Series Preferred 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
Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon
-12-
<PAGE>
such conversion unless the certificates evidencing such shares of Series
Preferred are either delivered to the Company or its transfer agent as provided
below, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series Preferred, the holders of Series Preferred shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for the Series Preferred. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series Preferred
surrendered were convertible on the date on which such automatic conversion
occurred, and any declared and unpaid dividends shall be paid in accordance with
the provisions of Section 4(d).
(m) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Company shall, in lieu of
issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board
of Directors) on the date of conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Company shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series Preferred. 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 the Series Preferred, the
Company 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 purpose.
(o) Notices. Any notice required by the provisions of this Section 4
-------
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
(p) Payment of Taxes. The Company will pay all taxes (other than
----------------
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series Preferred, excluding any
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<PAGE>
tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in which
the shares of Series Preferred so converted were registered.
(q) No Impairment or Dilution. Without the consent of the holders of
-------------------------
then outstanding Series Preferred as required under Section 2(b), the Company
shall not amend its Restated Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or take any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but shall at all times in
good faith assist in carrying out all such action as may be reasonably necessary
or appropriate in order to protect the conversion rights of the holders of the
Series Preferred against dilution or other impairment.
5. No Reissuance Of Series Preferred.
---------------------------------
No share or shares of Series Preferred acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be reissued.
V.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
B. If at any time this corporation is subject to Section 2115(b) of the
CGCL, the corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the CGCL) for breach of duty to the corporation and
its stockholders through bylaw provisions or through agreements with the agents,
or through stockholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject to the
limits on such excess indemnification set forth in Section 204 of the CGCL.
C. The holders of the Series Preferred expressly waive their rights, if
any, as described in California Code Sections 502, 503 and 506 as they relate to
repurchases of shares upon termination of employment or service as a consultant
or director.
D. Any repeal or modification of this Article IV shall only be prospective
and shall not effect the rights under this Article IV in effect at the time of
the alleged occurrence of any action or omission to act giving rise to
liability.
VI.
For the management of the business and for the conduct of the affairs of
the Company, and in further definition, limitation and regulation of the powers
of the Company, of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided that:
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<PAGE>
A. The management of the business and the conduct of the affairs of the
Company shall be vested in its Board of Directors. The number of directors which
shall constitute the whole Board of Directors shall be fixed by the Board of
Directors in the manner provided in the Bylaws.
B. Subject to the indemnification provisions in the Bylaws, the Board of
Directors may from time to time make, amend, supplement or repeal the Bylaws;
provided, however, that the stockholders may change or repeal any Bylaw adopted
by the Board of Directors by the affirmative vote of the percentage of holders
of capital stock as provided therein; and, provided further, that no amendment
or supplement to the Bylaws adopted by the Board of Directors shall vary or
conflict with any amendment or supplement thus adopted by the stockholders.
C. The directors of the Company need not be elected by written ballot
unless the Bylaws so provide.
D. Election of Directors
---------------------
1. Directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Each director shall hold office
either until the expiration of the term for which elected or appointed and until
a successor has been elected and qualified, or until such director's death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
2. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115 of the California General
Corporation Law ("CGCL"). During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder desires. No stockholder, however,
shall be entitled to so cumulate such stockholder's votes unless (i) the names
of such candidate or candidates have been placed in nomination prior to the
voting and (ii) the stockholder has given notice at the meeting, prior to the
voting, of such stockholder's intention to cumulate such stockholder's votes. If
any stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
E. Removal
-------
1. During such time or times that the corporation is subject to Section
2115(b) of the CGCL, the Board of Directors or any individual director may be
removed from office at any time without cause by the affirmative vote of the
holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not
-15-
<PAGE>
consenting in writing to such removal, would be sufficient to elect that
director if voted cumulatively at an election which the same total number of
votes were cast (or, if such action is taken by written consent, all shares
entitled to vote were voted) and the entire number of directors authorized at
the time of such director's most recent election were then being elected.
2. At any time or times that the corporation is not subject to Section
2115(b) of the CGCL and subject to any limitations imposed by law, Section E.1
above shall not apply and the Board of Directors or any director may be removed
from office at any time (a) with cause by the affirmative vote of the holders of
a majority of the voting power of all then-outstanding shares of voting stock of
the corporation entitled to vote at an election of directors or (b) without
cause by the affirmative vote of the holders of a majority of the voting power
of all then-outstanding shares of voting stock of the corporation, entitled to
vote at an election of directors.
* * * *
FOUR: This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of the Company.
FIVE: This Amended and Restated Certificate of Incorporation, herein
Certified, has been duly adopted in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
-16-
<PAGE>
IN WITNESS WHEREOF, PEOPLEPC INC. has caused this Restated Certificate of
Incorporation to be signed by the President and the Secretary in San Francisco,
California this 4th day of April, 2000.
PEOPLEPC INC.
By: /s/ NICHOLAS GROUF
--------------------------------------
Nicholas Grouf
President
-17-
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
PEOPLEPC INC.
(A DELAWARE CORPORATION)
<PAGE>
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TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE I OFFICES....................................................1
Section 1. Registered Office.....................................1
Section 2. Other Offices.........................................1
ARTICLE II CORPORATE SEAL ............................................1
Section 3. Corporate Seal........................................1
ARTICLE III STOCKHOLDERS' MEETINGS.....................................1
Section 4. Place of Meetings.....................................1
Section 5. Annual Meeting........................................1
Section 6. Special Meetings......................................4
Section 7. Notice of Meetings....................................4
Section 8. Quorum................................................4
Section 9. Adjournment and Notice of Adjourned Meetings..........5
Section 10. Voting Rights.........................................5
Section 11. Joint Owners of Stock.................................5
Section 12. List of Stockholders..................................6
Section 13. Action Without Meeting................................6
Section 14. Organization..........................................7
ARTICLE IV DIRECTORS..................................................7
Section 15. Number and Term of Office.............................7
Section 16. Powers................................................7
Section 17. Term of Directors.....................................7
Section 18. Vacancies.............................................8
Section 19. Resignation...........................................9
Section 20. Removal...............................................9
Section 21. Meetings..............................................9
(a) Annual Meetings.......................................9
(b) Regular Meetings.....................................10
(c) Special Meetings.....................................10
(d) Telephone Meetings...................................10
(e) Notice of Meetings...................................10
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(CONTINUED)
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(f) Waiver of Notice.....................................10
Seciton 22. Quorum and Voting....................................10
Section 23. Action Without Meeting...............................11
Section 24. Fees and Compensation................................11
Section 25. Committees...........................................11
(a) Executive Committee..................................11
(b) Other Committees.....................................11
(c) Term.................................................11
(d) Meetings.............................................12
Section 26. Organization.........................................12
ARTICLE V OFFICERS..................................................12
Section 27. Officers Designated..................................12
Section 28. Tenure and Duties of Officers........................13
(a) General..............................................13
(b) Duties of Chairman of the Board of Directors.........13
(c) Duties of President..................................13
(d) Duties of Vice Presidents............................13
(e) Duties of Secretary..................................13
(f) Duties of Chief Fiancial Officer.....................14
Section 29. Delegation of Authority..............................14
Section 30. Resignations.........................................14
Section 31. Removal..............................................14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION....................14
Section 32. Execution of Corporate Instruments...................14
Section 33. Voting of Securities Owned by the Corporation........15
ARTICLE VII SHARES OF STOCK...........................................15
Section 34. Form and Execution of Certificates...................15
Section 35. Lost Certificates....................................16
Section 36. Transfers............................................16
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(CONTINUED)
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Section 37. Fixing Record Dates..................................16
Section 38. Registered Stockholders..............................17
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION.......................17
Section 39. Execution of Other Securities........................17
ARTICLE IX DIVIDENDS.................................................18
Section 40. Declaration of Dividends.............................18
Section 41. Dividend Reserve.....................................18
ARTICLE X FISCAL YEAR...............................................18
Section 42. Fiscal Year..........................................18
ARTICLE XI INDEMNIFICATION...........................................18
Section 43. Indemnification of Directors, Executive Officers,
Other Officers, Employees and Other Agents...........18
(a) Directors and Executive Officers.....................19
(b) Other Officers, Employees and Other Agents...........19
(c) Expenses.............................................19
(d) Enforcement..........................................19
(e) Non-Exclusivity of Rights............................20
(f) Survival of Rights...................................20
(g) Insurance............................................20
(h) Amendments...........................................21
(i) Saving Clause........................................21
(j) Certain Definitions..................................21
ARTICLE XII NOTICES...................................................22
Section 44. Notices..............................................22
(a) Notice to Stockholders...............................22
(b) Notice to Directors..................................22
(c) Affidavit of Mailing.................................22
(d) Time Notices Deemed Given............................22
(e) Methods of Notice....................................22
(f) Failure to Receive Notice............................22
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(CONTINUED)
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(g) Notice to Person with Whom Communication Is
Unlawful.............................................22
(h) Notice to Person with Undeliverable Address..........23
ARTICLE XIII AMENDMENTS................................................23
Section 45. Amendments...........................................23
ARTICLE XIV LOANS TO OFFICERS.........................................23
Section 46. Loans to Officers....................................23
ARTICLE XV MISCELLANEOUS.............................................24
Section 47. Annual Report........................................24
</TABLE>
iv.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
PEOPLEPC INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle. (Del. Code Ann., tit. 8,(S).131)
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be fixed
by the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors may from
time to time determine or the business of the corporation may require. (Del.
Code Ann., tit. 8,(S).122(8))
ARTICLE 11
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit.
8,(S).122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal office of the corporation required
to be maintained pursuant to Section 2 hereof. (Del. Code Ann., fit. 8,(S).211
(a))
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held
1.
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on such date and at such time as may be designated from time to time by the
Board of Directors. Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders: (i) pursuant
to the corporation's notice of meeting of stockholders; (ii) by or at the
direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in the following paragraph, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 5. (Del. Code
Ann., tit. 8,(S).211 (b)).
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the " 1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting
2.
<PAGE>
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or beneficial owner
intends to deliver a proxy statement and form of proxy to holders of, in the
case of the proposal, at least the percentage of the corporation's voting shares
required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
3.
<PAGE>
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than ten percent (10%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors shall fix.
At any time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), stockholders holding five percent
(5%) or more of the outstanding shares shall have the right to call a special
meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons properly requesting the meeting may set the time and place of the
meeting and give the notice. Nothing contained in this paragraph (b) shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS.Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, (S).(S).222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of
4.
<PAGE>
a quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority of
the shares represented thereat, but no other business shall be transacted at
such meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws, all action taken by the holders of a majority of the vote cast in
all matters other than the election of directors, the affirmative vote of a
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, 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. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by statute or by the
Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series. (Del. Code Ann., tit. 8, (S). 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
(S). 222(c))
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period. (Del. Code Ann., tit. 8,(S).(S).211 (e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or
5.
<PAGE>
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, (S).
217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, 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 ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present. (Del. Code Ann., tit.
8,(S).219(a))
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, 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.
(b) 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 sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of 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. (Del. Code Ann., tit. 8,(S).228)
(c) 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. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that
6.
<PAGE>
written consent has been given in accordance with Section 228 of the Delaware
General Corporation Law.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed by the Board of Directors from time
to time.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at an
annual meeting, they may be elected as soon thereafter as convenient. (Del. Code
Ann., tit. 8,(S).(S).141 (b), 211 (b), (c))
SECTION 16. Powers. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation. (Del. Code Ann., tit. 8, (S).141 (a))
SECTION 17. TERM OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual
7.
<PAGE>
meeting of stockholders for a term of one year. Each director shall serve until
his successor is duly elected and qualified or until his death, resignation or
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(b) No person entitled to vote at an election for directors
may cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL. During such
time or times that the corporation is subject to Section 2115(b) of the CGCL,
every stockholder entitled to vote at an election for directors may cumulate
such stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (a) the names of such candidate or
candidates have been placed in nomination prior to the voting and (b) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up to
the number of directors to be elected, are elected.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director. (Del. Code Ann., tit. 8,
(S). 223(a), (b)).
(b) 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
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) 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 offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law (Del. Code Ann. tit. 8,(S).223(c)).
(c) At any time or times that the corporation is subject to
ss.2115(b) of the CGCL, if, after the filling of any vacancy, the directors then
in office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then
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(i) any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) the Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of the stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL, the term of office of any director
shall terminate upon that election of a successor. (CGCL (S).305(c).
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8,
(S).(S).141(b), 223(d))
SECTION 20. REMOVAL.
(a) Subject to any limitations imposed by applicable law (and
assuming the corporation is not subject to Section 2115 of the CGCL), the Board
of Directors or any director may be removed from office at any time (i) with
cause by the affirmative vote of the holders of a majority of the voting power
of all then-outstanding shares of voting stock of the corporation entitled to
vote at an election of directors or (ii) without cause by the affirmative vote
of the holders of sixty-six and two-thirds percent (66-2/3%) of the voting power
of all then-outstanding shares of voting stock of the corporation, entitled to
vote at an election of directors.
(b) During such time or times that the corporation is subject
to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote on such removal; provided, however, that unless the entire Board is
removed, no individual director may be removed when the votes cast against such
director's removal, or not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively at an election which the
same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of such director's most recent election were
then being elected.
SECTION 21. MEETINGS
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
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(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for a regular meeting of
the Board of Directors. (Del. Code Ann., tit. 8,(S).141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(Del. Code Ann., tit. 8,(S).141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8,(S).141 (i))
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, postage prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8,(S).229)
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting. (Del. Code Ann., tit. 8,(S).229)
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time, a quorum of the Board of Directors shall
consist of a majority of the exact number of directors fixed from time to time
by the Board of Directors in accordance with the Certificate of Incorporation;
provided, however, at any meeting, whether a quorum be present or otherwise, a
majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting. (Del. Code Ann., tit. 8,(S).141(b))
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(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws. (Del. Code
Ann., tit. 8,(S).141 (b))
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and such
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee. (Del. Code Ann., tit. 8,(S).141 (f))
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors and at any meeting of a committee of
the Board of Directors. Nothing herein contained shall be construed to preclude
any director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8,(S).141 (h))
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint
an Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation. (Del. Code
Ann., tit. 8,(S).141(c))
(b) OTHER COMMITTEES. The Board of Directors may, from time
to time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8,(S).141 (c))
(c) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's term
on the Board of Directors. The Board of Directors, subject to any requirements
of any outstanding series of Preferred Stock, the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any
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reason remove any individual committee member and the Board of Directors may
fill any committee vacancy created by death, resignation, removal or increase in
the number of members of the committee. The Board of Directors may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee, and, in addition,
in the absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. (Del. Code Ann., tit. 8,(S).141 (c))
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the, act of such committee. (Del. Code Ann., tit. 8,
(S).(S). 141(c), 229)
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, (if a director) or, in the absence of any such person, a chairman of
the meeting chosen by a majority of the directors present, shall preside over
the meeting. The Secretary, or in his absence, any Assistant Secretary directed
to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the President, one or more
Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and
the Controller, all of whom shall be elected at the annual organizational
meeting of the Board of Directors. The Board of Directors may also appoint one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may
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assign such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation at
any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the corporation shall be fixed by or in
the manner designated by the Board of Directors. (Del. Code Ann., tit.
8,(S).(S). 122(5), 142(a), (b))
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure
of the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or appointed
by the Board of Directors may be removed at any time by the Board of Directors.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors. (Del. Code Ann., tit. 8,(S).141 (b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, (S). 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. (Del. Code Ann., tit.
8, (S). 142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time. (Del. Code Ann., tit.
8,(S).142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the
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Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. (Del. Code Ann.,
tit. 8,(S).142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. (Del. Code Ann., tit. 8, (S). 142(a))
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8,(S).142(b))
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on behalf
of the corporation any corporate instrument or document,
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or to sign on behalf of the corporation the corporate name without limitation,
or to enter into contracts on behalf of the corporation, except where otherwise
provided by law or these Bylaws, and such execution or signature shall be
binding upon the corporation. (Del. Code Ann., tit. 8,(S).(S).103(a), 142(a),
158)
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8,(S).(S).103(a), 142(a), 158).
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8,(S). 123)
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class
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of stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Except as otherwise expressly provided by
law, the rights and obligations of the holders of certificates representing
stock of the same class and series shall be identical. (Del. Code Ann., tit.
8,(S).158)
SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates 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. The corporation may require, I as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to agree to indemnify the corporation in such manner as
it shall require or to give the corporation a surety bond in such form and
amount as it may direct as indemnity against any claim that may be made against
the corporation with respect to the certificate alleged to have been lost,
stolen, or destroyed. (Del.Code Ann., tit. 8,(S).167)
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8,(S).201, fit. 6,(S).8- 401 (1))
(b) The corporation shall have power to enter into and per-
form any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the Delaware General Corporation Law. (Del. Code Ann., tit.
8,(S). 160 (a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, 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, subject to applicable law, not be more than sixty (60) nor less than
ten (10) 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; Provided, However, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten (10) days
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after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary, request the Board of Directors to fix a record
date. The Board of Directors shall promptly, but in all events within ten (10)
days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within ten (10) days of the date on which such a request is received,
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 applicable law, 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 the State
of 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 the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stock-
holders entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (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. (Del. Code Ann., tit. 8,(S).213)
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, 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. (Del. Code Ann., tit. 8,(S).(S).213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate
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security shall be authenticated by the manual signature, or where permissible
facsimile signature, of a trustee under an indenture pursuant to which such
bond, debenture or other corporate security shall be issued, the signatures of
the persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have ceased
to be such officer before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law. (Del. Code
Ann., tit. 8,(S).(S).170, 173)
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8,(S).171)
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
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(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law or any other applicable law; provided, however, that the
corporation may modify the extent of such indemnification by individual
contracts with its directors and executive officers; and, provided, further,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law or any other
applicable law. The Board of Directors shall have the power to delegate the
determination of whether indemnification shall be given to such officers or
other persons as the Board of Directors shall determine.
(c) EXPENSES. The corporation shall advance to 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, by reason of the fact that he is or was a
director or executive officer, of the corporation, or is or was serving at the
request of the corporation as a director executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to the
final disposition of the proceeding, promptly following request therefor, all
expenses incurred by any director Or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an executive
officer of the corporation (except by reason of the fact that such executive
officer is or was a director of the corporation, in which event this paragraph
shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to
19.
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indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. In connection with any claim for
indemnification, the corporation shall be entitled to raise as a defense to any
such action that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law or any other applicable
law for the corporation to indemnify the claimant for the amount claimed. In
connection with any claim by an executive officer of the corporation (except in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law or any other applicable law, nor an actual determination
by the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct. In any suit brought by a
director or executive officer to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the director or
executive officer is not entitled to be indemnified, or to such advancement of
expenses, under this Article XI or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law or any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person
by this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation or any other applicable law,
upon approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Bylaw.
20.
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(h) AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each director and executive officer
to the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that 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 Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee
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Bylaws of the corporation, 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. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate shall state, if such is the fact and if notice
is required, that notice was given to all persons entitled to receive notice
except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, 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 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 twelvemonth 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 his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, (S). 230)
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the
stockholders entitled to vote. The Board of Directors shall also have the power,
if such power is conferred upon the Board of Directors by the Certificate of
Incorporation, to adopt, amend, or repeal Bylaws (including, without limitation,
the amendment of any Bylaw setting forth the number of Directors who shall
constitute the whole Board of Directors). (Del. Code Ann., tit.
8,(S).(S).109(a), 122(6)).
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its
23.
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subsidiaries, whenever, in the judgment of the Board of Directors, such loan,
guarantee or assistance may reasonably be expected to benefit the corporation.
The loan, guarantee or other assistance may be with or without interest and may
be unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
(Del. Code Ann., tit. 8,(S).143)
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accounts or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. When
there are more than 100, stockholders of record of the corporation's shares, as
determined by Section 605 of the CGCL, additional information as required by
Section 1501(b) of the CGCL shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the 1934 Act, that Act shall take precedence. Such report shall be sent to
stockholders at least fifteen (15) days prior to the next annual meeting of
stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the stockholders of the corporation is hereby expressly waived.
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EXHIBIT 10.4
PEOPLEPC
SALES FINANCE AGREEMENT
This Agreement is by and between MBNA AMERICA BANK, N.A., a national banking
association having its principal place of business in Wilmington, Delaware
("MBNA"), and PEOPLEPC, INC, a Delaware corporation having its principal place
of business in San Francisco, California ("PeoplePC") for themselves, and their
respective successors and assigns. The Effective Date of this Agreement is as
set forth in Section 1(e) below.
WHEREAS, PeoplePC is and will be engaged in the business of providing personal
computers and related goods and services to its Members; and
WHEREAS, MBNA is engaged in the business of providing various consumer credit
products; and
WHEREAS, PeoplePC and MBNA desire that MBNA provide various Loan Accounts to
Members, certain of which shall be offered in conjunction with a purchase
financing program for PeoplePC Products.
1. DEFINITIONS
When used in this Agreement,
(a) "Agreement" means this agreement and Schedules A, B, C, and D, and Exhibit
1.
(b) "Completed Application" means an application for a Loan Account submitted
by a Member to MBNA, pursuant to the Referral Procedures, and for which no
additional information is required by MBNA prior to decisioning, as determined
solely by MBNA. A Completed Application shall include, at a minimum the
following completed application fields: (i) name; (ii) address; (iii) social
security number; (iv) home and business phone; (v) date of birth; (vi) annual
salary; and, (viii) employer.
(c) "Customer" means any Member who is a participant in the Program.
(d) "Credit Information" means all information collected by MBNA in connection
with a Member's credit application, including credit reports and credit scores,
and all subsequent transactions and all other activity on a Loan Account, and
the Loan Accounts themselves.
(e) "Effective Date" means the day on which the last of the following events
occurs: (a) this Agreement is mutually executed by the parties, and (b) MBNA
provides PeoplePC with initial written approval over the PeoplePC website
pursuant to Section 4(c).
(f) "Loan Account" means a revolving loan account opened by a Customer in
response to marketing efforts made pursuant to the Program. The Loan Account is
proprietary to MBNA and
Confidential treatment has been requested with respect to the omitted portions
of this exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as [*]. A complete version of
this exhibit of this exhibit has been filed separately with the Securities and
Exchange Commission.
1
<PAGE>
and will have the terms and features listed on Schedule A, as they may be
modified pursuant to Section 9 of this Agreement.
(g) "Member" means any end-user purchaser or potential purchaser of PeoplePC
Products and/or other potential participants mutually agreed upon by PeoplePC
and MBN.
(h) "Member Information" means demographic and other information concerning the
Members commonly collected by PeoplePC in its ordinary course of business, in
conjunction with an application for membership with PeoplePC.
(i) "PeoplePC Products" means the personal computers and other products and
services created, provided or offered by PeoplePC, its employees, agents and
representatives and other items financed with a Loan Account, as mutually agreed
upon by the parties.
(j) "Phase 1" means the initial period of this Agreement beginning on the
Effective Date and ending at 11:59 PM on March 20, 2000, or at an earlier date
as determined by PeoplePC and agreed to by MBNA.
(k) "Pre-Effective Date Applications" means those applications for credit
submitted by Members prior to the Effective Date.
(l) "Program" means the marketing, origination and processing of the Loan
Accounts and all related rights and obligations of PeoplePC and MBNA related
thereto as set forth in this Agreement.
(m) "Referral Procedures" means the procedures provided by MBNA pursuant to
which Members interested in Loan Accounts will be referred to MBNA or otherwise
offered Loan Accounts, as the Procedures may be amended from time to time.
(n) "Settlement Account" means a banking account designated by PeoplePC and
described on Schedule C hereto, to be used for receipt of certain Loan Account
proceeds.
(o) "Trademarks" means any design, image, visual representation, logo, service
mark, trade dress, trade name, or trademark used or acquired by MBNA or
PeoplePC, as the case may be, during the term of this Agreement.
2. TWO PHASE PROGRAM ROLL-OUT
The parties agree to make the Program available to Members in two separate
phases.
(a) Phase 1: During Phase 1, MBNA shall approve only those Members with FICO
credit scores of [*] or higher (and which otherwise meet MBNA's credit approval
criteria), and shall decline all other Member applications for credit. For all
such applications approved by MBNA during Phase 1, MBNA shall offer a Loan
Account with an annual percentage rate of approximately 10.95% for PeoplePC
Product purchases, and PeoplePC shall pay to MBNA a discount payment equal to
the amount described on Schedule B (the "Phase 1 Discount") for such Loan
Account. The total aggregate Phase 1 Discount earned by MBNA each day shall be
offset on a daily basis against
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
PeoplePC's Settlement Account. All other rights and obligations for the parties
otherwise set forth in this Agreement shall apply during Phase 1.
(b) Post Phase 1: After the completion of Phase 1, MBNA shall apply its then-
current standard Loan Account application decisioning strategies, as they may be
modified from time to time, in decisioning Member applications for credit
(including the use of a sliding scale of annual percentage rates based on credit
worthiness, among other things); provided, however, that Members with FICO
credit scores of [*] or higher (and which otherwise meet MBNA's credit approval
criteria) will be approved for a Loan Account with an APR of approximately
10.95% for PeoplePC Product purchases. MBNA shall notify PeoplePC of each such
member approved at such a rate and PeoplePC shall pay to MBNA a discount payment
equal to the amount described on Schedule B (the "Standard Discount") for such
Loan Account. The total aggregate Standard Discount earned by MBNA each day
shall be offset on a daily basis against PeoplePC's Settlement Account. All
other rights and obligations for the parties otherwise set forth in this
Agreement shall apply after Phase 1.
3. MBNA RIGHT OF FIRST DECISION
(a) Subject to subsection 3(b) below, PeoplePC shall refer one hundred percent
(100%) of its Members desiring financing to MBNA for initial decisioning (the
"Right of First Decision"). If a Loan Account application is declined by MBNA,
PeoplePC shall be free to refer the Member to a third party lender; provided
that MBNA has no obligation whatsoever to assist in such application referral,
and shall incur no expense in regard to any such application referral.
(b) MBNA's Right of First Decision shall not be deemed to apply to the extent
that a PeoplePC affiliate offers consumer-purpose financing to Members of the
type offered by MBNA. In the event that any PeoplePC affiliate issues consumer-
purpose loans or lines of credit to Members, and such affiliate elects to sell
the portfolio of such accounts, in its ordinary course of business, then MBNA
shall have a right of first refusal to purchase that portfolio, the terms of
such a purchase and sale to be negotiated at that time. MBNA will notify
PeoplePC (or the seller if different from PeoplePC) of its intent to exercise
such right with thirty (30) days after MBNA's receipt of the notice of sale,
pursuant to Section 15(f) hereof.
4. PROGRAM
(a) Design and Administration: Subject to PeoplePC's rights of prior approval
as otherwise set forth herein, MBNA shall design, develop and administer the
Program for the Members. The Program will offer Customers the right to request
additional advances on Loan Accounts. MBNA reserves the right to evaluate the
Program periodically to determine its compliance with applicable laws, rules and
regulations and make all adjustments to the Loan Accounts and the Program, as
deemed necessary and advisable by MBNA, or its legal advisors. For example, but
without limitation, MBNA may make adjustments to the Program to ensure that the
Loan Accounts are open-end lines of credit under the Truth In Lending Act, as
implemented by Regulation Z, and that the Loan Accounts offered under the
Program are not covered by the Federal Trade Commission's "Holder Rule" (16
C.F.R. (S)443).
*****Certain information on this page has been ommitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
<PAGE>
(b) PeoplePC Website Procedures / Notification of Decision: PeoplePC will
maintain the appropriate links and textual information on its website to
facilitate the submission of applications for Loan Accounts by the Members to
MBNA. For each Completed Application decisioned by MBNA utilizing MBNA's then-
current instant decisioning tool, MBNA shall promptly notify PeoplePC of the
final credit decision.
(c) PeoplePC Product Marketing; Publicity: In connection with the promotion,
offer or sale of PeoplePC Products, PeoplePC may refer to MBNA, the Program, or
the Loan Accounts, provided, however, that should any PeoplePC Product
advertising, solicitation or other materials make such reference, MBNA shall
have the right of prior approval over all such materials, such approval not to
be unreasonably withheld or delayed. PeoplePC shall provide MBNA with prompt
and, where practicable, prior notice of all other publicity dealing with the
Program and/or Loan Accounts (including, for example, press interviews) and all
such publicity shall be accurate and consistent with the then-current materials
provided or approved by MBNA. All such marketing and publicity shall be at
PeoplePC's sole cost and expense. Notwithstanding the above, PeoplePC may
respond to individual inquiries about the Program from Members on an individual
basis, provided that said responses are accurate and consistent with the then-
current materials provided or approved by MBNA. Any correspondence received by
PeoplePC that is intended for MBNA (e.g., payments, billing inquiries, etc.)
shall be forwarded to MBNA via overnight courier within two business days of
receipt. All charges incurred for this service will be paid by MBNA.
(d) Educational and Loan Account Materials: If MBNA and PeoplePC agree to
develop special marketing, educational or background materials, MBNA and
PeoplePC shall develop such materials jointly. Both MBNA and PeoplePC shall have
the right of prior approval over the final version of all such materials, such
approval not to be unreasonably withheld.
(e) Compliance with Applicable Law: Subject to its right to review the website
or other PeoplePC-controlled media whereby Loan Accounts are offered to Members
or other consumers, and provided that PeoplePC has notified MBNA of website
changes, MBNA shall be responsible for ensuring that the Loan Accounts are
offered and processed in compliance with all applicable federal and state law.
PeoplePC agrees to comply with MBNA's instructions regarding the offering and
processing of Loan Accounts. Further, PeoplePC shall ensure that each of its
employees, agents or representatives and all other persons who assist with
offering or processing of Loan Accounts are educated and knowledgeable regarding
the Referral Procedures, Loan Accounts and the laws, rules and regulations
applicable to the offering and processing of Loan Accounts, and comply with the
same. MBNA may monitor or test any credit solicitation process by PeoplePC
employees, agents or representatives, including through off-site listening as
permitted by law.
(f) Settlement of Loan Accounts: Payment of funds owing to PeoplePC as the
result of PeoplePC Products financed by Loan Accounts shall be handled in the
following manner. PeoplePC shall transmit to MBNA each day, but not more than
once daily, to MBNA Hallmark Information Systems, Inc., (or other entity
designated by MBNA) a settlement file pertaining to purchases made on Loan
Accounts containing account number, amount of transaction, transaction date, and
name and address of Customer and other agreed upon information. PeoplePC shall
delay submission of each settlement file to MBNA until the corresponding
PeoplePC Products have been shipped to the
<PAGE>
Customer. Provided PeoplePC submits settlement files as described above, MBNA
shall credit the Settlement Account described on Schedule C hereto within (i)
six (6) business days after MBNA's receipt of such settlement file for
settlement pertaining to Completed Applications submitted in the direct
marketing channel, and (ii) three (3) business days after MBNA's receipt of such
settlement file for settlement pertaining to Completed Applications submitted in
the internet marketing channel. The parties agree that MBNA's occasional
deviation from these settlement times shall not constitute a material breach of
this Agreement. For purposes of the prior sentence, "occasional deviation" shall
mean not more frequently than five (5) occurrences in any given two-month period
(beginning with the March/April 2000 period, followed by the May/June 2000
period, etc.), of MBNA's delaying settlement transmission. MBNA may deduct from
the Settlement Account any amounts already credited which related to the
Customer's legitimate rejection of the Loan Accounts, as permitted pursuant to
federal law, rule or regulation.
(g) MBNA Customer Service Performance Standards: MBNA shall provide services
to the Customers in accordance with MBNA's standard policies and practices in
effect from time to time.
5. CREDIT INFORMATION AND MEMBER INFORMATION
(a) The parties acknowledge and agree that Credit Information is confidential
and proprietary to MBNA and that Membership Information is confidential and
proprietary to PeoplePC. Both parties disclaim any property right or interest in
confidential information that is the property of the other party. MBNA and
PeoplePC agree, subject to restrictions which may now or in the future be
imposed by applicable law, that they may share such information with the other
for the purpose of marketing products and services to the Customers. Both
parties agree that any such confidential information belonging to the other
party coming into the possession of the non-owner party shall be held in
absolute and strict confidence and shall not be shared, copied, sold or
transferred to any other person in any manner whatsoever. Both parties agree to
use such confidential information, regardless of which party may own such
information, in a manner consistent with that party's respective privacy policy.
(b) MBNA and PeoplePC acknowledge and agree that, from time to time, either
party may, in the operation of the Program, use the other party's confidential
information. MBNA and PeoplePC agree that such use is limited to purposes
directly necessary to the non-owner party's performance under this Agreement or
as the owner party permits in writing. Both parties agree to comply with the
reasonable request of the other party with respect to security procedures to
maintain the confidentiality of the Credit Information and the Membership
Information, including providing reasonable training and oversight of employees,
agents and/or representatives who have access to such information.
<PAGE>
6. TRADEMARKS
PeoplePC and MBNA each hereby grants the other party a limited, exclusive
license to use its Trademarks solely in conjunction with the Program, including
the promotion thereof, as evidenced by the granting party's prior written
approval of any use of a Trademark pursuant to Sections 4(c)-(e). The
Trademarks may not be used by any other person for any other reason except as
specifically approved for the Program. This license shall remain in effect for
the duration of this Agreement, and shall apply to the Trademarks,
notwithstanding the transfer of such Trademarks by operation of law or otherwise
to any permitted successor, corporation, organization or individual. Nothing in
this Agreement prohibits PeoplePC or MBNA from granting to other persons a
license to use the Trademarks in conjunction with the providing of any other
service or product.
7. DISPUTES AND REFUNDS.
(a) PeoplePC Responsibilities: PeoplePC shall promptly resolve Member disputes
regarding PeoplePC, including any objection by a Customer to repayment of a Loan
Account, whether arising directly or indirectly through MBNA or PeoplePC, and
shall do so in a manner in satisfaction of applicable laws, rules and
regulations.
(b) MBNA Responsibilities: MBNA shall promptly resolve Customer disputes
regarding the grant or denial of an application for a Loan Account by MBNA,
whether arising directly or indirectly through MBNA or PeoplePC, in a manner in
satisfaction of applicable laws, rules and regulations.
(c) Mutual Responsibilities: In the event a Customer dispute encompasses
matters set forth in both subsections (a) and (b) above, PeoplePC and MBNA shall
use their reasonable efforts to jointly resolve such complaint.
(d) Refunds/Finance Charges: MBNA acknowledges and agrees that PeoplePC permits
Members to cancel their memberships and obtain a full refund of the membership
fee within 7 days of becoming a Member. PeoplePC does not permit any
cancellation or return by a Member after the expiration of that 7-day period for
disputes related to the quality of the PeoplePC Products. In the event of such
refunds, PeoplePC will remit any funds that it has received from the canceling
Customer directly to that Customer. Notwithstanding the above, MBNA reserves the
right to charge back to PeoplePC the unpaid balance (plus accrued but unpaid
fees and finance charges) of any Loan Account for which PeoplePC has failed to
respond to MBNA regarding the PeoplePC decision for each Member dispute, as such
obligation is set forth in 6(a) above, within 45 days from the date the dispute
arose.
(e) PeoplePC Product Disputes: If Customers refuse to pay any amounts owing
under a Loan Account due to legitimate, bona fide disputes about the ready
availability of services or the fitness of goods constituting the PeoplePC
Products, MBNA may from time to time provide information to PeoplePC regarding
such disputes. PeoplePC shall research the disputes and provide prompt feedback
to MBNA on the disputes. PeoplePC and MBNA shall negotiate in good faith to
reduce the incidence and severity of such disputes. If the incidence and
severity of the disputes are unacceptable to MBNA in its reasonable business
judgment, and PeoplePC does not cure such disputes within forty
<PAGE>
five (45) days after receipt of notice from MBNA about such disputes, then MBNA
reserves the right to terminate the Program upon forty five (45) days prior
notice to PeoplePC.
8. REPRESENTATIONS AND WARRANTIES
(a) Mutual Representations: PeoplePC and MBNA each represents and warrants to
the other that as of the Effective Date and throughout the term of this
Agreement:
1. It is duly organized, validly existing and in good standing.
2. It has all necessary power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
3. This Agreement constitutes a legal, valid and binding obligation of
such party, enforceable against such party in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, receivership, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by
general principles of equity.
4. No consent, approval or authorization from any third party is required
in connection with the execution, delivery and performance of this
Agreement, except such as have been obtained and are in full force and
effect.
5. The execution, delivery and performance of this Agreement by such
party will not constitute a violation of any law, rule, regulation,
court order or ruling applicable to such party.
6. It is currently meeting scheduled events with regard to its formulated
plan to remediate any problems or issues arising from the Year 2000
Problem. The Year 2000 Problem as used herein means any significant
risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function as
effectively as in the case of dates or time periods occurring prior to
January 1, 2000.
7. It has the right and power to license its Trademarks to the other
party for use as contemplated by this Agreement.
(b) PeoplePC Representations: PeoplePC additionally represents and warrants to
MBNA that as the Effective Date and throughout the term of the Agreement:
1. It will comply in all material respects with the PeoplePC corporate
fraud policy (attached hereto as Exhibit 3) and will give MBNA 60 days
prior notice of any change to such fraud policy.
2. It will comply in all material respects with any contract or terms of
sale with the Customer and the terms of any warranty liability,
express or implied, applicable to the PeoplePC Products financed or
otherwise offered in connection with the Program
<PAGE>
3. All applications, agreements and other materials used for the Program
shall be those supplied by MBNA specifically for the Program, and
PeoplePC shall not have any knowledge of any material misstatements or
omissions in any application submitted for a credit decision.
4. All applications will be available to the public: (i) without regard
to race, color, religion, national origin, sex, marital status, or age
(provided the applicant has the capacity to enter into a binding
contract) and (ii) not in any manner which would discriminate against
an applicant or discourage an applicant from applying for a Loan
Account.
5. Financing will be made available only to consumers for personal,
family or household purposes, and that no defense, set off, or
counterclaim exists as to the sale of the PeoplePC Products as a
result of any act or omission of PeoplePC or its employees or agents.
6. PeoplePC has no obligation (whether arising out of contract or
otherwise) to refer any Pre-Effective Date Application(s) to any third
party lender, and has no knowledge of any reason why MBNA would incur
any loss, liability, damage, expense, cause of action or claim (other
than standard credit risk typically associated with MBNA's business)
with regard to MBNA's decisioning the Pre-Effective Date Applications.
9. PROGRAM ADJUSTMENTS
A summary of the current features of the Program is set forth in Schedule A.
MBNA reserves the right to make periodic adjustments to the Program and its
terms and features and shall give PeoplePC reasonable notice of any such
material adjustments. Delaware and applicable federal law currently require
each open-end credit account Customer be given the opportunity to reject a
proposed change and pay the existing balance under the prior terms if the
proposed adjustment increases the annual percentage rate on such account.
10. CROSS INDEMNIFICATION
PeoplePC and MBNA each will indemnify and hold harmless the other party, its
directors, officers, agents, employees, affiliates, insurers, successors and
assigns (the "Indemnitees") from and against any and all loss, liability,
damage, expense, cause of action, claim, and the reasonable and actual costs
incurred in connection therewith ("Losses"), resulting from the material breach
of this Agreement by PeoplePC or MBNA, respectively as the case may be, or its
directors, officers or employees. PeoplePC will indemnify and hold harmless
MBNA and its Indemnitees from and against any and all Losses arising from (i)
any actual or alleged damages to any person or property arising from any
PeoplePC Product; (ii) acts of fraud perpetrated by any Member in connection
with a Loan Account application and acts of fraud by PeoplePC or its employees
or agents, and (iii) the Pre-Effective Date Applications. Each party shall
promptly notify the other party in the manner
<PAGE>
provided herein upon learning of any claims or complaints that may reasonably
result in the indemnification by the other party.
11. CONFIDENTIALITY OF AGREEMENT
The terms of this Agreement, any proposal, financial information and proprietary
information provided by or on behalf of one party to the other party prior to,
contemporaneously with, or subsequent to, the execution of this Agreement
("Information") are confidential as of the date of disclosure. Such Information
will not be disclosed by such other party to any other person or entity, except
as permitted under this Agreement or as mutually agreed in writing. MBNA and
PeoplePC shall be permitted to disclose such Information (i) to their
accountants, legal, financial and marketing advisors, and employees as necessary
for the performance of their respective duties, provided that said persons agree
to treat the Information as confidential in the above described manner and (ii)
as required by law or by any governmental regulatory authority.
12. STATE LAW GOVERNING AGREEMENT
This Agreement shall be governed by and subject to the laws of the State of
Delaware (without regard to its conflict of laws principles) and shall be deemed
for all purposes to be made and fully performed in Delaware.
13. TERMINATION
(a) Breach; Notice; Cure: In the event of any material breach of this Agreement
by MBNA or PeoplePC, the other party may terminate this Agreement by giving
notice, as provided herein, to the breaching party. This notice shall (i)
describe the material breach; and (ii) state the party's intention to terminate
this Agreement. If the breaching party does not cure or substantially cure such
breach within forty five (45) days after receipt of notice, as provided herein
(the "Cure Period"), then this Agreement shall terminate forty five (45) days
after the Cure Period.
(b) Mutual Termination Right: Either party shall have the right to terminate
this Agreement upon ninety days prior written notice to the other; provided,
however, that PeoplePC shall not be entitled to exercise this right of
termination until such time as MBNA has received a minimum of [*] Completed
Applications generated through marketing channels approved by MBNA (such as the
internet), exclusive of the Pre-Effective Date Applications.
(c) Insolvency: If either MBNA or PeoplePC becomes insolvent in that its
liabilities exceed its assets, or is adjudicated insolvent, or take advantage of
or is subject to any insolvency proceeding, or makes an assignment for the
benefit of creditors or is subject to receivership, conservatorship or
liquidation then the other party may immediately terminate this Agreement.
(d) Effect on Trademarks: Upon termination of this Agreement, each party shall,
in a manner consistent with this Section of this Agreement, cease to use the
other party's Trademarks. Each party agrees that upon such termination it will
not claim any right, title, or interest in or to the Trademarks provided
pursuant to this Agreement. However, each party may conclude all solicitation
that is required by law.
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
(e) MBNA Right of Prior Review: MBNA shall have the right to prior review and
approval of any notice in connection with, relating or referring to the
termination of this Agreement to be communicated by PeoplePC to the Members.
Such approval shall not be unreasonably withheld. Upon termination of this
Agreement, PeoplePC shall not attempt to cause the removal of the PeoplePC
identification or Trademarks from any Customer's checks or records existing as
of the effective date of the termination of this Agreement
14. LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECULATIVE,
INDIRECT, SPECIAL, OR PUNITIVE DAMAGES, INCLUDING BUT NOT LIMITED TO LOST
PROFITS OR LOST REVENUE, EVEN IF ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH
DAMAGES, IN CONNECTION WITH PERFORMANCE UNDER THIS AGREEMENT.
15. MISCELLANEOUS
(a) This Agreement cannot be amended except by written agreement signed by the
authorized agents of both parties hereto.
(b) The obligations in Sections 2 (only with regard to PeoplePC's obligation to
pay a discount to MBNA for Loan Accounts approved at approximately 10.95%);
3(b), 4(c), 5, 7, 10, 11, 12, 13(d), 13(e), and 14 shall survive any termination
of this Agreement.
(c) The failure of any party to exercise any rights under this Agreement shall
not be deemed a waiver of such right or any other rights.
(d) The section captions are inserted only for convenience and are in no way to
be construed as part of this Agreement.
(e) If any part of this Agreement shall for any reason be found or held invalid
or unenforceable by any court or governmental agency of competent jurisdiction,
such invalidity or unenforceability shall not affect the remainder of this
Agreement which shall survive and be construed as if such invalid or
unenforceable part had not been contained herein.
(f) All notices relating to this Agreement shall be in writing and shall be
deemed given (i) upon receipt by hand delivery, facsimile or overnight courier,
or (ii) three (3) business days after mailing by registered or certified mail,
postage prepaid, return receipt requested. All notices shall be addressed as
follows:
<PAGE>
(1) If to PeoplePC: (2) If to MBNA:
PeoplePC, Inc. MBNA America Bank, N. A.
100 Pine Street, Suite 1100 400 Christiana Road, MS 1522
San Francisco, CA 94108 Newark, Delaware 19713
Attention: Dan Kohler Attention: Ann Balthis
Title Chief Operating Officer Title: Director, Sales Finance
Fax #: (415) 837-3857 Fax #: (302) 458-3516
Any party may change the address to which communications are to be sent by
giving notice, as provided herein, of such change of address.
(g) This Agreement contains the entire agreement of the parties with respect to
the matters covered herein and supersedes all prior promises and agreements,
written or oral, with respect to the matters covered herein. Without the prior
written consent of MBNA, which shall not be unreasonably withheld, PeoplePC may
not assign any of its rights or obligations under or arising from this
Agreement. MBNA may assign or transfer its rights and/or obligations under this
Agreement without the written consent of PeoplePC, and shall give PeoplePC
notice of any such assignment or transfer.
(h) MBNA and PeoplePC are not agents, representatives or employees of each
other and neither party shall have the power to obligate or bind the other in
any manner except as otherwise expressly provided by this Agreement.
(i) Nothing expressed or implied in this Agreement is intended or shall be
construed to confer upon or give any person other than PeoplePC and MBNA, their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
(j) Neither party shall be in breach hereunder by reason of its delay in the
performance of or failure to perform any of its obligations herein if such delay
or failure is caused by strikes, acts of God or the public enemy, riots,
incendiaries, interference by civil or military authorities, or compliance with
governmental laws, rules, regulations.
(k) This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties, by its representative, has executed
this Agreement as of the Effective Date.
MBNA AMERICA BANK, N.A. PEOPLEPC, INC.
By: /s/ Thomas W. Horne By: /s/ Nick Grouf
Name: Thomas W. Horne Name: Nick Grouf
Title: SEVP Title: CEO
Date: February 29, 2000 Date: February 29, 2000
<PAGE>
SCHEDULE A
TERMS AND FEATURES
Subject to (i) MBNA's right to vary the Program and its terms and features, and
(ii) the applicable agreement entered into between MBNA and each Customer:
LOAN ACCOUNTS
1. There is no annual fee.
2. The current APR may be as low as approximately 10.95%; individual
customers may receive a higher rate up to 26.99% depending on income
and creditworthiness.
3. The accounts may be used for any bona fide purpose, except it cannot
be used solely to payoff or paydown another MBNA account.
4. Additional advances may be requested at any time.
5. Customers may be offered other benefits under the Program, such as
credit insurance and travel services.
<PAGE>
SCHEDULE B
FINANCIAL ARRANGEMENT
I. Phase 1 Discount: For all Customers approved by MBNA at an APR of
approximately 10.95%, PeoplePC shall subsidize the APR with a discount to MBNA
as follows:
[*] of the total U.S. Dollar amount of the initial PeoplePC Product
purchase(s) made by Customers directly to Loan Accounts and processed
via deposit into the Settlement Account.
II. Standard Discount: For all Customers approved by MBNA at an APR of
approximately 10.95%, PeoplePC shall subsidize the APR with a discount to MBNA
as follows:
An amount calculated by subtracting [*] from the Prime Rate (as published
in The Wall Street Journal on the last day of the preceding calendar
quarter) multiplied by the total U.S. Dollar amount of the initial PeoplePC
Product purchase(s) made by Customers directly to Loan Accounts and
processed via deposit into the Settlement Account. If the Prime Rate drops
to or below [*], then during each such time that the Prime Rate is at or
below [*], PeoplePC's obligations to pay a discount to MBNA as set forth
above shall be suspended.
*****Certain information on this page has been omitted and filed with the
Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
SCHEDULE C
SETTLEMENT INFORMATION for all ACH transmissions
Name of Account Holder: ______________
Name of Bank: ______________
Account #: ______________
ABA #: ______________
<PAGE>
SCHEDULE D
Attach IRS Form W-9 which has been executed by PeoplePC
<PAGE>
EXHIBIT 1
Capitalized but undefined terms used on this Exhibit 1 shall have the meanings
given them in the relevant documentation between PeoplePC and each Member.
Part 1
Policy Statement
PeoplePC will protect customers from entry and use of fraudulent information by
other individuals.
Policy Guidelines
Customer information that is collected for membership application will be
verified at several points in the application process.
Process
1. Customer credit information (Name, Address, social security, employer,
annual income) will be used to run a credit check for customers
applying for the PeoplePC Monthly Payment Plan. This will serve as
verification that the person whose information was submitted for
application is the person who applied for membership. If the credit
check fails, the customer information will not be processed for the
monthly membership plan.
2. Upon delivery a signature is required and captured by the delivery
service to be used for verification that the order was received by the
appropriate person.
Part 2
Policy Statement
PeoplePC will protect customer information that is resident in the PeoplePC
systems.
Policy Guidelines
Access to the system housing member information will be limited and regulated.
Procedure
1. All call center representatives and PeoplePC employees must have a
certificate installed on their desktop computer in order to access the
PeoplePC OrderSupport system.
2. Change made to member records in the Order Support Site are updated in
the PeoplePC database.
<PAGE>
3. Distribution center employees do not have direct access to the
PeoplePC OrderSupport System. Their access to information is through
the distribution center system. Only name, address, and member number
are available.
4. Returns to PeoplePC are regulated by the distributor and PeoplePC
Headquarters. Returns are not accepted without an RMA and credits for
returned systems are not given without verification that the system
has been received.
<PAGE>
EXHIBIT 10.5
PEOPLEPC INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of the ___
day of ______________, 2000 by and between PeoplePC Inc. a Delaware corporation
(the "Company") and _________________ ("Indemnitee").
RECITALS
--------
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and other directors, officers,
employees, agents and fiduciaries of the Company may not be willing to continue
to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires that
Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the
<PAGE>
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity (hereinafter an "Indemnifiable Event") against any and all
expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than five days after written demand by Indemnitee therefor
is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
-2-
<PAGE>
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitees'
power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
-3-
<PAGE>
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its election so to do. After delivery of such notice, approval
of such counsel by Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement for any fees
of counsel subsequently incurred by Indemnitee with respect to the same Claim;
provided that, (i) Indemnitee shall have the right to employ Indemnitees'
counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there is a conflict of interest
between the Company and Indemnitee in the conduct of any such defense, or (C)
the Company shall not continue to retain such counsel to defend such Claim, then
the fees and expenses of Indemnitee counsel shall be at the expense of the
Company. The Company shall have the right to conduct such defense as it sees fit
in its sole discretion, including the right to settle any claim against
Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this
-4-
<PAGE>
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
----------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
----------------------------
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be relieved of liability under applicable law;
-5-
<PAGE>
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with
-6-
<PAGE>
respect to an employee benefit plan, its participants or its beneficiaries; and
if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed
to the best interests of the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company, (A) who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by 5% or more over the percentage so owned by such
person, or (B) becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing
more than 20% of the total voting power represented by the Company's then
outstanding Voting Securities, (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall mean
an attorney or firm of attorneys, selected in accordance with the provisions of
Section 1(c) hereof, who shall not have otherwise performed services for the
Company or Indemnitee within the last three years (other than with respect to
matters concerning the rights of Indemnitee under this Agreement, or of other
indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean any
appropriate person or body consisting of a member or members of the Company's
Board of Directors or any other person or body appointed by the Board of
Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
-7-
<PAGE>
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action
-8-
<PAGE>
instituted under this Agreement shall be commenced, prosecuted and continued
only in the Court of Chancery of the State of Delaware in and for New Castle
County, which shall be the exclusive and only proper forum for adjudicating such
a claim.
16. Severability. The provisions of this Agreement shall be severable
------------
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PEOPLEPC INC.
By:___________________________
Title:________________________
Address: 100 Pine Street, Suite 1100
San Francisco, CA 94111
AGREED TO AND ACCEPTED BY:
Signature:___________________
Printed Name:________________
Address:_____________________
_____________________
-10-
<PAGE>
EXHIBIT 10.6
100 PINE STREET CENTER
OFFICE LEASE
BETWEEN
PINE STREET INVESTORS I, L.L.C.
a Delaware limited liability company,
LANDLORD
AND
PEOPLE PC, INC.,
a Delaware corporation
TENANT
DATED June 3, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
Premises......................................................... 1
ARTICLE 2
Term............................................................. 1
ARTICLE 3
Base Rent........................................................ 3
ARTICLE 4
Additional Rent.................................................. 3
ARTICLE 5
Personal Property Taxes, Rent Taxes and Other Taxes.............. 6
ARTICLE 6
Condition of Premises............................................ 6
ARTICLE 7
Use and Rules.................................................... 7
ARTICLE 8
Services and Utilities........................................... 7
ARTICLE 9
Maintenance and Repairs.......................................... 10
ARTICLE 10
Alterations and Liens............................................ 10
ARTICLE 11
Insurance, Subrogation and Waiver of Claims...................... 11
ARTICLE 12
Indemnity........................................................ 13
ARTICLE 13
Destruction or Damage............................................ 14
ARTICLE 14
Condemnation..................................................... 15
ARTICLE 15
Subordination, Attornment and Mortgagee Protection............... 15
i
<PAGE>
ARTICLE 16
Estoppel Certificate.............................................. 16
ARTICLE 17
Assignment and Subletting......................................... 17
ARTICLE 18
Compliance with Legal Requirements................................ 21
ARTICLE 19
Rights Reserved by Landlord....................................... 22
ARTICLE 20
Landlord's Remedies............................................... 24
ARTICLE 21
Landlord's Right to Cure.......................................... 26
ARTICLE 22
Return of Possession.............................................. 27
ARTICLE 23
Holding Over...................................................... 28
ARTICLE 24
No Waiver......................................................... 28
ARTICLE 25
Attorneys' Fees and Jury Trial.................................... 28
ARTICLE 26
Captions, Definitions and Severability............................ 29
ARTICLE 27
Conveyance by Landlord and Liability.............................. 34
ARTICLE 28
Safety and Security Devices, Services and Programs................ 34
ARTICLE 29
Communication and Computer Lines.................................. 35
ARTICLE 30
Hazardous Materials............................................... 36
ARTICLE 31
Miscellaneous..................................................... 38
ii
<PAGE>
ARTICLE 32
Offer............................................................ 39
ARTICLE 33
Notices.......................................................... 39
ARTICLE 34
Signage.......................................................... 40
ARITCLE 35
Real Estate Brokers.............................................. 40
ARTICLE 36
Security Deposit................................................. 40
ARTICLE 37
Entire Agreement................................................. 41
EXHIBIT A
RIDER ONE
RIDER TWO
RIDER THREE
iii
<PAGE>
OFFICE LEASE
------------
THIS LEASE made as of the 3rd day of June, 1999, between PINE STREET
INVESTORS I, L.L.C., a Delaware limited liability company ("Landlord") and
PEOPLE PC, INC., a Delaware corporation ("Tenant"), whose address is prior
occupancy of the Premises (defined below) is 32 Caselli Street, San Francisco,
California 94114.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hires from Landlord the
premises described herein for the term and subject to the terms, covenants,
agreements and conditions hereinafter set forth, to each and all of which Tenant
and Landlord hereby mutually agree.
ARTICLE 1.
PREMISES
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
those certain premises, as shown on the floor plan attached hereto as Exhibit
"A" and made a part hereof ("Premises"), comprising the 11th floor of the
building known as Pine Street Center ("Building") located at 100 Pine Street,
San Francisco, California ("Property" as further described in Article 26).
Tenant acknowledges and agrees that it has had an opportunity to review
Landlord's calculation of rentable area, and Landlord and Tenant hereby agree
that for purposes of this Lease the rentable area of the Premises is 13,285
square feet and the rentable area of the Property is 402,534 square feet.
ARTICLE 2.
TERM
(A) TERM. The term of this Lease ("Term") shall commence on December 1,
1999 ("Commencement Date") and, unless sooner terminated as hereinafter
provided, shall expire on November 30, 2004 ("Expiration Date").
(B) DELAY IN DELIVERY OF POSSESSION. If Landlord is unable, for any
reason except to the extent caused by Tenant, its contractors, agents or
employees, to deliver possession of the Premises to Tenant within one hundred
twenty (120) days from the execution and delivery of this Lease by both Landlord
and Tenant, Tenant shall have the right to terminate this Lease by written
notice to Landlord any time thereafter up until Landlord delivers the Premises
to Tenant. Any such delay in Landlord's ability to deliver possession of the
Premises to Tenant shall not subject Landlord to liability for loss or damage
resulting therefrom and Tenant's sole recourse with respect thereto shall be the
right to terminate this Lease described herein. Upon any such termination,
Landlord and Tenant shall be entirely relieved of their obligations hereunder,
and any Security Deposit and Rent payments shall be returned to Tenant.
1
<PAGE>
(C) EARLY OCCUPANCY. Landlord acknowledges and agrees that Tenant shall
be permitted to occupy the Premises upon the execution and delivery of this
Lease, which is prior to the Commencement Date, for purposes of completing
repairs, refurbishment, improvements or alterations to the Premises in
accordance with Article 10; provided, however, Tenant shall have the right to
occupy the Premises commencing upon the execution and delivery hereof in the
event Tenant elects not to make any such repairs, refurbishment, improvements or
alterations or such work is completed prior to the Commencement Date. During
such early occupancy period, Tenant shall comply with all terms and provisions
of this Lease, except those provisions requiring the payment of Base Rent.
(D) OPTION TO TERMINATE. Subject to the terms set forth in this
Paragraph, Tenant shall have the right to terminate and cancel this Lease
effective as of the expiration of thirty (30) full calendar months following the
Commencement Date (the "Termination Date") by delivering to Landlord written
notice thereof at least six (6) months prior to the Termination Date (the
"Termination Option"). As a condition to the effectiveness of Tenant's exercise
of its Termination Option, and in addition to Tenant's obligation to satisfy all
other monetary and non-monetary obligations under this Lease through the
Termination Date, Tenant shall, thirty (30) days prior to the Termination Date,
pay Landlord a sum equal to: (i) $186,654.24, plus (ii) fifty percent (50.0%) of
any other direct costs of Landlord incurred in connection with this Lease,
including, without limitation, leasing commissions paid by Landlord in
connection with the execution of this Lease, the exact sum of which Landlord
agrees to identify to Tenant prior to Tenant's payment thereof; said sum shall
be referred to herein collectively as the "Termination Consideration". Tenant
may not exercise the Termination Option if Tenant is in Default under this
Lease. The Termination Option is personal to Tenant hereunder and may not be
exercised by or assigned, voluntarily or involuntarily, to any person or entity
other than a Related Entity (as defined in Article 17(G)) or a permitted
assignee of Tenant's interest in this Lease which assignee is a successor to
Tenant either by merger or consolidation or a purchaser of all or substantially
all of Tenant's assets (provided such purchaser shall have also assumed in
writing Tenant's obligations under this Lease). Tenant may only exercise the
Termination Option with respect to all (not a portion) of the Premises leased by
Tenant in the Building. If Tenant properly and in a timely manner exercises its
Termination Option and properly and in a timely manner delivers the Termination
Consideration to Landlord and satisfies all other monetary and non-monetary
obligations under this Lease, including, without limitation, the provisions
related to surrender of the Premises, all of which shall be accomplished on or
before the Termination Date, then this Lease shall terminate as of midnight on
the Termination Date. Landlord agrees to notify Tenant of any attempted exercise
of the Termination Option which does not satisfy the foregoing terms and
conditions, identifying the deficiencies of such exercise; if Tenant does not
cure all of such deficiencies within five (5) days following Landlord's notice
thereof or if the deficiency is non-curable, Tenant's exercise of the
Termination Option shall be null and void, and this Lease shall continue in full
force and effect in accordance with its terms.
(E) OPTION TO EXTEND TERM. Tenant shall have an option to extend the
Term upon the terms and conditions set forth in Rider Two, attached hereto and
made a part hereof.
2
<PAGE>
ARTICLE 3.
BASE RENT
Tenant shall pay Landlord as Base Rent in accordance with the following
schedule, in advance on or before the first day of each calendar month during
the Term, except that Base Rent for the first full calendar month for which Base
Rent shall be due shall be paid when Tenant executes this Lease.
<TABLE>
<CAPTION>
Period Base Rent Per Rentable Square Foot
- ------ ----------------------------------
<S> <C>
December 1, 1999 - November 30, 2000 $39.99
December 1, 2000 - November 30, 2001 $41.00
December 1, 2001 - November 30, 2002 $42.00
December 1, 2002 - November 30, 2003 $43.00
December 1, 2003 - November 30, 2004 $44.00
<CAPTION>
Period Annual Base Rent Monthly Base Rent
- ------ ---------------- -----------------
<S> <C> <C>
December 1, 1999 - November 30, 2000 $518,115.00 $43,176.25
December 1, 2000 - November 30, 2001 $544,685.00 $45,390.42
December 1, 2001 - November 30, 2002 $557,970.00 $46,497.50
December 1, 2002 - November 30, 2003 $571,255.00 $47,604.58
December 1, 2003 - November 30, 2004 $584,540.00 $48,711.67
</TABLE>
Rent shall be paid without any prior demand or notice therefor and
without any deduction, set-off or counterclaim, or relief from any valuation or
appraisement laws. If the Term commences on a day other than the first day of a
calendar month, or ends on a day other than the last day of a calendar month,
then the Base Rent for such month shall be prorated on the basis of 1/30th of
the monthly Base Rent for each day of such month.
ARTICLE 4.
ADDITIONAL RENT
(A) TAXES. Tenant shall pay Landlord as additional rent an amount equal
to Tenant's Prorata Share of Taxes in excess of the amount of Taxes paid by
Landlord during the calendar year 1999 ("Base Tax Year"). Ile terms "Taxes" and
"Tenant's Prorata Share" shall have the meanings specified therefor in Article
26.
(B) OPERATING EXPENSES. Tenant shall pay Landlord as additional rent an
amount equal to Tenant's Prorata, Share of Operating Expenses in excess of the
amount of Operating Expenses paid by Landlord during the calendar year 1999
("Base Expense Year"). The term "Operating Expenses" shall have the meaning
specified therefor in Article 26.
(C) MANNER OF PAYMENT. Taxes and Operating Expenses shall be paid in
the following manner:
3
<PAGE>
a) Landlord may reasonably estimate in advance the amounts Tenant
shall owe for Taxes and Operating Expenses for any full or partial
calendar year of the Term. In such event, Tenant shall pay such
estimated amounts, on a monthly basis, on or before the first day of
each calendar month, together with Tenant's payment of Base Rent.
Such estimate may be reasonably adjusted from time to time by
Landlord.
b) Within 120 days after the end of each calendar year, or as soon
thereafter as practicable, Landlord shall provide a statement
("Statement") to Tenant showing: (a) the amount of actual Taxes and
Operating Expenses for such calendar year, with a listing of amounts
for major categories of Operating Expenses, and such amounts for the
Base Years, (b) any amount paid by Tenant towards Taxes and
Operating Expenses during such calendar year on an estimated basis,
and (c) any revised estimate of Tenant's obligations for Taxes and
Operating Expenses for the current calendar year.
c) If the Statement shows that Tenant's estimated payments were less
than Tenant's actual obligations for Taxes and Operating Expenses
for such year, Tenant shall pay the difference. If Landlord
increases Tenant's estimated payments for the current calendar year,
Tenant shall pay the difference between the new and former
estimates, for the period from January 1 of the current calendar
year through the month in which a statement is sent. Tenant shall
make such payments within thirty (30) days after Landlord sends the
applicable statement.
d) If the Statement shows that Tenant's estimated payments exceeded
Tenant's actual obligations for Taxes and Operating Expenses, Tenant
shall receive a credit for the difference against payments of Base
Rent next due. If the Term shall have expired and no further Base
Rent shall be due, Tenant shall receive a refund of such difference,
within thirty (30) days after Landlord sends the Statement.
e) So long as Tenant's obligations hereunder are not materially
adversely affected thereby, Landlord reserves the right to
reasonably change, from time to time, the manner or timing of the
foregoing payments. In lieu of providing one Statement covering
Taxes and Operating Expenses, Landlord may provide separate
statements, at the same or different times. No delay by Landlord in
providing the Statement (or separate statements) shall be deemed a
default by Landlord or a waiver of Landlord's right to require
payment of Tenant's obligations for actual or estimated Taxes or
Operating Expenses. In no event shall a decrease in Taxes or
Operating Expenses below the Base Year amounts, ever decrease the
monthly Base Rent, or give rise to a credit or refund in favor of
Tenant.
(D) PRORATION. If the Term commences other than on January 1, or ends
other than on December 31, Tenant's obligations to pay estimated and actual
amounts towards Taxes and Operating Expenses for such first or final calendar
years shall be prorated to reflect the portion
4
<PAGE>
of such years included in the Term. Such proration shall be made by multiplying
the total estimated or actual (as the case may be) Taxes and Operating Expenses,
for such calendar years, as well as the Base Year amounts, by a fraction, the
numerator of which shall be the number of days of the Term during such calendar
year, and the denominator of which shall be 365.
(E) ADJUSTMENTS. For purposes of making its calculation of Operating
Expenses and Taxes payable by Tenant hereunder, Landlord will make adjustments
to reflect a 95 % occupancy rate in the Building for the Base Expense Year, the
Base Tax Year and all subsequent years during the Term hereof. To the extent the
Base Tax Year assessment does not include a fully developed property and if, as
a direct result thereof, Taxes for subsequent years increase or decrease, the
Base Tax Year shall be adjusted to reflect a 95 % occupancy rate by tenants in
space with completed tenant improvements. Landlord may exclude from the Base
Expense Year, any non-recurring items, including capital expenditures otherwise
permitted as Operating Expenses under Article 26 of the Lease (and shall only
include the amortization of such expenditures in subsequent year Operating
Expenses to the extent permitted under Article 26, including any remaining
amortization of permitted expenditures made prior to or after the Commencement
Date). If Landlord eliminates from any subsequent year's Operating Expenses a
recurring category of expenses previously included in the Base Expense Year,
Landlord may subtract such category from the Base Expense Year commencing with
such subsequent year.
(F) LANDLORD'S RECORDS. Landlord shall maintain records respecting
Taxes and Operating Expenses and determine the same in accordance with sound
accounting and management practices, consistently applied. Although this Lease
contemplates the computation of Taxes and Operating Expenses on a cash basis,
Landlord shall make reasonable and appropriate accrual adjustments to ensure
that each calendar year, including the Base Years, includes substantially the
same recurring items. Landlord reserves the right to change to a full accrual
system of accounting so long as the same is consistently applied and Tenant's
obligations are not materially adversely affected.
(G) TENANT'S REVIEW. Tenant, within one hundred twenty (120) days after
receiving Landlord's Statement, shall have the right to provide Landlord with
written notice ("Review Notice") of its intent to review Landlord's books and
records relating to Taxes and Operating Expenses for such calendar year. Within
a reasonable time after receipt of a timely Review Notice, Landlord shall make
such books and records available to Tenant or Tenant's agent for its review at
the Building office; provided, that if Tenant retains an agent to review
Landlord's books and records for any calendar year, such agent must be a CPA
firm licensed to do business in California. Except as expressly set forth below,
Tenant shall be solely responsible for any and all costs, expenses and fees
incurred by Tenant or its agent in connection with such review. Upon such review
of Landlord's books and records, Tenant shall have the right, within thirty (30)
days after such books and records are made available, to give Landlord written
notice stating in reasonable detail any objection to Landlord's Statement for
the applicable calendar year. If Tenant fails to give Landlord written notice of
objection within such thirty (30) day period or fails to provide Landlord with a
timely Review Notice, Tenant shall be deemed to have approved Landlord's
Statement in all respects and shall thereafter be barred from raising any claims
with respect thereto. Upon Landlord's receipt of
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a timely objection notice from Tenant, Landlord and Tenant shall work together
in good faith to resolve the discrepancy between Landlord's Statement and
Tenant's review. If Landlord and Tenant determine that Taxes and Operating
Expenses for the applicable calendar year are less than reported, Landlord shall
provide Tenant with a credit against future additional rent in the amount of any
overpayment by Tenant or a refund of the overpayment if such determination is
made following the expiration of the Lease Term. Likewise, if Landlord and
Tenant determine that Taxes and Operating Expenses for the applicable calendar
year are greater than reported, Tenant shall forthwith pay to Landlord the
amount of underpayment by Tenant. Any information obtained by Tenant pursuant to
the provisions of this section shall be treated as confidential. Notwithstanding
anything to the contrary herein, Tenant shall not be permitted to examine
Landlord's books and records or to dispute any Statement unless Tenant has paid
to Landlord the amount due as shown on such Statement. If it is determined that
Tenant's Prorata Share of Taxes or Operating Expenses are overstated by more
than five percent (5 %) for any applicable year, Landlord agrees to pay the
reasonable and direct costs of Tenant's review of Taxes and Operating Expenses
for such year.
(H) RENT AND OTHER CHARGES. Base Rent, Taxes, Operating Expenses, and
any other amounts which Tenant is or becomes obligated to pay Landlord under
this Lease or other agreement entered into in connection herewith, are sometimes
herein referred to collectively as "Rent," and all remedies applicable to the
non-payment of Rent shall be applicable thereto. Rent shall be paid at any
office maintained by Landlord or its agent at the Property, or at such other
place as Landlord may designate.
ARTICLE 5.
PERSONAL PROPERTY TAXES, RENT TAXES AND OTHER TAXES
Tenant shall pay prior to delinquency all taxes, charges or other
governmental impositions assessed against or levied upon Tenant's fixtures,
furnishings, equipment and personal property located in the Premises, and any
Work to the Premises performed under Article 10. Whenever possible, Tenant shall
cause all such items to be assessed and billed separately from the property of
Landlord. In the event any such items shall be assessed and billed with the
property of Landlord, Tenant shall pay Landlord its share of such taxes, charges
or other governmental impositions within thirty (30) days after Landlord
delivers a statement and a copy of the assessment or other documentation showing
the amount of such impositions applicable to Tenant's property. Further, Tenant
shall pay any rent tax or sales tax, service tax, transfer tax or value added
tax, or any other applicable tax on the Rent or services herein or otherwise
respecting this Lease (exclusive of Landlord's federal or state income taxes).
ARTICLE 6.
CONDITION OF PREMISES
Tenant acknowledges and agrees that Tenant has inspected the Premises,
Building, Property, Systems and Equipment (as defined in Article 26), or has had
an opportunity to do so, and, subject to the performance by Landlord of its
obligations as expressly set forth in Article 9, agrees to accept the same "as
is" without any agreements, representations, understandings or obligations on
the part of Landlord to perform any alterations, repairs or
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improvements except that: (i) Landlord agrees to be responsible for curing any
latent defects which materially and adversely affect Tenant's use of the
Premises as authorized herein and identified by Tenant to Landlord in writing
within three (3) months following the Commencement Date and (ii) Landlord agrees
to credit Tenant up to $1,500.00 of Base Rent toward the cost of repairing and
replacing improperly cut telephone wiring terminations within the Premises
and/or the telephone closet on the 11th floor of the Building upon Tenant's
delivery to Landlord of proper receipts therefor; Tenant agrees to make such
repairs and replacement in accordance with the provisions of Articles 10 and 29
hereof.
ARTICLE 7.
USE AND RULES
Tenant shall use the Premises exclusively for business offices and no
other purpose whatsoever, in compliance with all applicable Laws, and without
disturbing or interfering with any other tenant or occupant of the Property.
Tenant shall not use the Premises in any manner so as to cause a cancellation of
Landlord's insurance policies, or an increase in the premiums thereunder and
Tenant shall not commit, or suffer to be committed, any waste upon the Premises,
or any nuisance or other act or thing that may disturb the quiet enjoyment of
any other Tenant in the Building in which the Premises may be located. Tenant
shall comply with all rules set forth in Rider One attached hereto (the
"Rules"). Provided they are not materially inconsistent with the terms of this
Lease and they do not impose additional material obligations or restrictions on
Tenant, Landlord shall have the right to reasonably amend such Rules and
supplement the same with other reasonable Rules relating to the Property, or the
promotion of safety, care, cleanliness or good order therein, and all such
amendments or new Rules shall be binding upon Tenant after five (5) days' notice
thereof to Tenant. All Rules shall be applied on a non-discriminatory basis, but
nothing herein shall be construed to give Tenant or any other Person (as defined
in Article 26) any claim, demand or cause of action against Landlord arising out
of the violation of such Rules by any other tenant, occupant, or visitor of the
Property, or out of the enforcement, failure to enforce or waiver of the Rules
by Landlord in any particular instance or instances.
ARTICLE 8.
SERVICES AND UTILITIES
(A) Provided Tenant shall not be in Default under this Lease and
subject to the other provisions of this Lease and the Rules, Landlord shall
provide the following services and utilities (the cost of which shall be
included in Operating Expenses unless otherwise expressly stated herein):
1. Electricity for standard office lighting fixtures, and equipment and
accessories customary for offices where: (1) the connected electrical
load of all of the same does not exceed an average of 4 watts per
square foot of the Premises (or such lesser amount as may be available,
based on the safe and lawful capacity of the existing electrical
circuit(s) and facilities serving the Premises), (2) the electricity
will be at nominal 120 volts, single phase (or 110 volts, depending on
available service in the Building), and (3) the safe and lawful
capacity of the existing electrical circuit(s) serving the Premises is
not exceeded.
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2. Heat and air-conditioning to provide a temperature required, in
Landlord's reasonable opinion and in accordance with applicable Law,
for occupancy of the Premises under normal business operations, from
8:00 a.m. until 6:00 p.m. Monday through Friday and from 8:00 a.m.
until 1:00 p.m. Saturday, except on Holidays (as defined in Article
26). Landlord shall not be responsible for inadequate air conditioning
or ventilation to the extent that same occurs because Tenant uses any
item or items of equipment consuming more than 500 watts at rated
capacity without providing adequate air-conditioning and ventilation
therefor.
3. Water for drinking, lavatory and toilet purposes at those points
of supply provided for nonexclusive general use of other tenants at
the Property and for sinks or other fixtures (but excluding hook-up)
installed in the Premises in accordance with Article 10.
4. Customary office cleaning and trash removal service Monday through
Friday or Sunday through Thursday in and about the Premises.
5. Operatorless passenger elevator service (if the Property has such
equipment serving the Premises) and freight elevator service (if the
Property has such equipment serving the Premises, and subject to
scheduling by Landlord) in common with Landlord and other tenants and
their contractors, agents and visitors. Landlord agrees to use
reasonable efforts to provide freight elevator service to accommodate
the move-in and removal of Tenant's furniture, fixtures, equipment
and other property in accordance with Landlord's procedures and
scheduling requirements.
(B) Tenant shall cooperate fully with Landlord to conserve energy use
in the Building and Tenant shall use its best commercially reasonable efforts to
reasonably minimize its use of gas, electricity, water and other utilities and
public services throughout the term hereof. Tenant agrees to cooperate with
Landlord and to abide by all regulations and requirements which Landlord may
reasonably prescribe for the proper functioning and protection of heating,
ventilating, air-conditioning and other systems within the Building.
(C) So long as Tenant is not in default under this Lease, Landlord
shall seek to provide such extra utilities or services as Tenant may from time
to time request, if the same are reasonable and feasible for Landlord to provide
and do not involve modifications or additions to the Property or existing
Systems and Equipment (as defined in Article 26), and if Landlord shall receive
Tenant's request within a reasonable period (but in any event no less than
forty-eight hours) prior to the time such extra utilities or services are
required; notwithstanding the minimum notice required herein, if Tenant provides
Landlord at least twelve (12) hours prior notice of Tenant's need for after
hours heating and air-conditioning, Landlord will attempt to accommodate such
need. Landlord may comply with written or oral requests by any officer or
employee of Tenant, unless Tenant shall notify Landlord of, or Landlord shall
request, the names of authorized individuals (up to 3 for each floor on which
the Premises are located) and procedures for written requests. Tenant shall, for
such extra utilities or services, pay such charges as Landlord shall from time
to time reasonably establish on a cost recovery basis. All charges for such
extra utilities or services shall be due at the same time as the
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installment of Base Rent with which the same are billed, or if billed
separately, shall be due within twenty (20) days after such billing.
(D) The parties acknowledge and agree that up to 280 hours per month
shall be considered typical office use for which excess rates will not be
charged. Landlord may install and operate meters or any other reasonable system
for monitoring or estimating any services or utilities used by Tenant in excess
of those required to be provided by Landlord under this Article (including a
system for Landlord's engineer to reasonably estimate any such excess usage). If
such system indicates such excess services or utilities, Tenant shall pay
Landlord's reasonable charges for installing and operating such system and any
supplementary air conditioning, ventilation, heat, electrical or other systems
or equipment (or adjustments or modifications to the existing Systems and
Equipment), and Landlord's reasonable charges for such amount of excess services
or utilities used by Tenant.
(E) Landlord does not warrant that any services or utilities will be
free from shortages, failures, variations, interruptions caused by repairs,
maintenance, replacements, improvements, alterations, changes of service,
strikes, lockouts, labor controversies, accidents, inability to obtain services,
utilities, fuel, steam, water or supplies, governmental requirements or
requests, or other causes beyond Landlord's reasonable control. Landlord shall
not be in default hereunder or be liable for any damages (including loss of
profits, business interruption or other consequential damages) directly or
indirectly resulting from, nor shall it constitute a constructive eviction of
Tenant, nor shall the Rent reserved herein be abated or Tenant relieved from the
performance of its other obligations under this Lease by reason of: (i) the
installation, use, or interruption of use of any equipment in connection with
furnishing the services to be provided by Landlord hereunder, (ii) failure to
furnish or delay in furnishing any such services when such failure is caused by
accident or any condition beyond the reasonable control of Landlord or by the
making of necessary improvements or repairs to the Premises, Systems and
Equipment, Building or the Property, (iii) the limitation, curtailment,
rationing or restriction on use of water, electricity, gas or any other form of
energy, utility or other public service serving the Premises or the Building,
(iv) any prevention, delay or stoppage due to strikes, labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action, civil
commotion, fire or other casualty. Without limiting the generality of the
foregoing and except as set forth in Article 13, if (i) there is a disruption of
essential services to be provided by Landlord to the Premises as expressly set
forth in this Lease, (ii) such disruption is not caused by Tenant's acts or
omissions, (iii) such disruption materially interferes with Tenant's use of the
Premises, and (iv) the restoration of such essential services is within
Landlord's reasonable control, Tenant will be entitled to: (A) an abatement of
Base Rent if such essential services are not restored within five (5)
consecutive business days from the date such disruption began, retroactive to
the date such disruption began and (B) terminate this Lease if such essential
services are not restored within nine (9) months from the date such disruption
began by delivering written notice thereof to Landlord prior to the restoration
of such essential services; for purposes hereof, a restoration of essential
services shall mean and refer to a restoration to substantially the same
capacity that was in place immediately prior to the disruption.
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ARTICLE 9.
MAINTENANCE AND REPAIRS
Except for customary cleaning and trash removal provided by Landlord
under Article 8, and damage covered under Article 13, Tenant shall keep the
Premises in good and sanitary condition, working order and repair (including
without limitation, carpet, wall-covering, doors, plumbing and other fixtures,
equipment, alterations and improvements whether installed by Landlord or
Tenant), normal wear and tear and damage by casualty excepted. In the event that
any repairs, maintenance or replacements for which Tenant is responsible are
required, Tenant shall promptly arrange for the same, in a first class,
workmanlike manner approved by Landlord in advance in writing, either, at
Tenant's option, through Landlord for such reasonable charges as Landlord may
from time to time establish if Landlord is willing to provide such services, or
such contractors as Landlord generally uses at the Property, or such other
contractors as Landlord shall first approve in writing, which approval shall not
be unreasonably withheld and which Landlord agrees to grant or deny within
fifteen (15) business days from Tenant's written request therefor. If Tenant
does not promptly make such arrangements, Landlord may, but need not, make such
repairs, maintenance and/or replacements, and the costs paid or incurred by
Landlord therefor shall be reimbursed by Tenant promptly after request by
Landlord. Tenant shall indemnify Landlord and pay for any repairs, maintenance
and replacements to area of the Property outside the Premises, caused in whole
or in part, as a result of moving any furniture, fixtures, or other property to
or from the Premises, or by Tenant or its employees, agents, contractors, or
visitors (notwithstanding anything to the contrary contained in this Lease).
Except as provided in this Article, or for damage covered under Article 13,
Landlord shall keep the common areas of the Property, connections for electrical
systems (including replacement of bulbs or ballasts), heating, ventilation and
air-conditioning systems, plumbing systems (with the exception of any special
installations within the Premises such as a kitchen, pantry or bathroom), life
safety support systems, structural elements of the Building (including the roof)
and elevators in good and sanitary condition, working order and repair (the cost
of which shall be included in Operating Expenses).
ARTICLE 10.
ALTERATIONS AND LIENS
(A) Tenant shall make no additions, changes, alterations or
improvements ("Work") to the Premises or the Systems and Equipment (as defined
in Article 26) pertaining to the Premises without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed. Landlord may
impose reasonable requirements as a condition of such consent including without
limitation the submission of plans and specifications for Landlord's prior
written approval, obtaining necessary permits, posting bonds, obtaining
insurance, prior approval of contractors, subcontractors and suppliers, prior
receipt of copies of all contracts and subcontracts, contractor and
subcontractor lien waivers, affidavits listing all contractors, subcontractors
and supplies, use of union labor (if Landlord uses union labor), affidavits from
engineers acceptable to Landlord stating that the Work will not adversely affect
the Systems and Equipment or the structure or operation of the Property, and
requirements as to the manner and times in which such Work shall be done. All
Work shall be performed in a good and workmanlike manner and all materials used
shall be of a quality comparable to or better
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than those in the Premises and Property and shall be in accordance with plans
and specifications approved by Landlord, and Landlord may require that all such
Work be performed under Landlord's supervision. If Landlord consents or
supervises, the same shall not be deemed a warranty as to the adequacy of the
design, workmanship or quality of materials, and Landlord hereby expressly
disclaims any responsibility or liability for the same; provided, however, if
Landlord supervises the Work, Landlord agrees to assign any applicable
warranties to Tenant in the event of errors, omissions or defects by the parties
performing the Work. Landlord shall under no circumstances have any obligation
to repair, maintain or replace any portion of the Work. Landlord and Tenant
acknowledge and agree that Landlord may withhold its consent to the Work if such
Work necessitates compliance with any Laws for which Landlord might be
responsible unless Tenant agrees in writing to bear the cost of any such
compliance. Tenant shall not be required to provide bonds for payments or
completion in connection with Work with a total cost of less than Twenty
Thousand Dollars ($20,000.00).
(B) Tenant shall keep the Property, the Building and Premises free from
any mechanic's, materialman's or similar liens or other such encumbrances in
connection with any Work on or respecting the Premises not performed by or at
the request of Landlord, and shall indemnify and hold Landlord harmless from and
against any claims, liabilities, judgments, or costs (including attorneys' fees)
arising out of the same or in connection therewith. Tenant shall give Landlord
notice at least twenty (20) days prior to the commencement of any Work on the
Premises, or such additional times as may be necessary under applicable Laws
(defined in Article 26), to afford Landlord the opportunity of posting and
recording appropriate notices of non-responsibility. Tenant shall remove any
such liens or encumbrance by bond or otherwise within ten (10) days after
written notice by Landlord, and if Tenant shall fail to do so, Landlord may pay
the amount necessary to remove such lien or encumbrances, without being
responsible for investigating the validity thereof. The amount so paid shall be
deemed additional Rent under this Lease payable upon demand, without limitation
as to other remedies available to Landlord under this Lease. Nothing contained
in this Lease shall authorize Tenant to do any act which shall subject
Landlord's title to the Property, Building or Premises to any liens or
encumbrances whether claimed by operation of law or express or implied contract.
Any claim to a lien or encumbrance upon the Property, Building or Premises
arising in connection with any Work on or respecting the Premises not performed
by or at the request of Landlord shall be null and void, or at Landlord's option
shall attach only against Tenant's interest in the Premises and shall in all
respects be subordinate to Landlord's title to the Property and Premises.
ARTICLE 11.
INSURANCE, SUBROGATION AND WAIVER OF CLAIMS
(A) At all times during the Lease Term and during any pre-commencement
occupancy and holdover period, Tenant, at its sole expense, shall procure and
maintain the following types of insurance:
1. A policy of commercial general liability insurance with Broad Form
Liability, and cross-liability endorsements, insuring Landlord and
Tenant against any claims for bodily injury, property damage or other
liability arising out of the use, occupancy, maintenance or ownership
of the Premises and all areas appurtenant thereto, including
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parking areas, with an "Additional Insured-Managers or Lessors of
Premises" Endorsement and contain the "Amendment of the Pollution
Exclusion" for damage caused by heat, smoke or fumes from a hostile
fire. Such insurance shall be in an amount satisfactory to Landlord but
in no event less than $2,000,000 per occurrence, $3,000,000 annually in
the aggregate for all claims.
2. Insurance for Tenant's personal property, inventory, alterations,
fixtures and equipment located on the Premises, in an amount not less
than one hundred percent (100%) of their actual replacement value,
providing All Risk coverage including, without limitation, water damage
of any type, including sprinkler leakage, bursting or stoppage of
pipes, explosion, theft, vandalism and malicious mischief. The proceeds
of such insurance, so long as this Lease remains in effect, shall be
used to repair or replace the personal property, inventory,
alterations, fixtures and equipment so insured. In addition, Tenant
shall obtain and keep in force, at all times during the Term of this
lease, a policy of business interruption insurance coverage, insuring
that one hundred percent (100%) of the monthly Base Rent, and all
additional Rent due hereunder, will be paid to Landlord for a period of
not less than one (1) year if the Premises are damaged or destroyed or
rendered unfit for occupancy by a risk insured under the foregoing All
Risk coverage.
3. A policy of worker's compensation insurance as required by appli-
cable law.
(B) The insurance to be acquired and maintained by Tenant shall be
with companies admitted to do business in the State of California with Best's
Rating Guide of A/10 or better. The insurance policies required hereunder shall
(to the extent applicable): (i) name Landlord, and such other parties as
Landlord shall designate from time to time, as additional insureds, (ii) not be
canceled or altered without thirty (30) days' prior written notice to Landlord,
(iii) insure performance of the indemnity set forth in Article 12, and (iv)
provide that such coverage is primary to and not contributory with any similar
insurance carried by Landlord, whose insurance shall be considered excess
insurance only.
(C) The limits of said insurance required by this Lease or as carried
by Tenant shall not, however, limit the liability of Tenant nor relieve Tenant
of any obligation hereunder. Landlord may periodically, but not more often than
every five years, require that Tenant reasonably increase the aforementioned
coverage.
(D) An original certificate for each policy of insurance required to be
carried by Tenant under this Article evidencing the existence of such coverage,
together with copies of all endorsements to such policies, shall be delivered to
Landlord for retention by it prior to Tenant's taking possession of the
Premises, and Tenant shall provide renewal certificates to Landlord at least
twenty (20) days prior to expiration of such policies. In the event that Tenant
shall fail to insure or shall fail to furnish Landlord the evidence of such
insurance as herein required, Landlord may, but shall not be obligated to, from
time to time acquire such insurance for the benefit of Tenant or Landlord, or
both of them, for a period not exceeding one (1) year or the remaining Lease
Term, whichever is less, and any premium paid by Landlord shall be recoverable
from Tenant as additional Rent on demand.
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(E) Tenant and Landlord shall obtain from their insurers under all
policies of insurance maintained by the parties pursuant to this Article (other
than worker's compensation insurance) a waiver of all rights of subrogation
which the insurer might have against the other party, and the parties agree to
indemnify each other against any loss or expense, including reasonable
attorney's fees, resulting from the failure to obtain or effect such waiver. In
addition, Tenant and Landlord hereby waive, on behalf of themselves and their
insurers, to the extent it would not have the effect of invalidating any
insurance coverage of Tenant, all rights of subrogation as to each other.
Further, Tenant and Landlord hereby release and relieve each other and waive
their respective lights to recover damages (whether in contract or in tort)
against each other for loss of or damage to their property arising our of or
incident to perils required to be insured pursuant to this Lease. The effect of
such release and waiver of the right to recover damages shall not be limited by
the amount of insurance carried or required, or by any deductibles applicable
thereto.
(F) Landlord shall maintain a standard form of "all risk" insurance
policy on the Building and the Building standard tenant improvements within the
Premises in an amount reasonably determined by Landlord to be the Building's
replacement value.
ARTICLE 12.
INDEMNITY
(A) In addition to any other rights or remedies to which Tenant may be
entitled and without in any way waiving or limiting said rights and remedies,
but except to the extent caused by Landlord's gross negligence or willful
misconduct, Tenant agrees to defend and indemnify Landlord against and save
Landlord harmless from any and all loss, cost, liability, damage and expense,
including without limitation, reasonable attorneys' fees and costs, for personal
injury, death or property damage, incurred in connection with or arising from
any cause whatsoever in, on or about the Premises, including without limiting
the generality of the foregoing: (i) the use or occupancy or manner of use or
occupancy of the Premises by Tenant or any person or entity claiming through or
under Tenant, or (ii) the condition of the Premises or any occurrence or
happening on the Premises from any cause under the control or which is the
responsibility of Tenant, its agents, contractors, subtenants, assignees or
employees, or (iii) any acts, omissions or negligence of Tenant or any person or
entity claiming through or under Tenant, or of the agents, contractors,
employees, subtenants, licensees, invitees or visitors of Tenant or any such
person or entity, in, on or about the Premises or the Building, either prior to
the commencement of, during, or after the expiration of the term, including
without limitation any acts, omissions or negligence in the making or performing
of any alterations. Tenant further agrees to defend, indemnify and save harmless
Landlord, Landlord's agents and the lessors under any ground or underlying
leases, from and against any and all loss, cost, liability, damage and expense,
including without limitation reasonable attorneys' fees and costs, incurred in
connection with or arising from any claims by any persons by reason of injury to
persons or damage to property occasioned by any use, occupancy, condition,
occurrence, happening, act, omission or negligence referred to in the preceding
sentence except to the extent caused by Landlord's gross negligence or willful
misconduct. In the event any action or proceeding is brought against Landlord
for any claim with respect to which Tenant is obligated to indemnify Landlord
hereunder, Tenant upon notice from Landlord shall defend such action or
proceeding at Tenant's sole expense by
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counsel approved by Landlord, which approval shall not be unreasonably withheld.
The provisions of this Paragraph shall survive the expiration or earlier
termination of this Lease.
(B) Landlord shall not be responsible for or liable to Tenant for any
loss or damage that may be occasioned by or through the acts or omissions of
persons occupying adjoining premises or any part of the premises adjacent to or
connected with the Premises or any part of the Building or Property or for any
loss or damage resulting to Tenant or its property from burst, stopped or
leaking water, gas, sewer or steam pipes or falling plaster, or electrical
wiring or for any damage or loss of property within the Premises from any causes
whatsoever, including theft, excepting only losses or damages resulting from the
gross negligence or willful misconduct of Landlord, and in no event shall
Landlord be liable to Tenant for any consequential damages.
ARTICLE 13.
DESTRUCTION OR DAMAGE
If the Premises or any common areas of the Property providing access
thereto shall be damaged by fire or other casualty, Landlord shall use available
insurance proceeds to restore the same. Such restoration shall be to
substantially the condition prior to the casualty, except for modifications
required by zoning and building codes and other Laws or by any Holder (as
defined in Article 26), any other modifications to the common areas deemed
desirable by Landlord (provided access to the Premises is not materially
impaired), and except that Landlord shall not be required to repair or replace
any of Tenant's furniture, furnishings, fixtures or equipment, or any
non-Building standard alterations or improvements or specialized improvements
within the Premises. The parties acknowledge that the Premises, in its condition
as of the execution of this Lease does not include any non-Building standard or
specialized improvements. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or its visitors, or injury to Tenant's business resulting in
any way from any such damage or the repair thereof. However, Landlord shall
allow Tenant a proportionate abatement of Rent during the time and to the extent
the Premises are unfit for occupancy for the purposes permitted under this Lease
and not occupied by Tenant as a result thereof; provided, however, if Tenant or
its employees or agents caused the damage such Rent abatement, if applicable,
shall not commence until sixty (60) days following the date of the damage or
casualty. Notwithstanding the foregoing to the contrary, Landlord may elect to
terminate this Lease by notifying Tenant in writing of such termination within
sixty (60) days after the date of damage (such termination notice to include a
termination date providing at least ninety (90) days for Tenant to vacate the
Premises), if the Property shall be damaged by fire or other casualty or cause
such that: (a) repairs to the Premises and access thereto cannot reasonably be
completed within 120 days after the commencement of the restoration thereto
without the payment of overtime or other premiums, (b) more than 25% of the
Premises is affected by the damage, and fewer than 24 months remain in the Term,
or any material damage occurs to the Premises during the last 12 months of the
Term, (c) any Holder shall require that the insurance proceeds or any portion
thereof be used to retire the Mortgage debt (or shall terminate the ground
lease, as the case may be), or the damage is not fully covered by Landlord's
insurance policies, or (d) the cost of the repairs, alterations, restoration or
improvement work would exceed 25% of the replacement cost of the Building.
Tenant agrees that Landlord's obligation to restore, and the abatement of Rent
provided herein, shall be
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Tenant's sole recourse in the event of such damage, and waives any other rights
Tenant may have under any applicable Law to terminate the Lease by reason of
damage to the Premises or Property; provided, however, if in Landlord's
reasonable opinion the Premises cannot be restored within six (6) months after
the commencement of the restoration thereto and if such damage materially and
adversely affects Tenant's use of the Premises, Tenant may elect to terminate
this Lease by delivering written notice thereof to Landlord within sixty (60)
days after the date of such damage in which event this Lease shall terminate as
of the termination date specified in such notice and any obligation of Landlord
to restore the Premises shall cease. Tenant acknowledges that this Article
represents the entire agreement between the parties respecting damage to the
Premises or Property, and Tenant waives the provisions of California Civil Code
Section 1932(2) and 1933(4) and any similar statute now or hereafter in force.
ARTICLE 14.
CONDEMNATION
If the whole or any material part of the Premises or Property shall be
taken by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if any adjacent property or street
shall be so taken or condemned, or reconfigured or vacated by such authority in
such manner as to require the use, reconstruction or remodeling of any part of
the Premises, Building or Property, or if Landlord shall grant a deed or other
instrument in lieu of such taking by eminent domain or condemnation, Landlord
shall have the option to terminate this Lease upon ninety (90) days' notice,
provided (i) such notice is given no later than one hundred eighty (180) days
after the date of such taking, condemnation, reconfiguration, vacation, deed or
other instrument and (ii) Landlord terminates this Lease in connection with an
overall plan made in good faith resulting as a consequence of such taking.
Tenant shall have reciprocal termination rights if the whole or any material
part of the Premises is permanently taken, or if access to the Premises is
permanently materially impaired. Landlord shall be entitled to receive the
entire award or payment in connection therewith, except that Tenant shall have
the right to file any separate claim available to Tenant for any taking of
Tenant's personal property and fixtures belonging to Tenant and removable by
Tenant upon expiration of the Term, for loss of goodwill and for moving expenses
(so long as such claim does not diminish the award available to Landlord or any
Holder, and such claim is payable separately to Tenant). All Rent shall be
apportioned as of the date of such termination, or the date of such taking,
whichever shall first occur. If any part of the Premises shall be taken, and
this Lease shall not be so terminated, the Rent shall be proportionately abated.
The parties waive the provisions of California Code of Civil Procedure section
1265.130 or any similar law allowing either party to petition the Superior Court
to terminate this Lease in the event of a partial taking of the Premises.
ARTICLE 15.
SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION
This Lease is subject and subordinate to all Mortgages (as defined in
Article 26) now placed upon the Property, and all other encumbrances and matters
of public record applicable to the Property. Provided Tenant receives a
commercially reasonable non-disturbance, subordination and attornment agreement
from any new Holder, which Tenant hereby agrees to
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execute, this Lease shall be subject and subordinate any Mortgages hereafter
placed on the Property. Landlord agrees to request its existing Holder to enter
into such Holder's current form of subordination, non-disturbance and attornment
agreement with Tenant. If any foreclosure proceedings are initiated by any
Holder (as defined in Article 26) or a deed in lieu is granted (or if any ground
lease is terminated), Tenant agrees, upon written request of any such Holder or
any purchaser at foreclosure sale, to attorn and pay Rent to such party and to
execute and deliver any instruments necessary or appropriate to evidence or
effectuate such attornment. However, in the event of attornment, no Holder shall
be: (i) liable for any action or omission of Landlord, or subject to any offsets
or defenses which Tenant might have against Landlord (prior to such Holder
becoming Landlord under such attornment) or (ii) liable for any security deposit
or bound by any prepaid Rent not actually received by such Holder. Any Holder
may elect to make this Lease prior to the lien of its Mortgage, by written
notice to Tenant, and if the Holder of any prior Mortgage shall require, this
Lease shall be prior to any subordinate Mortgage. Tenant agrees to give any
Holder by certified mail, return receipt requested, a copy of any notice of
default served by Tenant upon Landlord, provided that prior to such notice
Tenant has been notified in writing (by way of service on Tenant of a copy of an
assignment of leases, or otherwise) of the address of such Holder. Tenant
further agrees that if Landlord shall have failed to cure such default within
the times permitted by Landlord for cure under this Lease, any such Holder whose
address has been provided to Tenant shall have an additional period of thirty
(30) days in which to cure (or such additional time as may be required due to
causes beyond such Holder's control, including time to obtain possession of the
Property by power of sale or judicial action). Tenant shall execute such
reasonable documentation as Landlord may reasonably request from time to time in
recordable form, in order to confirm the matters set forth in this Article.
ARTICLE 16.
ESTOPPEL CERTIFICATE
Tenant shall from time to time, within twenty (20) days after written
request from Landlord, execute, acknowledge and deliver a statement (i)
certifying that this Lease is unmodified and in full force and effect, or, if
modified, stating the nature of such modification and certifying that this Lease
as so modified, is in full force and effect (or if this Lease is claimed not to
be in full force and effect, specifying the grounds therefor) and any dates to
which the Rent has been paid in advance, and the amount of any Security Deposit,
(ii) acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, or specifying such defaults if any
are claimed, and (iii) certifying such other matters pertaining to this Lease,
the Premises or the Building as Landlord may reasonably request, or as may be
requested by Landlord's current or prospective Holders, insurance carriers,
auditors, and prospective purchasers. Any such statement may be relied upon by
any such parties. If Tenant shall fail to execute and return any such statement
within the time required herein, Tenant shall be deemed to have agreed with the
matters set forth therein.
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ARTICLE 17.
ASSIGNMENT AND SUBLETTING
(A) TRANSFERS. Tenant shall not, without the prior written consent of
Landlord: (i) assign, mortgage, pledge, hypothecate, encumber, or permit any
lien to attach to, or otherwise transfer, this Lease or any interest hereunder,
by operation of law or otherwise, (ii) sublet the Premises or any part thereof,
or (iii) permit the use of the Premises by any Persons (as defined in Article
26) other than Tenant and its employees (all of the foregoing are hereinafter
sometimes referred to collectively as "Transfers" and any Person to whom any
Transfer is made or sought to be made is hereinafter sometimes referred to as a
"Transferee). Prior to making any Transfer, Tenant shall notify Landlord in
writing, which notice shall provide a detailed description of the proposed
Transfer, including, without limitation: (a) the proposed effective date (which
shall not be less than 30 nor more than 180 days after Tenant's notice), (b) the
portion of the Premises to be Transferred (herein called the "Subject Space"),
(c) the terms of the proposed Transfer and the consideration therefor, the name
and address of the proposed Transferee, and details as to the proposed
Transferee's form of entity and the nature of its business, and (d) current
financial statements of the proposed Transferee, certified by an officer,
partner or owner thereof, and any other information reasonably requested by
Landlord to enable Landlord to determine the financial responsibility,
character, and reputation of the proposed Transferee, nature of such
Transferee's business and proposed use of the Subject Space, and such other
information as Landlord may reasonably require. If Landlord requests additional
information, Tenant's notice shall not be deemed to have been received until
Landlord receives such additional information. In addition to the other
requirements hereunder, if the Subject Space comprises twenty percent (20%) or
more of the Premises, the Subject Space must be separately demiseable with
appropriate means of ingress and egress suitable for normal renting purposes;
provided, however, such condition shall not apply or be the sole basis for
Landlord withholding its consent to any Transfer if Landlord does not exercise
its right to recapture or sublease the Subject Space as provided herein. Any
Transfer made without complying with this Article shall, at Landlord's option,
be null, void and of no effect, or shall constitute a Default under this Lease.
Whether or not Landlord shall grant consent, Tenant shall pay $300.00 towards
Landlord's review and processing expenses, as well as any reasonable legal fees
incurred by Landlord, within thirty (30) days after written request therefor by
Landlord.
(B) APPROVAL. Subject to the terms set forth in this Article, Landlord
will not unreasonably withhold its consent to any proposed Transfer of the
Subject Space to the Transferee on the terms specified in Tenant's notice, and
Landlord agrees to grant or deny such approval within thirty (30) days following
Tenant's proper request therefor. The parties hereby agree that it shall be
reasonable under this Lease and under any applicable Law for Landlord to
withhold consent to any proposed Transfer where one or more of the following
applies (without limitation as to other reasonable grounds for withholding
consent): (i) the Transferee is of a character or reputation or engaged in a
business which is not consistent with the quality of the Property, or would be a
significantly less prestigious occupant of the Property than Tenant, (ii) the
Transferee intends to use the Subject Space for purposes which are not permitted
under this Lease, (iii) the Transferee is either a government (or agency or
instrumentality thereof) or an occupant of the Property unless such occupant
desires to expand its premises and no other comparable space is available in the
Building, (iv) the proposed
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Transferee does not have a reasonable financial condition in relation to the
obligations to be assumed in connection with the Transfer, (v) the proposed
Transfer would result in more than two (2) subleases of portions of the Premises
being in effect at any one time during the Term, or (vi) Tenant has committed
and failed to cure a default at the time Tenant requests consent to the proposed
Transfer.
(C) RECAPTURE. Notwithstanding anything to the contrary in this
Article, Landlord shall have the option, by giving notice to Tenant within
twenty (20) days after receipt of Tenant's notice of any proposed Transfer (and
any additional information required or requested by Landlord in connection
therewith) to: (a) in the case of any Transfer, terminate this Lease as to the
Subject Space as of the effective date of the proposed Transfer, in which event
Tenant shall be relieved of all further obligations hereunder as to the Subject
Space as of such date; or (b) in the case of a sublease, to sublease the Subject
Space from Tenant upon the terms and conditions set forth in Tenant's notice,
except that the rent shall be the lower of the per square foot monthly Base Rent
and additional Rent described in Articles 3 and 4 payable under this Lease for
the Subject Space, or that part of the rent and other consideration set forth in
Tenant's notice which is applicable to the Space. If Landlord exercises its
option to sublet the Subject Space, Tenant shall sublet the Subject Space to
Landlord upon the terms and conditions contained in Tenant 's notice; provided,
however, that: (i) Landlord shall at all times under such sublease have the
right and option further to sublet the Subject Space without obtaining Tenant's
consent or sharing any of the economic consideration received by Landlord; (ii)
Landlord and its subtenants shall have the right to use in common with Tenant
all lavatories, corridors and lobbies which are within the Premises and the use
of which is reasonably required for the use of the Subject Space; (iii) Tenant
shall have a right of set-off or abatement if any rental payment due under the
sublease is not paid when following applicable cure period, but Tenant shall
have no right to assert a default hereunder by reason of any default by Landlord
under such sublease; and (iv) Landlord's liability under such sublease shall not
be deemed assumed or taken subject to by any successor to Landlord's interest
under this Lease. No failure of Landlord to exercise either option with respect
to the Subject Lease shall be deemed to be Landlord's consent to the Transfer.
If this Lease shall be terminated with respect to less than the entire Premises,
the Rent reserved herein shall be prorated on the basis of the number of square
feet of rentable area retained by Tenant in proportion to the number of rentable
square feet contained in the Premises, this Lease as so amended shall continue
thereafter in full force and effect, and upon request of either party, the
parties shall execute written confirmation of the same. Notwithstanding the
foregoing rights of Landlord, Landlord's right to recapture or sublease the
Subject Space as set forth in this Paragraph shall not apply to a proposed
sublease of the Premises where: (i) the aggregate space sublet and/or proposed
to be sublet by Tenant (including the Subject Space and any common area square
footage allocated or proposed to be allocated to any Transferees) is equal to
less than twenty percent (20 %) of the Premises, or (ii) the term of the
proposed sublease is equal to or less than eighteen (18) months, the aggregate
space sublet and/or proposed to be sublet by Tenant (including the Subject Space
and any common area square footage allocated or proposed to be allocated to any
Transferees) is less than 6,000 rentable square feet of the Premises, the
proposed Transferee is an affiliate (as such term is defined in the California
Corporations Code) of Tenant, or an affiliate of any members of the board of
directors or of a founder of Tenant, and such proposed Transferee engages in a
technology, media or internet
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related business or is an internet related venture capital firm, or (iii) the
sublease or assignment does not require Landlord's consent as expressly set
forth in Article 17(G).
(D) TERMS OF CONSENT. If Landlord consents to a Transfer, as some of
the conditions to the effectiveness thereof, (a) the terms and conditions of
this Lease, including among other things, Tenant's liability for the Subject
Space, shall in no way be deemed to have been waived or modified, (b) such
consent shall not be deemed consent to any further Transfer by either Tenant or
a Transferee, (c) no Transferee shall succeed to any rights provided in this
Lease or any amendment hereto to extend the Term of this Lease, expand the
Premises, or lease additional space, any such rights being deemed personal to
Tenant, and (d) Tenant shall deliver to Landlord promptly after execution, a
copy of all original executed documentation pertaining to the Transfer in form
reasonably acceptable to Landlord. Any sublease hereunder shall be subordinate
and subject to the provisions of this Lease, and if this Lease shall be
terminated during the term of any sublease for any reason, Landlord shall have
the right, in its sole discretion, to: (i) treat such sublease as canceled and
repossess the Subject Space by any lawful means, or (ii) require that such
subtenant attorn to and recognize Landlord as its landlord under any such
sublease. If Tenant shall be in Default hereunder, as described in Paragraph (A)
of Article 20, Landlord is hereby irrevocably authorized, as Tenant's agent and
attorney-in-fact, to, and may (but shall not be obligated to), direct any
Transferee to make all payments thereafter due under or in connection with the
Transfer directly to Landlord (which Landlord shall apply towards Tenant's
obligations under this Lease) until such Default is cured. Regardless of
Landlord's consent, no Transfer shall release Tenant of Tenant's obligation or
alter the primary liability of Tenant to pay the Rent and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of Rent by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provision hereof. Consent to one Transfer shall not be deemed consent to any
subsequent Transfer. In the event of default by any assignee or successor of
Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
said assignee or successor. Landlord may consent to subsequent Transfers of the
Lease or amendments or modifications to this Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without obtaining its
or their consent thereto and such action shall not relieve Tenant or any
successor of Tenant of liability under this Lease; provided, however, such
amendments or modifications shall not materially increase Tenant's obligations
hereunder.
(E) TRANSFER PREMIUM. If Landlord consents to a Transfer, and as a
condition thereto which the parties hereby agree is reasonable, Tenant shall pay
Landlord seventy-five percent (75 %) of any Transfer Premium derived by Tenant
from such Transfer. "Transfer Premium" shall mean all rent, additional rent or
other consideration paid by such Transferee in excess of the Rent payable by
Tenant under this Lease (on a monthly basis during the Term, and on a per
rentable square foot basis, if less than all of the Premises is transferred),
after deducting the reasonable expenses incurred by Tenant for any changes,
alterations and improvements to the Premises, any other economic concessions or
services provided to the Transferee, reasonable attorney's fees directly related
to the Transfer (not to exceed $1.00 per rentable square foot of the Premises)
and any customary brokerage commissions paid in connection with the Transfer. If
part of the consideration for such Transfer shall be payable other than in cash,
Landlord's share of such non-cash consideration shall be in such form as is
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reasonably satisfactory to Landlord. The percentage of the Transfer Premium due
Landlord hereunder shall be paid within ten (10) days after Tenant receives any
Transfer Premium from the Transferee.
(F) CERTIFICATE; ANNUAL STATEMENT. Tenant shall furnish upon Landlord's
request a complete statement, certified by an independent certified public
accountant, or Tenant's chief financial officer, setting forth in detail the
computation of any Transfer Premium Tenant has derived and shall derive from
such Transfer. In addition, Tenant shall deliver to Landlord a statement within
thirty (30) days after the end of each calendar year in which any part of the
Term occurs, and the end of the Term, specifying as to such calendar year each
sublease or assignment in effect during the period covered by such statement and
(i) the date of its execution and delivery, (ii) the number of square feet of
rentable area covered thereby, (iii) the term thereof, (iv) the rent charged
thereunder, and (v) the amount (if any) Transfer Premium paid and payable by
Tenant to Landlord. Landlord or its authorized representatives shall have the
right at all reasonable times to audit the books, records and papers of Tenant
relating to any Transfer, and shall have the right to make copies thereof. If
the Transfer Premium respecting any Transfer shall be found understated, Tenant
shall within thirty (30) days after demand pay the deficiency, and if
understated by more than 5%, Tenant shall pay Landlord's costs of such audit.
(G) CERTAIN TRANSFERS. For purposes of this Lease, the term "Transfer"
shall also include (a) if Tenant is a partnership, or limited liability company,
the withdrawal or change (whether voluntary, involuntary or by operation of law)
of a majority of the partners or members, or any transfer of a majority of
partnership or membership interests or assets (as a consequence of a single
transaction or any number of separate transactions), or the dissolution of the
partnership or limited liability company, (b) if Tenant is a corporation whose
stock is not publicly held and not traded through an exchange or over the
counter, the dissolution, merger, consolidation or other reorganization of
Tenant, or (as a consequence of a single transaction or any number of separate
transactions): (i) the sale or other transfer of more than an aggregate of 50%
of the voting shares of Tenant, or (ii) the sale, mortgage, hypothecation or
pledge of more than an aggregate of 50% of Tenant's net assets, (c) If Tenant is
more than one Person, any Transfer by any one of the Persons comprising Tenant,
and (d) any Transfer by a Transferee. Notwithstanding the foregoing or anything
to the contrary in this Article, as long as People PC, Inc. is the Tenant in
possession of the Premises and no Default then exists, Tenant shall have the
right, subject to the terms and conditions hereinafter set forth, without the
consent of Landlord, to (a) assign its interest in this Lease (i) to any
corporation which is a successor to Tenant either by merger or consolidation
provided such corporation continues to conduct Tenant's business as a going
concern, or (ii) to a purchaser of all or substantially all of Tenant's assets
or stock (provided, in the case of an asset purchase, such purchaser shall have
also assumed in writing Tenant's obligations under this Lease and provided
Tenant's business continues to be conducted as a going concern), or (iii) to a
corporation or other entity which shall control, be under the control of, or be
under the common control with, People PC, Inc. (the term "control" as used
herein shall be deemed to mean ownership of more than fifty percent (50%) of the
outstanding voting stock of a corporation, or other majority equity and
controlling interest if Tenant is not a corporation) (any such entity being a
"Related Entity"), or (b) sublease all or any portion of the Premises to a
Related Entity; upon the condition that (1) the principal purpose of such
assignment or sublease is not the acquisition of Tenant's
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interest in this Lease (except if such assignment or sublease is made to a
Related Entity and is made for a valid intra-corporate business purpose and is
not made to circumvent the provisions of this Article 17)), and (2) any such
assignee shall have a net worth and annual income and cash flow, determined in
accordance with generally accepted accounting principals, consistently applied,
after giving effect to such assignment, in amounts necessary to perform its
duties, obligations and liabilities hereunder, as reasonably determined by
Landlord, and in amount at least equal to that of People PC, Inc. as of the
execution of this Lease. Tenant shall as a condition to the effectiveness of
such assignment or sublease, within ten (10) business days after execution of
such assignment or sublease, deliver to Landlord (A) a copy of the instrument of
assignment or sublease, as the case may be, in a form which incorporates the
requirements of clause (C) below, duly executed by Tenant, (B) evidence
reasonably satisfactory to Landlord establishing compliance by the assignee with
the net worth, income and cash flow requirements of clause (b)(2) above, (C) an
instrument in form and substance reasonably satisfactory to Landlord, duly
executed by the assignee or sublessee, as the case may be, in which such
assignee or sublessee shall assume observance and performance of, and agree to
be personally bound by, all of the terms, covenants and conditions of this Lease
on Tenant's part to be observed and performed and (D) such other documentation
as Landlord shall reasonably request to satisfy itself that the assignment or
sublease conforms to the specific exclusions to the definition of a "Transfer"
as set forth in this Paragraph.
ARTICLE 18.
COMPLIANCE WITH LEGAL REQUIREMENTS
(A) At Tenant's sole cost, Tenant shall promptly comply with all Laws
(defined in Article 26) now in force or that may later be in force, including,
but not limited to, all provisions of the American With Disabilities Act, the
requirements of any board of fire underwriters or other similar body now or in
the future constituted, and any direction or occupancy certificate issued by
public officers (collectively "Legal Requirements"), insofar as they relate to
the use or occupancy of the Premises by Tenant, or its subtenants, assignees or
employees, or to Tenant's obligations under this Lease with respect to the
condition of the Premises; except for (i) structural changes or changes to the
electrical, mechanical, or plumbing systems of the Building, to the extent such
changes are not necessitated by Tenant's acts or by improvements made for Tenant
and (ii) alterations or improvements to the Building as a whole or the common
areas of the Building.
(B) In the event that Landlord shall be required to comply with any
Legal Requirement as a result of any structural changes, changes to the
electrical, mechanical or plumbing systems of the Building or the Premises or
any alterations or improvements to the Building as a whole or the common areas
of the Building done solely for the benefit of Tenant and necessitated by a
request of or Work performed by or on behalf of Tenant, any and all costs of
such changes, alterations and improvements together with any and all costs
associated with Landlord's compliance with Legal Requirements in connection
therewith shall be for the account of Tenant and Tenant shall within thirty (30)
days of receipt pay all invoices therefor as additional rent.
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ARTICLE 19.
RIGHTS RESERVED BY LANDLORD
Landlord reserves full rights to control the Property (which rights may
be exercised without subjecting Landlord to claims for constructive eviction,
abatement of Rent, damages or other claims of any kind), including more
particularly, but without limitation, the following rights:
(A) To change the name or street address of the Property; install and
maintain signs on the exterior and interior of the Property; retain at all
times, and use in appropriate instances, keys to all doors within and into the
Premises; grant to any Person the right to conduct any business or render any
service at the Property, whether or not it is the same or similar to the use
permitted Tenant by this Lease; and have access for Landlord and other tenants
of the Property to any mail chutes located on the Premises according to the
rules of the United States Postal Service.
(B) Upon reasonable notice (except in emergencies), to enter the
Premises at reasonable hours for reasonable purposes, including inspection and
supplying cleaning service or other services to be provided Tenant hereunder, to
show the Premises to current and prospective mortgage lenders, ground lessors,
insurers and prospective purchasers, tenants and brokers, and if Tenant shall
abandon the Premises at any time, or shall vacate the same during the last three
months of the Term, to decorate, remodel, repair or alter the Premises.
(C) To use any and all means which Landlord deems proper to enter the
Premises at any time in an emergency.
(D) To limit or prevent access to the Property, shut down elevator
service, activate elevator emergency controls, or otherwise take such action or
preventative measures deemed necessary by Landlord for the safety of tenants or
other occupants of the Property or the protection of the Property and other
property located thereon or therein, in case of fire, invasion, insurrection,
riot, civil disorder, public excitement or other dangerous condition, or threat
thereof.
(E) To decorate and to make alterations, additions and improvements,
structural or otherwise, in or to the Property or any part thereof, and any
adjacent building, structure, parking facility, land, street or alley (including
without limitation changes and reductions in corridors, lobbies, parking
facilities and other public areas and the installation of kiosks, planters,
sculptures, displays, escalators, mezzanines, and other structures, facilities,
amenities and features therein, and changes for the purpose of connection with
or entrance into or use of the Property in conjunction with any adjoining or
adjacent building or buildings, now existing or hereafter constructed). In
connection with such matters, or with any other repairs, maintenance,
improvements or alterations, in or about the Property, Landlord may erect
scaffolding and other structures reasonably required, and during such operations
may, upon reasonable notice and subject to any reasonable security requirements
Tenant may impose, enter upon the Premises and take into and upon or through the
Premises, all materials required to make such repairs, maintenance, alterations
or improvements, and may close public entry ways, other public areas, restrooms,
stairways or corridors.
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(F) To substitute for the Premises other premises (herein referred to
as the "new premises") at the Property provided: (i) the new premises shall be
similar to the Premises in area, (ii) the new premises shall be on a full floor
in the Building no lower than the 9th floor; provided, such new premises shall
be on a full floor only if the constitute an entire floor in the Building
Premises as of the date of any relocation, (iii) Landlord cannot make such
substitution more than once during the Lease Term, (iv) Landlord shall give
Tenant at least sixty (60) days' written notice before making such change; and
(v) if Tenant shall already have taken possession of the Premises: (a) Landlord
shall pay the direct, out-of-pocket, reasonable expenses of Tenant in moving
from the Premises to the new premises (such as removing and reinstalling
Tenant's furniture, fixtures, equipment and any Lines installed in accordance
with Article 29 and the cost of a thirty day supply of letterhead and a
reasonable number of business cards) and improving the new premises so that they
are substantially similar to the Premises, and (b) such move shall be made
during evenings, weekends so as to incur the least convenience to Tenant. In
such case, the parties shall execute an amendment to the Lease confirming the
change within thirty (30) days after Landlord shall request the same.
(G) To periodically remeasure the Property and/or the Premises, which
may result in an increase or decrease in the number of feet contained therein,
provided that such a remeasurement shall not (i) by itself result in an increase
or decrease in the Base Rent, or Tenant's Prorata Share of Taxes or Operating
Expenses or any other fee, charge or expense based on the area leased by Tenant;
or (ii) under any circumstances entitle Tenant to a refund or credit for any
sums paid under this Lease. The parties shall execute an amendment to the Lease
confirming the measurement change within thirty (30) days after Landlord shall
request the same.
(H) To terminate this Lease upon written notice thereof if Tenant
abandons the Premises, vacates all or a substantial portion of the Premises for
more than sixty (60) consecutive days, or fails to take possession of the
Premises within sixty (60) days after the Commencement Date.
In connection with entering the Premises to exercise any of the
foregoing rights, Landlord shall: (a) provide reasonable advance written or oral
notice to Tenant's on-site manager or other appropriate person (except in
emergencies, or for routine cleaning or other routine matters), and (b) take
reasonable steps to minimize any interference with Tenant's business.
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ARTICLE 20.
LANDLORD'S REMEDIES
(A) DEFAULT. The occurrence of any one or more of the following events
shall constitute a "Default" by Tenant, which shall give rise to Landlord's
remedies set forth in Paragraph (B) of this Article: (i) failure by Tenant to
make when due any payment of Rent; provided, that on the first two (2) occasions
during the Term of Tenant's failure to pay Rent when due, no Default shall be
deemed to have occurred unless Tenant fails to pay Rent within three (3) days
following Landlord's written notice thereof; (ii) failure by Tenant to observe
or perform any of the terms or conditions of this Lease to be observed or
performed by Tenant other than the payment of Rent, or as provided below, unless
such failure is cured within thirty (30) days after written notice, or such
shorter period expressly provided elsewhere in this Lease, or such longer period
as may be reasonably necessary if the failure by its nature cannot be cured
within thirty (30) days, provided that within such thirty (30)- day period
Tenant commences and thereafter diligently proceeds to cure such failure; (iii)
failure by Tenant to comply with the Rules, unless such failure is cured within
five (5) days after written notice; (iv) (a) making by Tenant or any guarantor
of this Lease ("Guarantor") of any general assignment for the benefit of
creditors, (b) filing by or against Tenant or any Guarantor of a petition to
have Tenant or such Guarantor adjudged a bankrupt or a petition for
reorganization or arrangement under any Law (defined in Article 26) relating to
bankruptcy (unless, in the case of a petition filed against Tenant or such
Guarantor, the same is dismissed within sixty (60) days), (c) appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
or of Tenant's interest in this Lease, where possession is not restored to
Tenant within thirty (30) days, (d) attachment, execution or other judicial
seizure of substantially all of Tenant's assets or of Tenant's interest in this
Lease, or (e) Tenant's or any Guarantor's inability to pay its debts as they
mature; (v) any material misrepresentation herein, or material misrepresentation
or omission in any financial statements or other materials provided by Tenant or
any Guarantor in connection with negotiating or entering this Lease or in
connection with any Transfer under Article 17; (vi) making of any Transfer in
violation of Article 17; or (vii) cancellation or revocation of any guaranty of
this Lease by any Guarantor. Without limiting the foregoing, failure by Tenant
to comply with the same term or condition of this Lease on three occasions
during any twelve (12) month period shall cause any failure to comply with such
term or condition during the succeeding twelve month period, at Landlord's
option, to constitute an incurable Default if Landlord has given Tenant notice
of each such failure after each such failure occurs. The parties acknowledge and
agree that time is of the essence of this Lease and, to the extent allowable by
Law, the notice and cure periods provided herein are in lieu of, and not in
addition to, any notice and cure periods provided by Law.
(B) REMEDIES. If Tenant commits a Default, in addition to any other
right or remedy allowed under any Law or other provision of this Lease (all of
which remedies shall be distinct, separate and cumulative), Landlord may
terminate this Lease, repossess the Premises by unlawful detainer suit, summary
proceedings, or any other lawful means, and recover as damages a sum of money
equal to: (a) the worth at the time of award of the unpaid Rent which had been
earned at the time of termination; (b) the worth at the time of award of the
amount by which the unpaid Rent which would have been earned after termination
until the time of the award exceeds the amount of such Rent loss that Tenant
proves could have been reasonably
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avoided; (c) the worth at the time of award of the amount by which the unpaid
Rent for the balance of the Term after the time of award exceeds the amount of
such Rent loss that Tenant proves can reasonably be avoided; and (d) any other
amounts necessary to compensate Landlord for all detriment or damages
proximately caused by Tenant's failure to perform its obligations under this
lease or that in the ordinary course would be likely to result therefrom,
including without limitation, all Costs of Reletting (as defined in Paragraph
(F) of this Article. For purposes of computing the amount of Rent herein that
would have accrued after the time of award, Tenant's Prorata Share of Taxes and
Operating Expenses shall be projected, based upon the average rate of increase,
if any, in such items from the Commencement Date through the time of award. The
"worth at the time of award" of the amounts referred to in clauses (a) and (b)
shall be computed by allowing interest at the Default Rate (as defined in
Article 26). The "worth at the time of award" of the amount referred to in
clause (c) shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one percent
(1 %).
(C) MITIGATION OF DAMAGES. If Landlord terminates this Lease or
Tenant's right to possession, Landlord shall use reasonable efforts to mitigate
Landlord's damages, and Tenant shall be entitled to submit proof of such failure
to mitigate as a defense to Landlord's claims hereunder, if mitigation of
damages by Landlord is required by applicable Law. If Landlord has not
terminated this Lease or Tenant's right to possession, Landlord shall have no
obligation to mitigate, and may permit the Premises to remain vacant or
abandoned, and shall have the remedies under California Civil Code, Section
1951.4, as the same may be modified or replaced hereafter; in such case, Tenant
may seek to mitigate damages by attempting to sublease the Premises or assign
this Lease subject to the provisions of Article 17.
(D) SPECIFIC PERFORMANCE AND COLLECTION OF RENT. Landlord shall at all
times have the rights and remedies (which shall be cumulative with each other
and cumulative and in addition to those rights and remedies available under
Paragraph (B) of this Article above or any law or other provision of this
Lease), without prior demand or notice except as required by applicable Law: (i)
to seek any declaratory, injunctive or other equitable relief and specifically
enforce this Lease, or restrain or enjoin a violation or breach of any provision
hereof, and (ii) to sue for and collect any unpaid Rent which has accrued.
(E) LATE CHARGES AND INTEREST. Tenant shall pay, as additional Rent, a
service charge of Two Hundred Dollars ($200.00) for bookkeeping and
administrative expenses, if Rent is not received within five (5) days after its
due date. In addition, any Rent paid more than five (5) days after due shall
accrue interest from the due date at the Default Rate (as defined in Article
26), until payment is received by Landlord. Such service charge and interest
payments shall not be deemed consent by Landlord to late payments, nor a waiver
of Landlord's right to insist upon timely payments at any time, nor a waiver of
any remedies to which Landlord is entitled as a result of the late payment of
Rent.
(F) CERTAIN DEFINITIONS. "Net Re-Letting Proceeds" shall mean the total
amount of rent and other consideration actually paid by any Replacement Tenants,
less all Costs of Re-Letting, during a given period of time. "Costs of
Re-Letting" shall include, without limitation, all reasonable costs and expenses
incurred by Landlord for any repairs, maintenance, changes, alterations and
improvements to the Premises, brokerage commissions,
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advertising costs, attorneys' fees, any customary free rent periods or credits,
tenant improvement allowances, take-over lease obligations and other customary,
necessary or appropriate economic incentives reasonably required to enter into
leases with Replacement Tenants, and costs of collecting rent from Replacement
Tenants. "Replacement Tenants" shall mean any Person (as defined in Article 26)
to whom Landlord relets the Premises or any portion thereof pursuant to this
Article.
(G) OTHER MATTERS. No re-entry or repossession, repairs, changes,
alterations and additions, reletting, acceptance of keys from Tenant, or any
other action or omission by Landlord shall be construed as an election by
Landlord to terminate this Lease or Tenant's right to possession, or accept a
surrender of the Premises, nor shall the same operate to release the Tenant in
whole or in part from any of Tenant's obligations hereunder, unless express
written notice of such intention is sent by Landlord to Tenant. To the fullest
extent permitted by Law, all rent and other consideration paid by any
Replacement Tenants shall be applied: first, to the Costs of Re-Letting, second,
to the payment of any Rent theretofore accrued, and the residue, if any, shall
be held by Landlord and applied to the payment of other obligations of Tenant to
Landlord as the same become due (with any remaining residue to be retained by
Landlord). Landlord may apply payments received from Tenant to any obligations
of Tenant then accrued, without regard to such obligations as may be designated
by Tenant. Landlord shall be under no obligation to observe or perform any
provision of this Lease on its part to be observed or performed which accrues
after the date of any Default by Tenant. Tenant hereby irrevocably waives any
right otherwise available under any Law to redeem or reinstate this Lease.
ARTICLE 21.
LANDLORD'S RIGHT TO CURE
(A) If Landlord shall fail to perform any term or provision under this
Lease required to be performed by Landlord, Landlord shall not be deemed to be
in default hereunder nor subject to any claims for damages of any kind, unless
such failure shall have continued for a period of thirty (30) days after written
notice thereof by Tenant; provided, if the nature of Landlord's failure is such
that more than thirty (30) days are reasonably required in order to cure,
Landlord shall not be in default if Landlord commences to cure such failure
within such thirty (30) day period, and thereafter reasonably proceeds to cure
such failure to completion. The aforementioned periods of time permitted for
Landlord to cure shall be extended for any period of time during which Landlord
is delayed in, or prevented from, curing due to fire or other casualty, strikes,
lock-outs or other labor troubles or shortages, shortages of equipment or
materials, governmental requirements, power shortages or outages, acts or
omissions by Tenant or other Persons, and other causes beyond Landlord's
reasonable control. If Landlord shall fail to cure within the times permitted
for cure herein, Landlord shall be subject to such remedies as may be available
to Tenant (subject to the other provisions of this Lease); provided, in
recognition that Landlord must receive timely payments of Rent and operate the
Property, Tenant shall have no right of self-help to perform repairs or any
other obligation of Landlord, and shall have no right to withhold, set-off or
abate Rent.
(B) All agreements and provisions to be performed by Tenant under any
of the terms of this Lease shall be at its sole cost and expense and without any
abatement of Rent. If
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Tenant shall fail to pay any sum of money, other than Rent, required to be paid
by it hereunder, or shall fail to perform any other act on its part to be
performed hereunder and such failure shall continue for ten (10) days after
notice thereof by Landlord, or a shorter period if additional damage may result,
Landlord may, to protect its interests, but shall not be obligated to do so, and
without waiving or releasing Tenant from any of its obligations, make any such
payment or perform any such other act on Tenant's part to be made or performed
as provided herein. All sums so paid by Landlord and all necessary incidental
costs shall be deemed additional Rent hereunder and shall be payable with
interest from the date Landlord makes such payments until paid by Tenant, at the
Default Rate, and Landlord shall have (in addition to any other right or remedy
of Landlord) the same rights and remedies in the event of the nonpayment thereof
by Tenant as in the case of default by Tenant in the payment of Rent.
ARTICLE 22.
RETURN OF POSSESSION
At the expiration of earlier termination of this Lease or Tenant's
right of possession, Tenant shall surrender possession of the Premises in the
condition required under Article 9, ordinary wear and tear excepted, and shall
surrender all keys, key cards, and any parking stickers, to Landlord, and advise
Landlord as to the combination of any locks or vaults then remaining in the
Premises, and shall remove all trade fixtures and personal property. All
improvements, fixtures and other items in or upon the Premises (except trade
fixtures and personal property belonging to Tenant), whether installed by Tenant
or Landlord, shall be Landlord's property and shall remain upon the Premises,
all without compensation, allowance or credit to Tenant. However, if upon
granting its consent to any alterations or improvements to the Premises made by
Tenant, Landlord gives notice that such work will be required to be removed upon
the termination of expiration of this Lease, Tenant shall, prior to the
expiration or termination of this Lease, promptly remove such of the foregoing
items as are designated in such notice and restore the Premises to the condition
prior to the installation of such items and as of the execution hereof. If
Tenant shall fail to perform any repairs or restoration, or fail to remove any
items from the Premises required hereunder, Landlord may do so, and Tenant shall
pay Landlord the cost thereof upon demand. All property removed from the
Premises by Landlord pursuant to any provisions of this Lease or any Law may be
handled or stored by Landlord at Tenant's expense, and Landlord shall in no
event be responsible for the value, preservation or safekeeping thereof. All
property not removed from the Premises or retaken from storage by Tenant within
thirty (30) days after expiration or earlier termination of this Lease or
Tenant's right to possession, shall at Landlord's option be conclusively deemed
to have been conveyed by Tenant to Landlord as if by bill of sale without
payment by Landlord. Unless prohibited by applicable Law, Landlord shall have a
lien against such property for the costs incurred in removing and storing the
same.
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ARTICLE 23.
HOLDING OVER
Unless Landlord expressly agrees otherwise in writing, Tenant shall pay
Landlord 175 % of the amount of Rent then applicable (or the highest amount
permitted by law, whichever shall be less) prorated on per diem basis for each
day Tenant shall retain possession of the Premises or any part thereof after
expiration or earlier termination of this Lease, together with all damages
sustained by Landlord on account thereof. The foregoing provisions shall not
serve as permission for Tenant to hold-over, nor serve to extend the Term
(although Tenant shall remain bound to comply with all provisions of this Lease
until Tenant vacates the Premises, and shall be subject to the provisions of
Article 22). Notwithstanding the foregoing to the contrary, at any time before
or after expiration or earlier termination of the Lease, Landlord may serve
notice advising Tenant of the amount of Rent and other terms required, should
Tenant desire to enter a month-to-month tenancy (and if Tenant shall hold over
more than one full calendar month after such notice, Tenant shall thereafter be
deemed a month-to-month tenant, on the terms and provisions of this Lease then
in effect, as modified by Landlord's notice, and except that Tenant shall not be
entitled to any renewal or expansion rights contained in this Lease or any
amendments hereto).
ARTICLE 24.
NO WAIVER
No provision of this Lease will be deemed waived by either party unless
expressly waived in writing signed by the waiving party. No waiver shall be
implied by delay, forbearance, failure to act or any other act or omission of
either party. No waiver by either party of any provision of this Lease shall be
deemed a waiver of such provision with respect to any subsequent matter relating
to such provision, and Landlord's consent or approval respecting any action by
Tenant shall not constitute a waiver of the requirement for obtaining Landlord's
consent or approval respecting any subsequent action. Acceptance of Rent by
Landlord shall not constitute a waiver of any breach by Tenant of any term or
provision of this Lease. No acceptance of a lesser amount than the Rent herein
stipulated shall be deemed a waiver of Landlord's right to receive the full
amount due, nor shall any endorsement or statement on any check or payment or
any letter accompanying such check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the full amount due. The acceptance of Rent or of
the performance of any other term or provision from any Person other than
Tenant, including any Transferee, shall not constitute a waiver of Landlord's
right to approve or disapprove any Transfer.
ARTICLE 25.
ATTORNEYS' FEES AND JURY TRIAL
In the event of any litigation between the parties, the prevailing
party shall be entitled to obtain, as part of the judgment, all reasonable
attorneys' fees, costs and expenses incurred in connection with such litigation,
except as may be limited by applicable Law. In the interest of obtaining a
speedier and less costly hearing of any dispute, the parties hereby each
irrevocably waive the right to trial by jury.
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ARTICLE 26.
CAPTIONS, DEFINITIONS AND SEVERABILITY
The captions of the Articles and Paragraphs of this Lease are for
convenience of reference only and shall not be considered or referred to in
resolving questions of interpretation. If any term or provision of this Lease
shall be found invalid, void, illegal, or unenforceable with respect to any
particular Person by a court of competent jurisdiction, it shall not affect,
impair or invalidate any other terms or provisions hereof, or its enforceability
with respect to any other Person, the parties hereto agreeing that they would
have entered into the remaining portion of this Lease notwithstanding the
omission of the portion or portions adjudged invalid, void, illegal, or
unenforceable with respect to such Person.
(A) "Building" shall mean the structure identified in Article 1 of this
Lease.
(B) "Default Rate" shall mean five percent (5 %) in excess of the Prime
Rate (as defined in Paragraph (1) of this Article) per annum, or the highest
rate permitted by applicable Law, whichever shall be less.
(C) "Holder" shall mean the holder of any Mortgage at the time in
question, and where such Mortgage is a ground lease, such term shall refer to
the ground lessor.
(D) "Holidays" shall mean all federally observed holidays, including
New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day,
Veterans' Day, Thanksgiving Day, Christmas Day, and to the extent of utilities
or services provided by union members engaged at the Property, such other
holidays observed by such unions.
(E) "Landlord" and "Tenant" shall be applicable to one or more Persons
as the case may be, and the singular shall include the plural, and the neuter
shall include the masculine and feminine; and if there be more than one, the
obligations thereof shall be joint and several. For purposes of any provisions
indemnifying or limiting the liability of Landlord, the term "Landlord" shall
include Landlord's present and future partners, members, beneficiaries,
trustees, officers, directors, employees, shareholders, principals, agents,
affiliates, successors and assigns.
(F) "Law" shall mean all federal, state, county and local governmental
and municipal laws, statutes, ordinances, rules, regulations, codes, decrees,
orders, and other such requirements, applicable equitable remedies and decisions
by courts in cases where such decisions are considered binding precedents in the
state in which the Property is located, and decisions of federal courts applying
the Laws of such State.
(G) "Mortgage" shall mean all mortgages, deeds of trust, ground leases
and other such encumbrances now or hereafter placed upon the Property or
Building, or any part thereof and all renewals, modifications, consolidations,
replacements or extensions thereof, and all indebtedness now or hereafter
secured thereby and all interest thereon.
(H) "Operating Expenses" shall mean all expenses, costs and amounts
(other than Taxes) of every kind and nature which Landlord shall incur or pay
during any calendar year
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any portion of which occurs during the Term, because of or in connection with
the ownership, management, repair, maintenance, restoration and operation of the
Property, including, without limitation, any amounts paid for: (a) utilities for
the Property, including but not limited to, electricity, power, gas, steam, oil
or other fuel, water, sewer, lighting, heating, air conditioning and
ventilating, (b) permits, licenses and certificates necessary to operate, manage
and lease the Property, (c) insurance applicable to the Property, not limited to
the amount of coverage Landlord is required to provide under this Lease, (d)
supplies, tools, equipment and materials used in the operation, repair and
maintenance of the Property, (e) accounting, legal, inspection, consulting,
concierge and other services, (f) any equipment rental (or installment equipment
purchase or equipment financing agreements), or management agreements (including
the cost of any management fee actually paid thereunder and the fair rental
value of any office space provided thereunder, up to customary and reasonable
amounts), (g) wages, salaries and other compensation and benefits (including the
fair value of any parking privileges provided) for all persons engaged in the
operation, maintenance or security of the Property, and employer's Social
Security taxes, unemployment taxes or insurance, and any other taxes which may
be levied on such wages, salaries, compensation and benefits, (h) payments under
any easement, operating agreement, declaration, restrictive covenant or
instrument pertaining to the sharing of costs in any planned development, and
(i) operation, repair and maintenance of all Systems and Equipment and
components thereof (including replacement of components), janitorial service,
alarm and security service, window cleaning, trash removal, elevator
maintenance, cleaning of walks, parking facilities and building walls, removal
of ice and snow, replacement of wall and floor coverings, ceiling tiles and
fixtures in lobbies, corridors, restrooms and other common or public areas or
facilities, maintenance and replacement of shrubs, trees, grass, sod and other
landscaped items, irrigation systems, drainage facilities fences, curbs and
walkways, re-paving and re-striping parking facilities, and roof repairs. If the
Property is not fully occupied during all or a portion of any calendar year,
including the Base Year, Landlord will, in accordance with sound accounting and
management practices, determine the amount of variable Operating Expenses (i.e.,
those items which vary according to occupancy levels) that would have been paid
had the Property been 95 % occupied, and the amount so determined shall be
deemed to have been the amount of variable Operating Expenses for such year. If
Landlord makes such an adjustment, Landlord shall make a comparable adjustment
for the Base Expense year. Notwithstanding the foregoing, Operating Expenses
shall not, however, include:
(i) depreciation, interest (except as set forth below with respect to
amortization of capital improvements) and amortization on Mortgages,
and other debt costs or ground lease payments, if any; legal fees in
connection with leasing, tenant disputes or enforcement of leases; real
estate brokers' leasing commissions; improvements or alterations to
tenant spaces (including permit costs for such improvements); the cost
of providing any service directly to and paid directly by, any tenant;
any costs expressly excluded from Operating Expenses elsewhere in this
Lease; costs of any items to the extent Landlord receives reimbursement
from insurance proceeds or from a third party (such proceeds to be
deducted from Operating Expenses in the year in which received); costs
incurred by Landlord for organizational expenses, attorney's fees and
accounting fees to the extent related to Landlord's general corporate
overhead and general administrative expenses (as distinguished from
costs of operating the Property); and
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(ii) capital expenditures, except for: (a) the costs of any capital
improvements, equipment or devices installed or paid for by Landlord
(1) to conform with any change in Laws, rules, regulations or
requirements of any governmental or quasi governmental authority having
jurisdiction not applicable to the Building as of the date of this
Lease or of the board of fire underwriters or similar insurance body,
or (2) to effect a labor saving, energy saving or other economy,
amortized over the lesser of (A) three (3) years, (B) the "pay back
period," or (C) the useful life of such capital improvement, equipment
or device (as determined in accordance with generally accepted
accounting principles or otherwise as determined by Landlord), or such
longer period as Landlord shall reasonably determine, as well as
interest on the unamortized balance at the Prime Rate, as defined in
Paragraph (J) below, on the date the costs are incurred or such higher
rate as may have been paid by Landlord on borrowed funds. The "pay back
period" shall be the period within which the anticipated savings from
the use of such capital improvement, equipment or device, as determined
by Landlord, will equal the cost of the subject capital improvement,
equipment or device; (b) the costs of (1) exterior window draperies and
coverings provided by Landlord, (2) carpeting and wall coverings in the
common areas, and (3) other furnishings in common areas which, as a
result of normal use, require periodic replacement, amortized over the
useful life of such improvements (as determined in accordance with
generally accepted accounting principles or otherwise as determined by
Landlord), or such longer period as may be determined by Landlord in
its reasonable discretion, as well as interest on the unamortized
balance at the Prime Rate on the date the costs are incurred or such
higher rate as may have been paid by Landlord on borrowed funds, if
more than fifteen percent (15 %) of the draperies, window coverings,
carpeting or furnishings are replaced during any calendar year. If
fifteen percent (15 %) or less of the draperies, window coverings,
carpeting or furnishings are replaced during any calendar year, then
the entire cost of replacing such draperies, window coverings,
carpeting or furnishings may be included in Operating Expenses in the
calendar year the cost is incurred; (c) depreciation or amortization of
the costs of materials, tools, supplies and equipment purchased by
Landlord to enable Landlord to supply services which Landlord might
otherwise contract for with a third party where such depreciation and
amortization would otherwise have been included in the charge for such
third party's services; and (d) costs of minor capital improvements or
expenditures where such improvement or expenditure costs less than Ten
Thousand Dollars ($10,000.00) per calendar year.
(I) "Person" shall mean an individual, trust, partnership, joint
venture, association, limited liability company, corporation and any other
entity.
(J) "Prime Rate" shall mean the prime rate (or base rate) reported in
the Money Rates column or section of THE WALL STREET JOURNAL as being the base
rate on corporate loans at large U.S. money center commercial banks (whether or
not such rate has actually been charged by any such bank) on the first day on
which THE WALL STREET JOURNAL is published in the month preceding the month in
which the subject costs are incurred.
(K) "Property" shall mean the Building, and any common or public areas
or facilities, easements, corridors, lobbies, sidewalks, loading areas ,
driveways, landscaped
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area , skywalks, parking garages and lots, and any and all other structures or
facilities operated or maintained in connection with or for the benefit of the
Building, and all parcels or tracts of land on which all or any portion of the
Building or any of the other foregoing items are located, and any fixtures,
machinery, equipment, apparatus, Systems and Equipment, furniture and other
personal property located thereon or therein and used in connection therewith,
whether title is held by Landlord or its affiliates. Possession of areas
necessary for utilities, services, safety and operation of the Property,
including the Systems and Equipment (as defined in this Article), fire
stairways, perimeter walls, space between the finished ceiling of the Premises
and the slab of the floor or roof of the Property there above, and the use
thereof together with the right to install, maintain, operate, repair and
replace the Systems and Equipment including any of the same in, through, under
or above the Premises in locations that will not materially interfere with
Tenant's use of the Premises, are hereby excepted and reserved by Landlord, and
not demised to Tenant; provided that, subject to the terms and conditions of
Article 29, Tenant shall have the right to install wires and conduit in the
space above the finished ceiling of the Premises as may be reasonably necessary
to serve Tenant's equipment in the Premises.
(L) "Rent" shall have the meaning specified therefor in Paragraph (H)
of Article 4.
(M) "Systems and Equipment" shall mean any plant, machinery,
transformers, duct work, cable, wires and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life/safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment for
the Property.
(N) "Taxes" shall mean all federal, state, county or local governmental
or municipal taxes, fees, charge or other impositions of every kind and nature,
whether general, special, ordinary or extraordinary (including, without
limitation, real estate taxes, general and special assessments, transit taxes,
water and sewer rents, taxes based upon the receipt of rent including gross
receipts or sales taxes applicable to the receipt of rent or service or value
added taxes (except to the extent paid by Tenant under Article 5), personal
property taxes imposed upon the fixtures, machinery, equipment, apparatus,
Systems and Equipment, appurtenances, furniture and other personal property used
in connection with the Property which Landlord shall pay during any calendar
year, any portion of which occurs during the Term (without regard to any
different fiscal year used by such government or municipal authority) because of
or in connection with the ownership, leasing and operation of the Property.
Notwithstanding the foregoing, there shall be excluded from Taxes all excess
profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, federal and state income taxes, other taxes to
the extent applicable to Landlord's general or net income (as opposed to rents,
receipts or income attributable to operations at the Property) and any penalties
and interest incurred as a result of Landlord's failure to pay Taxes when due.
If the method of taxation of real estate prevailing at the time of execution
hereof shall be, or has been altered, so as to cause the whole or any part of
the taxes now, hereafter or heretofore levied, assessed or imposed on real
estate to be levied, assessed or imposed on Landlord, wholly or partially, as a
capital levy or otherwise, or on or measured by the rents received therefrom,
then such new or altered taxes attributable to the Property shall be included
within
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the term "Taxes," except that the same shall not include any enhancement of said
tax attributable to other income of Landlord. Any expenses incurred by Landlord
in attempting to protest, reduce or minimize Taxes shall be included in Taxes to
the extent that Taxes are reduced as a result. Tax refunds shall be deducted
from Taxes in the year they are received by Landlord, but if such refund shall
relate to taxes paid in a prior year of the Term, and the Lease shall have
expired, Landlord shall mail Tenant's Prorata Share of such net refund (after
deducting Tenant's Prorate Share of expenses and attorneys' fees), up to the
amount Tenant paid towards Taxes during such year, to Tenant's last known
address. If Taxes for the Base Tax Year are reduced as the result of protest, or
by means of agreement, or as the result of legal proceedings or otherwise,
Landlord may adjust Tenant's obligations for Taxes in all years following the
Base Tax Year, and Tenant shall pay Landlord within 30 days after notice any
additional amount required by such adjustment for any such years or portions
thereof that have therefore occurred; provided, however, Tenant shall not be
obligated to pay an amount greater than the amount Tenant's Prorata Share of
Taxes would have been had the Base Tax Year originally been equal to the reduced
Base Tax Year. If Taxes for any period during the Term or any extension thereof
(other than the Base Tax Year), shall be increased after payment thereof by
Landlord, for any reason, including without limitation, error or reassessment by
applicable governmental or municipal authorities, Tenant shall pay Landlord upon
demand Tenant's Prorata Share of such increase in Taxes. Except for increases in
the Base Tax Year, Tenant shall pay increased Taxes whether Taxes are increased
as a result of increases in the assessments or valuation of the Property
(whether based on a sale, change in ownership or refinancing of the Property or
otherwise), increases in the tax rates, reduction or elimination of any
rollbacks or other deductions available under current law, scheduled reductions
of any tax abatement, as a result of the elimination, invalidity or withdrawal
of any tax abatement, or for any other cause whatsoever. Notwithstanding the
foregoing, if any Taxes shall be paid based on assessments or bills by a
governmental or municipal authority using a fiscal year other than a calendar
year, Landlord may elect to average the assessments or bills for the subject
calendar year, based on the number of months of such calendar year included in
each such assessment or bill.
(O) "Tenant's Prorata Share" of Taxes and Operating Expenses shall be
3.3003%. Tenant acknowledges that the "rentable area of the Premises" under this
Lease includes the usable area, without deduction for columns or projections,
multiplied by a load or conversion factor, to reflect a share of certain areas,
which may include lobbies, corridors, mechanical, utility, janitorial, boiler
and service rooms and closets, restrooms and other public, common and service
areas. Except as provided expressly to the contrary herein, the "rentable area
of the Property" shall include all rentable area of all space leased or
available for lease at the Property, which Landlord may reasonably re-determine
from time to time, to reflect re-configurations, additions or modifications to
the Property. If the Property or any development of which it is a part, shall
contain non-office uses, Landlord shall have the right to determine in
accordance with sound accounting and management principles, Tenant's Prorata
Share of Taxes and Operating Expenses for only the office portion of the
Property or of such development, in which event, Tenant's Prorata Share shall be
based on the ratio of the rentable area of the Premises to the rentable area of
such office portion. In such event, the Operating Expenses and Taxes to which
Tenant's Prorata Share shall apply shall be reduced to exclude those Operating
Expenses and Taxes which relate to the area of the Property which has been
excluded in calculating Tenant's Prorata Share. Similarly, if the Property shall
contain
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tenants who do not participate in all or certain categories of Taxes or
Operating Expenses on a prorata basis, Landlord may exclude the amount of Taxes
or Operating Expenses, or such categories of the same, as the case may be,
attributable to (as opposed to recoverable from) such tenants, and exclude the
rentable area of their premises, in computing Tenant's Prorata Share as applied
to such categories.
ARTICLE 27.
CONVEYANCE BY LANDLORD AND LIABILITY
In case Landlord or any successor owner of the Property or the Building
shall convey or otherwise dispose of any portion thereof in which the Premises
are located, to another Person (and nothing herein shall be construed to
restrict or prevent such conveyance or disposition), such other Person shall
thereupon be and become landlord hereunder and shall be deemed to have fully
assumed and be liable for all obligations of this Lease to be performed by
Landlord which first arise after the date of conveyance, and Tenant shall attorn
to such other Person, and Landlord or such successor owner shall, from and after
the date of conveyance, be free of all liabilities and obligations hereunder not
then incurred. The liability of Landlord to Tenant for any default by Landlord
under this Lease or arising in connection herewith or with Landlord's operation,
management, leasing, repair, renovation, alteration or any other matter relating
to the Property or the Premises, shall be limited to the interest of Landlord in
the Property (and the rental proceeds thereof) and insurance proceeds available
to landlord, and Tenant agrees to look solely to Landlord's interest in the
Property (and the rental proceeds thereof) and insurance proceeds available to
Landlord. Tenant agrees to look solely to Landlord's interest in the Property
(and the rental proceeds thereof) and insurance proceeds available to Landlord
for the recovery of any judgment against Landlord, and Landlord shall not be
personally liable for any such judgment or deficiency after execution thereon.
The limitations of liability contained in this Article shall apply equally and
inure to the benefit of Landlord's present and future partners, beneficiaries,
officers, directors, trustees, members, shareholders, agents and employees, and
their respective partners, heirs, successors and assigns. Under no circumstances
shall any present or future partner, member, shareholder, or trustee or
beneficiary (if Landlord or any partner, member or shareholder of Landlord is a
trust) have any liability for the performance of Landlord's obligations under
this Lease. Notwithstanding the foregoing to the contrary, Landlord shall have
personal liability for insured claims, beyond Landlord's interest in the
Property (and rental proceeds thereof), to the extent of Landlord's liability
insurance coverage available for such claims.
ARTICLE 28.
SAFETY AND SECURITY DEVICES, SERVICES AND PROGRAMS
The parties acknowledge that safety and security devices, services and
programs provided by Landlord, if any, while intended to deter crime and ensure
safety, may not in given instances prevent theft or other criminal acts, or
ensure safety of persons or property. The risk that any safety or security
device, service or program may not be effective, or may malfunction, or be
circumvented by a criminal, is assumed by Tenant with respect to Tenant's
property and interests, and Tenant shall obtain insurance coverage to the extent
Tenant desires protection against such criminal acts and other losses in
addition to insurance required to be
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carried by Tenant hereunder. Tenant agrees to cooperate in any reasonable safety
or security program developed by Landlord or any program required by law.
ARTICLE 29.
COMMUNICATIONS AND COMPUTER LINES
(A) Tenant may install, maintain, replace, remove or use any
communications or computer wires, cables and related devices (collectively the
"Lines") at the Property in or serving the Premises, provided: (a) Tenant shall
obtain Landlord's prior written consent, use an experienced and qualified
contractor approved in writing by Landlord, and comply with all of the other
provisions of Article 10, (b) any such installation, maintenance, replacement,
removal or use shall comply with all Laws applicable thereto and good work
practices, and shall not interfere with the use of any then existing Lines at
the Property, (c) space for additional Lines shall be maintained for existing
and future occupants of the Property, as determined in Landlord's reasonable
opinion, (d) if Tenant at any time uses any equipment that may create an
electromagnetic field exceeding the normal insulation ratings of ordinary
twisted pair riser cable or cause radiation higher than normal background
radiation, the Lines therefor (including riser cables) shall be appropriately
insulated to prevent such excessive electromagnetic fields or radiation, (e) as
a condition to permitting the installation of new Lines, Landlord may require
that Tenant remove existing Lines located in or serving the Premises installed
by or on behalf of Tenant to the extent such Lines are being replaced by the new
Lines, (f) Tenant's rights shall be subject to the rights of any regulated
telephone company, and (g) Tenant shall pay all costs in connection therewith.
Landlord reserves the right to require that Tenant remove any Lines located in
or serving the Premises which are installed by or on behalf of Tenant in
violation of these provisions, or which are or become at any time in violation
of any Laws or represent a dangerous or potentially dangerous condition (whether
such Lines were installed by Tenant or any other party), within three (3) days
after written notice.
(B) Landlord may (but shall not have the obligation to): (i) install
new Lines at the Property, (ii) create additional space for Lines at the
Property, and (iii) reasonably direct, monitor and/or supervise the
installation, maintenance, replacement and removal of, the allocation and
periodic re-allocation of available space (if any) for, and the allocation of
excess capacity (if any) on, any Lines now or hereafter installed at the
Property by Landlord, Tenant or any other party (but Landlord shall have no
right to monitor or control the information transmitted through such Lines).
Such rights shall not be in limitation of other rights that may be available to
Landlord by Law or otherwise. If Landlord exercises any such rights, Landlord
may charge Tenant for the costs attributable to Tenant if Tenant has requested
or Tenant's activities have resulted in such exercise by Landlord, or Landlord
may include those costs and all other costs in Operating Expenses to the extent
allowed under Article 26.
(C) Notwithstanding anything to the contrary contained in Article 22,
Landlord reserves the right to require that Tenant remove any or all Lines
installed by or for Tenant within or serving the Premises upon termination of
this Lease, provided Landlord notifies Tenant at least thirty (30) days prior to
expiration or Tenant's permitted early termination (under Tenant's Termination
Option) of this Lease or prior to or within thirty (30) days following
termination upon or following Default. Any Lines not required to be removed
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pursuant to this Article shall, at Landlord's option, become the property of
Landlord without payment by Landlord. If Tenant fails to remove such lines as
required by Landlord, or violates any other provision of this Article, Landlord
may, after twenty (20) days' written notice to Tenant, remove such Lines or
remedy such other violation, at Tenant's expense (without limiting Landlord's
other remedies available under this Lease or applicable Law). Tenant shall not,
without the prior written consent of Landlord in each instance, grant to any
third party, a security interest or lien in or on the Lines, and any such
security interest or lien granted without Landlord's written consent shall be
null and void. Except to the extent arising from the intentional or grossly
negligent acts of Landlord or Landlord's agents or employees, Landlord shall
have no liability for damages arising from, and Landlord does not warrant that
the Tenant's use of any Lines will be free from the following (collectively
called "Line Problems"): (x) any eavesdropping or wire-tapping by unauthorized
parties, (y) any failure of any Lines to satisfy Tenant's requirements, or (z)
any shortages, failures, variations, interruptions, disconnections, loss or
damage caused by the installation, maintenance, replacement, use or removal of
Lines by or for other tenants or occupants of the Property, by any failure of
the environmental conditions or the power supply for the Property to conform to
any requirements for the Lines or any associated equipment, or any other
problems associated with any Lines by any other cause. Under no circumstances
shall any Line Problems be deemed an actual or constructive eviction of Tenant,
render Landlord liable to Tenant for abatement of Rent, or relieve Tenant from
performance of Tenant's obligations under this Lease; provided, however, in the
event of such disruption, Tenant shall be entitled to the rights and remedies
set forth in Article 8(E) applicable to the disruption of essential services.
Landlord in no event shall be liable for damages by reason of loss of profits,
business interruption or other consequential damage arising from any Line
Problems.
(C) Tenant will have the right to install a satellite dish at the
Property subject to the terms and conditions set forth in Rider Three, attached
hereto and made a part hereof.
ARTICLE 30.
HAZARDOUS MATERIALS
(A) Tenant shall not transport, use, store, maintain, generate,
manufacture, handle, dispose, release or discharge any "Hazardous Material" (as
defined below) upon or about the Property, or permit Tenant's employees, agents,
contractors and other occupants of the Premises to engage in such activities
upon or about the Property. However, the foregoing provisions shall not prohibit
the transportation to and from, and use, storage, maintenance and handling
within, the Premises of substances customarily used in offices (or such other
business or activity expressly permitted to be undertaken in the Premises under
Article 7), provided: (a) such substances shall be used and maintained only in
such quantities as are reasonably necessary for such permitted use of the
Premises, strictly in accordance with applicable Law and the manufacturers'
instructions therefor, (b) such substances shall not be disposed of, released or
discharge on the Property, and shall be transported to and from the Premises in
compliance with all applicable laws, and as Landlord shall reasonably require,
(c) if any applicable Law or Landlord's trash removal contractor requires that
any such substances be disposed of separately from ordinary trash, Tenant shall
make arrangements at Tenant's expense for such disposal directly with a
qualified and licensed disposal company at a lawful disposal site (subject to
scheduling and approval by Landlord), and shall ensure that disposal
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occurs frequently enough to prevent unnecessary storage of such substances in
the Premises, and (d) any remaining such substances shall be completely,
properly and lawfully removed from the Property upon expiration or earlier
termination of this Lease.
Tenant shall promptly notify Landlord of: (i) any enforcement, cleanup
or other regulatory action taken or threatened by any governmental or regulatory
authority with respect to the presence of any Hazardous Material on the Premises
or the migration thereof from or to other property, (ii) any demands or claims
made or threatened by any party against Tenant or the Premises relating to any
loss or injury resulting from any Hazardous Materials, (iii) any release,
discharge or nonroutine, improper or unlawful disposal or transportation of any
Hazardous Material on or from the Premises, and (iv) any matters where Tenant is
required by Law to give a notice to any governmental or regulatory authority
respecting any Hazardous Material on the Premises. Landlord shall have the right
(but not the obligation) to join and participate as a party in any legal
proceedings or actions affecting the Premises initiated in connection with any
environmental, health or safety Law. At such times as Landlord may reasonably
request, Tenant shall provide Landlord with a written list identifying any
Hazardous Material then used, stored, or maintained upon the Premises, the use
and approximate quantity of each such material, a copy of any material safety
data sheet ("MSDS") issued by the manufacturer therefor, written information
concerning the removal, transportation and disposal of the same, and such other
information as Landlord may reasonably require or as may be required by Law. The
term "Hazardous Material" for purposes hereof shall mean any chemical substance,
material or waste or component thereof which is now or hereafter listed, defined
or regulated as a hazardous or toxic chemical, substance, material or waste or
component thereof by any federal, state or local governing or regulatory body
having jurisdiction, or which would trigger any employee or community
"right-to-know" requirements adopted by any such body, or for which any such
body has adopted any requirements for the preparation or distribution of an
MSDS.
If any Hazardous Material is released, discharged or disposed of by
Tenant, its employees, agents, contractors or any other occupant of the Premises
claiming by under or through Tenant, or their employees, agents or contractors,
on or about the Property in violation of the foregoing provisions, Tenant shall
immediately, properly and in compliance with applicable Laws clean up and remove
the Hazardous Material from the Property and any other affected property and
clean or replace any affected personal property (whether or not owned by
Landlord), at Tenant's expense. Such cleanup and removal work shall be subject
to Landlord's prior written approval (except in emergencies), and shall include,
without limitation, any testing, investigation, and the preparation and
implementation of any remedial action plan required by any governmental body
having jurisdiction or reasonably required by Landlord. If Tenant shall fail to
comply with the provisions of this Article within five (5) days after written
notice by Landlord, or such shorter time as may be required by Law or in order
to minimize any hazard to Persons or property, Landlord may (but shall not be
obligated to) arrange for such compliance directly or as Tenant's agent through
contractors or other parties selected by Landlord, at Tenant's expense (without
limiting Landlord's other remedies under this Lease or applicable Law). If any
Hazardous Material is released, discharged or disposed of on or about the
Property and such release, discharge or disposal is not caused by Tenant or its
employees, agents, contractors or other occupants of the Premises claiming by
through or under Tenant, or their employees, agents or contractors, such
release, discharge or disposal
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shall be deemed casualty damage under Article 13 to the extent that the Premises
or common areas serving the Premises are affected thereby; in such case,
Landlord and Tenant shall have the obligations and rights respecting such
casualty damage provided under Article 13.
(B) The parties acknowledge that the material used in certain of the
fire-proofing materials applied to certain structural members in the Building
and Property (which structural members are primarily located above the finished
ceiling) contains asbestos. Notwithstanding the foregoing, all rentable areas of
11th floor of the Building have been abated of such asbestos in accordance with
industry standards and, if Landlord substitutes the Premises under Article
19(F), the rentable area of the new premises shall be free of asbestos. In order
to preserve the air quality of the Building and Property, Landlord has
established, and from time to time may modify, rules and regulations governing
the manner in which alterations and improvements are to be undertaken in the
areas where the subject fire-proofing is located. Tenant shall comply with all
such rules and regulations established by Landlord. If any governmental entity
promulgates or revises a statute, ordinance, code or regulation, or imposes
mandatory or voluntary controls or guidelines with respect to the subject
asbestos fireproofing, or if Landlord is required or elects to make alterations
or to remove the subject asbestos fire-proofing, Landlord may, in its sole
discretion, comply with such mandatory or voluntary controls or guidelines, or
make such alterations or remove such asbestos fireproofing. Neither such
compliance nor the making of alterations, nor the removal of all or a portion of
such asbestos fire-proofing shall in any event entitle Tenant to any damages,
relieve Tenant of the obligation to pay any sums due hereunder, or constitute or
be construed as a constructive or other eviction of Tenant. In accordance with
Proposition 65 and the regulations promulgated thereunder which require that
person subject to "environmental exposure" to certain designated chemicals, such
as asbestos, receive warnings, you are advised that :
WARNING: THE BUILDING CONTAINS ASBESTOS, A
CHEMICAL KNOWN TO THE STATE OF CALIFORNIA
TO CAUSE CANCER.
ARTICLE 31.
MISCELLANEOUS
(A) Each of the terms and provisions of this Lease shall be binding
upon and inure to the benefit of the parties hereto, their respective heirs,
executors, administrators, guardians, custodians, permitted successors and
assigns, subject to the provisions of Article 17 respecting Transfers.
(B) Neither this Lease nor any memorandum of lease or short form lease
shall be recorded by Tenant.
(C) This Lease shall be construed in accordance with the Laws of the
state of California.
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(D) All obligations or rights of either party arising during or
attributable to the period ending upon expiration or earlier termination of this
Lease shall survive such expiration or earlier termination.
(E) Landlord agrees that, if Tenant timely pays the Rent and performs
the terms and provisions hereunder, and subject to all other terms and
provisions of this Lease, Tenant shall hold and enjoy the Premises during the
Term, free of lawful claims by any Person acting by or through Landlord.
(F) This Lease does not grant any legal rights to "light and air"
outside the Premises nor any particular view or cityscape visible from the
Premises.
(G) All remedies hereinbefore and hereafter conferred upon Landlord
shall be deemed cumulative and no one shall be exclusive of the other, or shall
in any way Emit the availability to Landlord of any other remedy conferred by
law, whether or not specifically conferred by the provisions of this Lease.
ARTICLE 32.
OFFER
The submission and negotiation of this Lease shall not be deemed an
offer to enter the same by Landlord, but the solicitation of such an offer by
Tenant. Landlord's acceptance of such offer shall be evidenced only by Landlord
signing and delivering this Lease to Tenant.
ARTICLE 33.
NOTICES
Except as expressly provided to the contrary in this Lease, every
notice or other communication to be given by either party to the other with
respect hereto or to the Premises or Property, shall be in writing and shall not
be effective for any purpose unless the same shall be served personally or by
national air courier service, or United States certified mail, return receipt
requested, postage prepaid, addressed, into Tenant, at the address first set
forth in the Lease, until the Commencement Date, and thereafter to the Tenant at
the Premises, WITH A COURTESY COPY TO: Paul Churchill, Esq. COOLEY GODWARD LLP,
One Maritime Plaza, 20th Floor, San Francisco, CA 94111, and if to Landlord, at
the address at which the last payment of Rent was required to be made and to
Pine Street Investors I, L.L.C., c/o Danielson Whitehead, Inc., at 100 Pine
Street, San Francisco, California 94111, Attn: Robert Whitehead, or such other
address or addresses as Tenant or Landlord may from time to time designate by
notice given as above provided. Every notice or other communication hereunder
shall be deemed to have been given as of the third business day following the
date of such mailing (or as of any earlier date evidenced by a receipt from such
national air courier service or the United States Postage Service) or
immediately if personally delivered. Notices not sent in accordance with the
foregoing shall be of no force or effect until received by the foregoing parties
at such addressed required herein.
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ARTICLE 34.
SIGNAGE
Landlord agrees to list Tenant on the main lobby Building directory.
In addition, Tenant may, at Tenant's sole cost and expense and subject to
Landlord's prior approval thereof, be allowed to install its standard signage at
the 11th floor elevator lobby of the Building. No other sign, placard, picture,
advertisement, name or notice (collectively, "Signs") shall be inscribed,
displayed, printed or affixed on or to any part of the outside or inside of the
Building without the written consent of Landlord first had and obtained. Tenant
acknowledges and agrees that Landlord may withhold its consent to the placing of
Signs on the exterior of the Building in its sole and absolute discretion.
ARTICLE 35.
REAL ESTATE BROKERS
Tenant represents that it has dealt only with CUSHMAN & WAKEFIELD OF
CALIFORNIA, INC. (whose commission, if any, shall be paid by Landlord pursuant
to separate agreement) as broker, agent or finder in connection with this Lease
and agrees to indemnify and hold Landlord harmless from all damages, judgments,
liabilities and expenses (including reasonable attorneys' fees) arising from any
claims or demands of any other broker, agent or finder with whom Tenant has
dealt or is claimed to have dealt for any commission or fee alleged to be due in
connection with its participation in the procurement of Tenant or the
negotiation with Tenant or execution of this Lease.
ARTICLE 36.
SECURITY DEPOSIT
Tenant shall deposit with Landlord the sum of $185,104.33 ("Security
Deposit"), upon Tenant's execution and submission of this Lease. The Security
Deposit shall serve as security for the prompt, full and faithful performance by
Tenant of the terms and provisions of this Lease. In the event that Tenant is in
Default hereunder, or in the event that Tenant owes any amounts to Landlord upon
the expiration of this Lease, Landlord may use or apply the whole or any part of
the Security Deposit for the payment of Tenant's obligations hereunder. The use
or application of the Security Deposit or any portion thereof shall not prevent
Landlord from exercising any other right or remedy provider hereunder or under
any Law and shall not be construed as liquidated damages. In the event the
Security Deposit is reduced by such use or application, Tenant shall deposit
with Landlord within ten (10) days after written notice, an amount sufficient to
restore the full amount of the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from Landlord's general funds or pay
interest on the Security Deposit. Any remaining portion of the Security Deposit
shall be returned to Tenant within sixty (60) days after Tenant has vacated the
Premises in accordance with Article 22. If the Premises shall be expanded at any
time, or if the Term shall be extended at an increased rate of Rent, the
Security Deposit shall thereupon be proportionately increased.
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ARTICLE 37.
ENTIRE AGREEMENT
This Lease, together with Riders One, Two and Three and Exhibit A
(WHICH COLLECTIVELY ARE HEREBY INCORPORATED WHERE REFERRED To HEREIN AND MADE A
PART HEREOF AS THOUGH FULLY SET FORTH), contains all the terms and provisions
between Landlord and Tenant relating to the matters set forth herein, and no
prior or contemporaneous agreement or understanding pertaining to the same shall
be of any force or effect, except any such contemporaneous agreement
specifically referring to and modifying this Lease, signed by both parties.
Without limitation as to the generality of the foregoing, Tenant hereby
acknowledges and agrees that Landlord's leasing agents and field personnel are
only authorized to show the Premises and negotiate terms and conditions for
leases subject to Landlord's final approval, and are not authorized to make any
agreements, representations, understandings or obligations, binding upon
Landlord, respecting the condition of the Premises or Property, suitability of
the same for Tenant's business, or any other matter, and no such agreements,
representations, understandings or obligations not expressly contained herein or
in such contemporaneous written agreement shall be of any force or effect.
Neither this Lease, nor any Riders or Exhibits referred to above, may be
modified, except in writing signed by both parties.
LANDLORD:
PINE STREET INVESTORS I, L.L.C.
a Delaware limited liability company
By: Walton Street Real Estate Fund I, L.P.,
a Delaware limited partnership,
Managing Partner
By: Walton Street Managers I, L.P.,
a Delaware limited partnership,
General Partner
By: WSC Managers I, Inc.,
a Delaware corporation,
General Partner
By:/s/HOWARD J. BRODY
------------------
Name: Howard Brody
Title: VP
Date: 6-1-99
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TENANT:
PEOPLE PC, INC.,
A Delaware corporation
By: /s/ NICK GROUF
-------------------------
Name: Nick Grouf
Title: Chief Executive Officer
Date:
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[100 PINE STREET LOGO Goes Here]
LEASE EXHIBIT `A'
ELEVENTH FLOOR
[ELEVENTH FLOOR MAP GOES HERE]
<PAGE>
RIDER ONE
RULES
(1) On Saturdays, Sundays and Holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, or such other hours as
Landlord shall determine from time to time, access to the Property and/or the
passageways, entrances, exits, shipping areas, halls, corridors, elevators or
stairways and other areas in the Property may be restricted and access gained by
use of a key to the outside doors of the Property, or pursuant to such security
procedures Landlord may from time to time impose. All such areas, and all roofs,
are not for use of the general public and Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence in the
judgment of Landlord shall be prejudicial to the safety, character, reputation
and interests of the Property and its tenants provided, however, that nothing
herein contained shall be construed to prevent such access to persons with whom
Tenant deals in the normal course of Tenant's business unless such persons are
engaged in activities which are illegal or violate these Rules. No Tenant and no
employee or invitee of Tenant shall enter into area reserved for the exclusive
use of Landlord, its employees or invitees. Tenant shall keep doors to corridors
and lobbies closed except when persons are entering or leaving.
(2) Tenant shall not paint, display, inscribe, maintain or affix any
sign, placard, picture, advertisement, name, notice, lettering or direction on
any part of the outside or inside of the Property, or on any part of the inside
of the Premises which can be seen from the outside of the Premises, without the
prior consent of Landlord, and then only such name or names or matter and in
such color, size, style, character and material as may be first approved by
Landlord in writing. Landlord shall prescribe the suite number and
identification sign for the Premises (which shall be prepared and installed by
Landlord at Tenant's expense). Landlord reserves the right to remove at Tenant's
expense all matter not so installed or approved without notice to Tenant.
(3) Tenant shall not in any manner use the name of the Property for any
purpose other than that of the business address of the Tenant, or use any
picture or likeness of the Property, in any letterheads, envelopes, circulars,
notices, advertisements, containers or wrapping material without Landlord's
express consent in writing.
(4) Tenant shall not place anything or allow anything to be placed in
the Premises near the glass of any door, partition, wall or window which may be
unsightly from outside the Premises, and Tenant shall not place or permit to be
placed any article of any kind on any window ledge or on the exterior walls.
Blinds, shades, awnings or other forms of inside or outside window ventilators
or similar devices, shall not be placed in or about the outside windows in the
Premises except to the extent, if any, that the character, shape, color,
material and make thereof is first approved by the Landlord.
(5) Furniture, freight and other large or heavy articles, and all other
deliveries may be brought into the Property only at times and in the manner
designated by Landlord, and always at the Tenant's sole responsibility and risk.
Landlord may impose reasonable charges
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for use in freight elevators after or before normal business hours. All damage
done to the Property by moving or maintaining such furniture, freight or
articles shall be repaired by Landlord at Tenant's expense. Landlord may inspect
items brought into the Property or Premises with respect to weight or dangerous
nature. Landlord may require that all furniture, equipment, cartons and similar
articles removed from the Premises or the Property be listed and a removal
permit therefor first be obtained from Landlord. Tenant shall not take or permit
to be taken in or out of other entrances or elevators of the Property, any item
normally taken, or which Landlord otherwise reasonably requires to be taken, in
or out through service doors or on freight elevators. Tenant shall not allow
anything to remain in or obstruct in any way, any lobby, corridor, sidewalk,
passageway, entrance, exit, hall, stairway, shipping area, or other such area.
Tenant shall move all supplies, furniture and equipment as soon as received
directly to the Premises, and shall move all such items and waste (other than
waste customarily removed by Property employees) that are at any time being
taken from the Premises directly to the areas designated for disposal. Any
hand-carts used at the Property shall have rubber wheels.
(6) Tenant shall not overload any floor or part thereof in the
Premises, or Property, including any public corridors or elevators therein
bringing in or removing any large or heavy articles, and Landlord may direct and
control the location of safes, and all other heavy articles and require
supplementary supports at Tenant's expense of such material and dimensions as
Landlord may deem necessary to properly distribute the weight.
(7) Tenant shall not attach or permit to be attached additional locks
or similar devices to any door or window, change existing locks or the mechanism
thereof, or make or permit to be made any keys for any door other than those
provided by Landlord. If more than two keys for one lock are desired, Landlord
will provide them upon payment therefor by Tenant. Tenant, upon termination of
its tenancy, shall deliver to the Landlord all keys of offices, rooms and toilet
rooms which have been furnished Tenant or which the Tenant shall have had made,
and in the event of loss of any keys so furnished shall pay Landlord therefor.
(8) If Tenant desires signal, communication, alarm or other utility or
similar service connections installed or changed, Tenant shall not install or
change the same without the prior approval of Landlord, and then only under
Landlord's direction at Tenant's expense. Tenant shall not install in the
Premises any equipment which requires more electric current than Landlord is
required to provide under this Lease, without Landlord's prior approval, and
Tenant shall ascertain from Landlord the maximum amount of load or demand for or
use of electrical current which can safely be permitted in the Premises, taking
into account the capacity of electric wiring in the Property and the Premises
and the needs of tenants of the Property, and shall not in any event connect a
greater load than such safety capacity.
(9) Tenant shall not obtain for use upon the Premises ice, drinking
water, towel, janitor and other similar services, except from Persons approved
by the Landlord. Any Person engaged by Tenant to provide janitor or other
services shall be subject to direction by the manager or security personnel of
the Property.
(10) The toilet rooms, urinals, wash bowls and other such apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of
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any kind whatsoever shall be thrown therein and the expense of any breakage,
stoppage or damage resulting from the violation of this Rule shall be borne by
the Tenant who, or whose employees or invitees shall have caused it.
(11) The janitorial closets, utility closets, telephone closets, broom
closets, electrical closets, storage closets, and other such closets, rooms and
areas shall be used only for the purposes and in the manner designated by
Landlord, and may not be used by tenants, or their contractors, agents,
employees, or other parties without Landlord's prior written consent.
(12) Landlord reserves the right to exclude or expel from the Property
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of these Rules. Tenant shall not at any time manufacture, sell use or
give away, any spirituous, fermented, intoxicating or alcoholic liquors on the
Premises, nor permit any of the same to occur (except in connection with
occasional social or business events conducted in the Premises which do not
violate any Laws nor bother or annoy any other tenants). Tenant shall not at any
time sell, purchase or give away, foods in any form by or to any of Tenant's
agents or employees or any other parties on the Premises, nor permit any of the
same to occur (other than in lunch rooms or kitchens for employees as may be
permitted or installed by Landlord, which does not violate any Laws or bother or
annoy any other tenant).
(13) Tenant shall not make any room-to-room canvass to solicit business
or information or to distribute any article or material to or from other tenants
or occupants of the Property and shall not exhibit, sell or offer to sell, use,
rent or exchange any products or services in or from the Premises unless
ordinarily embraced within the Tenant's use of the Premises specified in the
Lease.
(14) Tenant shall not waste electricity, water, heat or air
conditioning or other utilities or services, and agrees to cooperate fully with
Landlord to assure the most effective and energy efficient operation of the
Property and shall not allow the adjustment (except by Landlord's authorized
Property personnel) of any controls. Tenant shall keep corridor doors closed and
shall not open any windows, except that if the air circulation shall not be in
operation, windows which are openable may be opened with Landlord's consent. As
a condition to claiming any deficiency in the air conditioning or ventilation
services provided by Landlord, Tenant shall close any blinds or drapes in the
Premises to prevent or minimize direct sunlight.
(15) Tenant shall conduct no auction, fire or "going out of business
sale" or bankruptcy sale in or from the Premises, and such prohibition shall
apply to Tenant's creditors.
(16) Tenant shall cooperate and comply with any reasonable safety or
security programs, including fire drills and air raid drills, and the
appointment of "fire wardens" developed by Landlord for the Property, or
required by Law. Before leaving the Premises unattended, Tenant shall close and
securely lock all doors or other means of entry to the Premiss and shut off all
lights and water faucets in the Premises (except heat to the extent necessary to
prevent the freezing or bursting of pipes).
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(17) Tenant will comply with all municipal, county, state, federal or
other government laws, statutes, codes, regulations and other requirements,
including without limitation, environmental, health, safety and police
requirements and regulations respecting the Premises, now or hereinafter in
force, at its sole cost, and will not use the Premises for any immoral purposes.
(18) Tenant shall not (i) carry on any business, activity or service
except those ordinarily embraced within the permitted use of the Premises
specified in the Lease and more particularly, but without limiting the
generality of the foregoing, shall not (ii) install or operate any internal
combustion engine, boiler, machinery, refrigerating, heating or air conditioning
equipment in or about the Premises, (iii) use the Premises for housing, lodging
or sleeping purposes or for the washing of clothes, (iv) place any radio or
television antennae other than inside of the Premises, (v) operate or permit to
be operated any musical or sound producing instrument or device which may be
heard outside the Premises, (vi) use any source of power other than electricity,
(vii) operate any electrical or other device from which may emanate electrical
or other waves which may interfere with or impair radio, television, microwave,
or other broadcasting or reception from or in the Property or elsewhere, (viii)
bring or permit any bicycle or other vehicle, or dog (except in the company of a
blind person or except when specifically permitted) or other animal or bird in
the Property, (ix) make or permit objectionable noise or odor to emanate from
the Premises (x) do anything in or about the Premises tending to create or
maintain a nuisance or do any act tending to injure the reputation of the
Property, (xi) throw or permit to be thrown or dropped any article from any
window or other opening in the Property, (xii) use or permit upon the Premises
anything that will invalidate or increase the rate of insurance on any policies
of insurance now or hereafter carried on the Property or violate the
certificates of occupancy issued for the premises or the Property, (xiii) use
the Premises for any purpose, or permit upon the Premises anything, that may be
dangerous to person or property (including but not limited to flammable oils,
fluids, paints, chemicals, firearms or any explosive articles or materials) nor
(xiv) do or permit anything to be done upon the Premises in any way tending to
disturb any other tenant at the Property or the occupants of neighboring
property.
(19) If the Property shall now or hereafter contain a building garage,
parking structure or other parking area or facility, the following Rules shall
apply in such areas or facilities:
(i) Parking shall be available in areas designated generally
for tenant parking, for such daily or monthly charges as
Landlord may establish from time to time, or as may be
provided in any parking Agreement attached hereto (which, when
signed by both parties as provided therein, shall thereupon
become effective). In all cases, parking for Tenant and its
employees and visitors shall be on a "first come, first
served," unassigned basis, with Landlord and other tenants at
the Property, and their employees and visitors, and other
Persons (as defined in Article 26 of the Lease) to whom
Landlord shall grant the right or who shall otherwise have the
right to use the same, all subject to these Rules, as the same
may be amended or supplemented, and applied on a
non-discriminatory basis, as is further described in Article 6
of the lease.
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Notwithstanding the foregoing to the contrary, Landlord
reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, handicapped individuals, and
other tenants, visitors of tenants or other Persons, and
Tenant and its employees and visitors shall not park in any
such assigned or reserved spaces. Landlord may restrict or
prohibit full size vans and other large vehicles.
(ii) In case of any violation of these provisions, Landlord
may refuse to permit the violator to park, and may remove the
vehicle owned or driven by the violator from the Property
without liability whatsoever, at such violator's risk and
expense. Landlord reserves the right to close all or a portion
of the parking areas or facilities in order to make repairs or
performance maintenance services, or to alter, modify,
re-stripe or renovate the same, or if required by casualty,
strike, condemnation, act of God, Law or governmental
requirement, or any other reason beyond Landlord's reasonable
control. In the event access is denied for any reason, any
monthly parking charges shall be abated to the extent access
is denied, as Tenant's sole recourse. Tenant acknowledges that
such parking areas or facilities may be operated by an
independent contractor not affiliated with Landlord, and
Tenant acknowledges that in such event, Landlord shall have no
liability for claims arising through acts or omissions of such
independent contractor, if such contractor is reputable.
(iii) Hours shall be 6 a.m. to 8 p.m., Monday through Friday,
and 10:00 a.m. to 1:00 p.m. on Saturdays, or such other hours
as may be reasonably established by Landlord or its parking
operator from time to time; cars must be parked entirely
within the stall lines, and only small cars may be parked in
areas reserved for small cars; all directional signs and
arrows must be observed; the speed limit shall be 5 miles per
hour; spaces reserved for handicapped parking must be used
only by vehicles properly designated; every parker is required
to park and lock his own car; washing, waxing, cleaning or
servicing of any vehicle is prohibited; parking areas may be
used only for parking automobiles; parking is prohibited in
areas: (a) not striped or designated for parking, (b) aisles,
(c) where "no parking" signs are posted, (d) ramps, and (e)
loading areas and other specially designated areas. Delivery
trucks and vehicles shall use only those areas designated
therefor.
[LANDLORD'S AND TENANT'S INTIALS GO HERE]
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RIDER TWO
OPTION TO EXTEND
Tenant is hereby granted an option to extend the Term for a single
additional period of five (5) consecutive Lease Years ("Extension Period"), on
the same terms and conditions in effect under the Lease immediately prior to the
Extension Period, except that monthly Base Rent shall be increased to the
Prevailing Rental Rate (as defined herein) and the Base Expense Year and Base
Tax Year shall be changed to the calendar year 2004; Tenant shall have no
further option to extend. The option to extend may be exercised only by giving
Landlord irrevocable and unconditional written notice thereof no earlier than
one year and no later than nine months prior to the commencement of the
Extension Period. Said exercise shall, at Landlord's election, be null and void
if (i) Tenant is in Default under the Lease at the date of said notice or (ii)
if PEOPLE PC, INC. is occupying less than seventy-five percent (75 %) of the
Premises. The term "Lease Year" herein means each twelve month annual period,
commencing with the first day of the Extension Period, without regard to
calendar years.
"Prevailing Rental Rate" means the average per square foot rental rate
per month for all renewal leases for renewal periods approximately as long as
the Extension Period, executed by tenants for similar uses and lengths of time
for comparable space in the Building and comparable buildings in the vicinity of
the Building during the six (6) months immediately prior to the date upon which
such Prevailing Rental Rate is to become effective, where such renewal rates
were not fixed in advance by the terms of such leases, subject to reasonable
adjustments for comparable space on more or less desirable floors or areas of
the Property. In all cases, such rates shall be based on the average net
effective rate then being charged for similar spaces and for similar terms by
landlords (after taking into account any "free rent" or periods of reduced rent,
then generally being provided by landlords for, similar deals). Notwithstanding
anything to the contrary herein, for purposes of determining the Prevailing
Rental Rate, Tenant shall not be entitled to any credit on account of any tenant
improvement allowance recoupment component of prevailing rents paid generally by
other tenants.
Landlord agrees to make (or provide an allowance for) certain cosmetic
improvements to the Premises such as painting, recarpeting, patching of walls,
repair of doors, and replacement of ceiling tile, where same is necessary to
generally make the Premises appear in "like new condition." Under no
circumstances will Landlord be required to in any way reconfigure the Premises
or do any other work other than the cosmetic work described above.
If the parties are unable to agree on the Prevailing Rental Rate within
sixty (60) days after the commencement of the Extension Period (the "Outside
Agreement Date"), the Prevailing Rental Rate shall be determined by arbitration
in accordance with Paragraphs (i) to (vii) below.
(i) No later than fifteen (15) days following the Outside
Agreement Date, Landlord and Tenant shall each appoint one
arbitrator who shall by profession be a real estate broker who
shall have been active over the five (5) year period ending on
the date of such appointment in the
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appraisal of office properties in the San Francisco,
California. The determination of the arbitrators shall be
limited solely to the issue of whether Landlord's or Tenant's
submitted Prevailing Rental Rate is the most accurate as
determined by the arbitrators.
(i) The two (2) arbitrators so appointed shall within fifteen (15)
days of the date of the appointment of the last appointed
arbitrator agree upon and appoint a third arbitrator who shall
be qualified under the same criteria set forth hereinabove for
qualification of the initial two (2) arbitrators.
(ii) The three (3) arbitrators shall, within fifteen (15) days of
the appointment of the third arbitrator, reach a decision as
to whether the parties shall use Landlord's or Tenant's
submitted Prevailing Rental Rate, and shall notify Landlord
and Tenant thereof.
(iii) The decision of the majority of the three (3) arbitrators
shall be binding upon Landlord and Tenant.
(iv) If either Landlord or Tenant fails to appoint an arbitrator
within fifteen (15) days after the Outside Agreement Date, the
arbitrator timely appointed by one of the parties shall reach
a decision, notify Landlord and Tenant thereof, and such
arbitrator's decision shall be binding upon Landlord and
Tenant.
(v) If the two (2) arbitrators fail to agree upon and appoint a
third arbitrator, both arbitrators shall be dismissed and the
matter to be decided shall be forthwith submitted to
arbitration under the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Such
determination shall be final and binding upon the parties.
(vi) The cost of arbitration shall be borne by Landlord and Tenant
equally.
In recognition that the Prevailing Rental may not be determined until
after the commencement of the Extension Period, Tenant shall pay, during the
Extension Period until the Prevailing Rental Rate is determined, 110 % of the
amount of Rent then in effect (including Base Rent, and all other charges).
Under no circumstances shall the Rent during the Extension Period ever be less
than 100 % of such amount of Rent then in effect, regardless of the Prevailing
Rental Rate, as determined in accordance with the foregoing provisions. If the
Prevailing Rental Rate is determined to be grater than such amount, Tenant shall
pay Landlord, within thirty (30) days after written request therefor, the
difference between the amount required by such determination of the Prevailing
Rental Rate and the amount of Rent theretofore paid by Tenant during the
Extension Period.
If Tenant shall fail to exercise the option herein provided, said
option shall terminate, and shall be null and void and of no further force and
effect. Tenant's exercise of said option shall not operate to cure any default
by Tenant of any of the terms or provisions in the Lease, nor to extinguish or
impair any rights or remedies of Landlord arising by virtue of such
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default. If the Lease or Tenant's right to possession of the Premises shall
terminate in any manner whatsoever before Tenant shall exercise the option
herein provided, then immediately upon such termination, sublease or assignment,
the option herein granted to extend the Term, shall simultaneously terminate and
become null and void. Such option is personal to Tenant. Under no circumstances
whatsoever shall the assignee under a complete or partial assignment of the
Lease, or a subtenant under a sublease of the Premises, have any right to
exercise the option to extend granted herein. Time is of the essence of this
provision.
[LANDLORD'S AND TENANT'S INTIALS GO HERE]
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RIDER THREE
1. Subject to the terms hereof, the Premises shall include the
non-exclusive right of Tenant to use a certain portion of the space either on
the roof of the Building or such other location as determined by Landlord in
Landlord's sole but good faith discretion (such location is hereinafter referred
to as the "Designated Area"), for the sole use and purpose of installing,
maintaining and operating, at the sole expense and risk of Tenant, an antenna or
earth satellite station (the "Satellite Dish"). In the event that Tenant shall
elect to install the Satellite Dish, Tenant shall give Landlord written notice
thereof, which notice shall be accompanied by a complete set of plans and
specifications (to be prepared by Tenant at its sole cost and expense),
identifying the manner of installation thereof as well as the type of any
equipment, related elements and cabling with size, engineering structure,
broadcast frequencies, operating characteristics and other relevant information,
as requested by Landlord, of the Satellite Dish; no work shall commence until
Landlord has approved in writing all of said plans and specifications and any
such work shall comply with the terms and conditions set forth in Article 10 of
the Lease. Not more than thirty (30) days after receipt of all plans and
specifications required herein, Landlord shall either approve or disapprove
Tenant's request and, in the case of disapproval, set forth its reasons
therefor. Tenant shall pay all engineering fees and other costs incurred by
Landlord in connection with its review of Tenant's plans and specifications. The
area used for the Satellite Dish and the size, configuration and type of
equipment used (including but not limited to any modifications and replacements)
shall be subject to Landlord's approval. Nothing contained herein shall prohibit
Landlord from granting other tenants of the Building the right to place
satellite earth stations, antennas or other telecommunication equipment or
related apparatus in the Designated Area.
2. Tenant shall use the Satellite Dish solely for its own internal,
intra-corporate communications and shall not use Satellite Dish or allow it to
be used by others for any other purpose, including but not limited to commercial
communication transmission or reception, except that Reuters and similar
subscriptions shall be permitted.
3. Tenant shall pay all federal, state and local taxes applicable to
the Satellite Dish. Further, Tenant shall procure, maintain and pay all fees,
permits and governmental agency licenses (including, without limitation, FAA and
FCC approval, if applicable) necessary in connection with the installation,
maintenance and operation of the Satellite Dish. Landlord shall reasonably
cooperate with Tenant, at Tenant's expense, in obtaining all such permits,
licenses and other approvals.
4. All installations required in connection with the Satellite Dish
shall be made by means of conduits, wires or cables which pass through existing
openings in the walls roof decks of the Building if such openings exist, and all
cables and wires located in the Designated Area used in connection with the
Satellite Dish shall be covered by rust-proof conduits and attachments. In no
event shall any of Tenant's installations be
[LANDLORD'S AND TENANT'S INITIALS GO HERE]
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made without the prior written consent of landlord which consent may be withheld
by Landlord in Landlord's sole but good faith discretion. The installation of
the Satellite Dish shall be subject to Landlord's review and approval and shall
conform to the highest engineering standards commonly used for installing
similar earth satellite stations on similar buildings; no part of the Satellite
Dish shall extend beyond the parapet walls of the Building if located on the
roof of the Building. Tenant further agrees that the Satellite Dish and all
other related equipment installed by Tenant shall be painted so as to blend with
the parapet wall. All wiring installed in the Building or used in connection
with the Satellite Dish shall be labeled with information identifying its use,
points of origin and termination, and other information reasonably requested by
Landlord.
5. Notwithstanding anything to the contrary contained in the Lease by
which Landlord may consent to a sublease or assignment by Tenant, the right to
use the Designated Area for the operation of the Satellite Dish is a personal
right granted by Landlord to Tenant and may not be assigned by Tenant to any
successor, sublessee or other assignee other than a transfer to Related Entity
(as described in the Lease).
6. Upon the expiration of the Term of the Lease, or within thirty (30)
days of any earlier termination of the Lease, Tenant shall remove the Satellite
Dish and all wires and cables used in connection with the Satellite Dish, at the
sole expense of Tenant, and shall restore and repair all damage to the
Designated Area and the Building occasioned by the installation, maintenance or
removal of the Satellite dish. If Tenant fails to timely complete such removal,
restoration and repair, all sums incurred by Landlord to complete such work will
be paid by Tenant to Landlord immediately upon demand. Default by Tenant in the
performance of Tenant's obligations hereunder shall be treated in the same
manner as a default by Tenant under the Lease.
7. Landlord makes no representations or warranties whatsoever with
respect to the condition of the Designated Area, or the fitness or suitability
of the Designated Area for the installation, maintenance and operation of the
Satellite Dish, including, without limitation, with respect to the quality and
clarity of any reception or to or from the Satellite Dish and the presence of
any interference with such signals whether emanating from the Building, or
otherwise. The Designated Area is and shall be delivered to Tenant "as-is" with
all flaws and faults and Tenant hereby acknowledges that it has inspected the
Designated Area and agrees to accept the Designated Area in its present
condition.
8. Tenant shall contact the manager of the Building prior to the date
Tenant proposes to make any modification or replacement of the Satellite Dish or
any part thereof in order to make arrangements for the movement of materials
needed in connection therewith. Landlord shall have no obligation to supply
Tenant with any materials or properly whatsoever in connection with adequate
security and maintenance personnel in order to ensure the safe operation of the
Satellite Dish. In addition, Tenant shall install, maintain and operate all of
its equipment used in connection with the Satellite Dish in a fashion and manner
so as not to interfere with use and operation of any: (a) other television or
radio equipment ill the Building; (b) present or future
[LANDLORD'S AND TENANT'S INTIALS GO HERE]
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electronic control system for any of the Building's operating services or the
operation of the elevators in the Building; (c) other transmitting, receiving or
master television, communications or micro-wave antenna currently or hereafter
located in the Building by or on behalf of Landlord; (d) radio communication
system now or hereafter used or desired to be used by Landlord, its agents or
contractors; or (e) any such communications systems, antenna or similar
equipment now used by other tenants of the Building. In the event that Tenant's
Satellite Dish interferes with the use or operation of the communications
systems, antenna or similar equipment hereafter used or desired to be used by
tenants of the Building. Tenant shall comply with standards reasonably imposed
by Landlord affecting similar equipment in the Building and cooperate with
Landlord and such other tenant(s) to eliminate such interference.
Notwithstanding anything in the Rules and Regulations to the contrary, during
the term of the Lease Landlord shall afford Tenant, its employees, agents or
contractors reasonable access to the roof of the Building (if the Designated
Area is on the roof) for purposes of maintaining and repairing the Satellite
Dish; provided, however, that Tenant shall provide at least 24 hours advance
notice of same and Landlord may reasonably specify the time and any conditions
of such access, including but not limited to requiring that any such persons
gaining access to the roof be accompanied by the Building engineer or other
representatives designated by the Landlord.
9. In connection with Tenant's use and maintenance of the Satellite
Dish, Tenant, at its sole cost and expense, shall comply with all present and
future laws, rules, orders, ordinances, regulations, statutes, requirements,
codes and executive orders, extraordinary as well as ordinary, all governmental
authorities now existing or hereafter created and any applicable fire rating
bureau, or other body exercising similar functions, affecting the Building, or
affecting the maintenance, use or occupation of Building, which are applicable
to the Designated Area, or the use thereof. Tenant shall install maintain and
operate all of its equipment used in connection with the Satellite Dish in
compliance with the laws, codes and regulations of all governmental agencies
having jurisdiction over the installation, use and operation of the Satellite
Dish; provided, however, if compliance with such laws, codes and regulations
would require a change in the size, configuration or location of the designated
Area or the Satellite Dish, such changes shall be subject to Landlord's prior
written consent, which consent may be withheld in Landlord's sole but good faith
discretion.
10. Throughout the term of the Lease, Tenant, at Tenant's cost and
expense, shall maintain and take good care of the Designated Area, including the
Satellite Dish, and other fixtures and appurtenances therein, and make all
non-structural repairs thereto as and when needed to preserve them in good
working order and condition; provided, however, if Tenant shares the Designated
Area, the cost of maintenance and repair thereof shall be allocated on a prorata
basis. Notwithstanding the foregoing, all damage or injury to the Designated
Area or any other part of the Building, or to its fixtures, equipment and
appurtenances, whether requiring structural or non-structural repairs, caused by
or resulting from any act, misuse, negligent conduct, or omission of Tenant, or
Tenant's agents, contractors, employees, invitees or licensees, will be repaired
at Tenant's, sole cost and expense by Tenant to Landlord's reasonable
satisfaction (if the repairs
[LANDLORD'S AND TENANT'S INTIALS GO HERE]
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required are non-structural in nature and do not affect any Building system); or
by Landlord at Tenant's expense (if the required repairs are structural in
nature or affect any Building system). Tenant shall also repair all damage to
the Building and the Designated Area caused by the Satellite Dish.
11. If possible, Tenant shall pay directly to the utility company or
the governmental authority providing utilities all charges for electricity and
other sources of energy consumed in connection with the Satellite Dish and
Landlord shall have no obligation to provide any services to the Designated
Area. If such electricity and other sources of energy cannot be provided
directly to Tenant, Tenant shall reimburse Landlord for all utility and
electricity charges incurred by Landlord which are attributable to Tenant's use
and operation of the Satellite Dish.
12. To the fullest extent permitted by law, Tenant shall indemnify and
hold Landlord and Landlord's agents, owner's, employees and representatives
harmless from and against all claims, damages, losses and expenses, including,
without limitation, attorneys' fees, directly or indirectly arising out of or
resulting from Tenant's use of the Satellite Dish or the Designated Area,
including, without limitation, all claims, damages, losses or expenses which may
be: (a) attributable to bodily injury, sickness, disease or death or to injury
to or destruction of tangible property, including the loss of use therefrom; and
(b) which may be caused in whole or in part by any fault or act or omission by
Tenant or anyone employed by Tenant, or anyone for whose acts Tenant may by
liable, or anyone acting on Tenant's behalf, except to the extent such bodily
injury, sickness, disease or death or injury to or destruction of property is
caused by Landlord's gross negligence or willful misconduct. The indemnity
provisions of this paragraph are cumulative and in addition to any similar or
related requirements or obligations of Tenant under the Lease, and shall survive
the termination of the Lease.
13. Landlord shall not be liable for any failure to provide access to
the Designated Area, to assure the beneficial use of the Designated Area or to
furnish any services or utilities required when such failure is caused by
natural occurrences, riots, civil disturbances, insurrection, war, court order,
public enemy, accidents, breakages, repairs, strike, lockouts or other labor
disputes, the making of repairs, alterations or improvements to the Designated
Area or the Building, the inability to obtain an adequate supply of fuel, gas.
steam, water, electricity, labor or other supplies or by any other condition
beyond Landlord's reasonable control, and Tenant shall not be entitled to any
damages resulting from such failure, nor shall such failure relieve Tenant of
the obligation to pay all sums due hereunder or under the Lease or constitute or
be construed as a constructive or other eviction of Tenant.
14. In addition to any other rights or remedies to which Landlord may
be entitled at law or in equity, if Tenant fails to perform any of the Tenant's
obligations contained in this Rider, and does not cure such failure within
thirty (30) days following written notice thereof, Landlord shall have the right
to (i) pursue any remedies Landlord may have in the Lease, and/or (ii) revoke
Tenant's right to use to Designated Area and install, maintain or operate a
Satellite Dish upon five (5) days written notice
[LANDLORD'S AND TENANT'S INITIALS GO HERE]
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15. Upon not less than ten (10) days written notice, Landlord shall
have the right to require Tenant to relocate the Satellite Dish to such other
suitable space in the Building as Landlord shall reasonably designate. Such
relocation of the Satellite Dash shall be at Tenant's sole cost and expense and
shall otherwise be subject to the terms and conditions contained herein;
provided, however, Landlord shall be responsible for the costs and expense of
relocating the Satellite Dish after (and if) Landlord relocates it more than
twice during the Lease Term. Upon such relocation of the Satellite Disk, the
Designated Area shall be deemed to be such portion of the Building or other
location determined by Landlord, as the Satellite Dish is then located as
designated by Landlord.
[LANDLORD'S AND TENANT'S INITIALS GO HERE]
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EXHIBIT 10.7
FIRST AMENDMENT TO OFFICE LEASE
THIS FIRST AMENDMENT TO OFFICE LEASE ("First Amendment") is made and
entered into this 14th day of January, 2000 by and between PINE STREET INVESTORS
I, L.L.C., a Delaware limited liability company ("Landlord"), and PEOPLEPC INC.,
a Delaware corporation ("Tenant").
RECITALS
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A. On June 3, 1999, Landlord and Tenant entered into that certain
Office Lease under which Landlord leased to Tenant, and Tenant leased from
Landlord, certain premises comprising the 11th floor of the building (the
"existing Premises") located at 100 Pine Street, San Francisco, California (the
"Building"). The Office Lease is referred to herein as the "Lease."
B. Tenant desires to lease additional office space on the 10th floor
of the Building to increase its existing Premises and Landlord desires to lease
such space to Tenant on the terms and conditions set forth herein.
C. Any terms set forth in this Agreement which are not expressly
defined shall have the meanings ascribed to them in the Lease.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Landlord and Tenant hereby agree as follows:
AGREEMENT
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1. ADDITIONAL LEASED SPACE. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord, in addition to the existing Premises, 13,285 rentable
square feet of space comprising the tenth (10th) floor of the Building (Suite
1000), as identified on Exhibit A attached hereto and made a part hereof (the
"Additional Leased Space"). The parties acknowledge and agree that as of the
Commencement Date (defined in Paragraph 2 below): (i) the existing Premises and
the Additional Leased Space shall be collectively referred to herein and for
purposes of the Lease, as amended hereby, as the "Premises," and (ii) the total
rentable area comprising the Premises shall be equal to 26,570 square feet.
<PAGE>
2. Term.
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(a) The lease Term for the Additional Leased Space shall commence on
February 15, 2000 (the "Commencement Date"), and, unless sooner terminated as
provided herein or in the Lease, shall expire on February 14, 2005. Said
Commencement Date may be postponed as set forth in Paragraph 2(d) of this First
Amendment. The Term may be extended upon the terms and conditions set forth in
Rider Two to the Lease.
(b) The "Expiration Date" applicable to the existing Premises is hereby
amended to be February 14, 2005.
(c) If Landlord fails to deliver possession of the Additional Leased
Space within five (5) business days following the execution and delivery of this
First Amendment by Landlord and Tenant, the Commencement Date shall be delayed
for each day beyond said five (5) day period until Landlord delivers possession
of the Additional Leased Space. If Landlord, for any reason whatsoever, cannot
deliver possession of the Additional Leased Space to Tenant by the Commencement
Date, this Amendment and the Lease shall not be void or voidable, the term of
the Lease shall not be extended by such delay, the terms and conditions of the
Lease applicable to the existing Premises shall in no way be affected thereby,
and the Landlord shall not be liable to Tenant for any loss or damage resulting
therefrom; provided, however, if Landlord is unable, for any reason except to
the extent caused by Tenant, its contractors, agents or employees, to deliver
possession of the Additional Leased Space to Tenant within one hundred twenty
(120) days following execution and delivery of this First Amendment by both
Landlord and Tenant, Tenant shall, as its sole remedy, have the right to
terminate the Lease as to the Additional Leased Space only by delivering written
notice to Landlord any time thereafter until Landlord delivers possession of the
Premises to Tenant. Upon such termination, Landlord and Tenant shall be relieved
of their obligations hereunder and under the Lease as it applies to the
Additional Leased Space, and any Security Deposit and prepaid Base Rent paid
hereunder attributable to the Additional Leased Space shall be returned to
Tenant.
(d) Article 2(D) of the Lease is hereby deleted in its entirety and
replaced with the following:
"Subject to the terms set forth in this Paragraph, Tenant shall have the right
to terminate and cancel the Lease and the First Amendment as to either the
existing Premises or the Additional Leased Space (the "Terminated Space")
effective as of the expiration of thirty (30) full calendar months following the
Commencement Date applicable to the Additional Leased Space (the "Termination
Date") by delivering to Landlord written notice thereof at least six (6) months
prior to the Termination Date (the "Termination Option"). As a condition to the
effectiveness of Tenant's exercise of its Termination Option, and in addition to
Tenant's obligation to satisfy all other monetary and nonmonetary obligations as
to the Terminated Space under the Lease and the First Amendment through the
Termination Date, Tenant shall, thirty (30) days prior to the Termination Date,
pay Landlord a sum equal to: (i) four months Base Rent applicable to
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<PAGE>
the Terminated Space (which, if the Terminated Space is the existing Premises,
shall be equal to the average Base Rent payable by Tenant over the Lease Term),
plus (ii) fifty percent (50.0%) of any other direct out of pocket costs of
Landlord incurred in connection with the leasing of the Terminated Space to
Tenant hereunder and under the Lease, including, without limitation, leasing
commissions paid by Landlord in connection with the execution of the First
Amendment and the Lease and any improvement allowance provided to Tenant by
Landlord for the Terminated Space, the exact sum of which Landlord agrees to
identify to Tenant prior to Tenant's payment thereof; said sum, as applicable,
shall be referred to herein collectively as the "Termination Consideration".
Tenant may not exercise the Termination Option if Tenant is in Default (as
defined in Article 20(A)) under the First Amendment or the Lease. The
Termination Option is personal to Tenant hereunder and may not be exercised by
or assigned, voluntarily or involuntarily, to any person or entity other than a
Related Entity (as defined in Article 17(G)) or a permitted assignee of Tenant's
interest in this Lease which assignee is a successor to Tenant either by merger
or consolidation or a purchaser of all or substantially all of Tenant's assets
(provided such purchaser shall have also assumed in writing Tenant's obligations
under this Lease). Tenant may only exercise the Termination Option with respect
to all (not a portion) of either the existing Premises or the Additional Leased
Space, and Tenant may not exercise the Termination Option as to both the
existing Premises and the Additional Leased Space. If Tenant properly and in a
timely manner exercises ,its Termination Option and properly and in a timely
manner delivers the Termination Consideration to Landlord and satisfies all
other monetary and non-monetary obligations under this Lease, including, without
limitation, the provisions related to surrender of the Premises as to the
Terminated Space, all of which shall be accomplished on or before the
Termination Date, then the Lease and, to the extent applicable, the First
Amendment shall terminate as of midnight on the Termination Date as to the
Terminated Space. Landlord agrees to notify Tenant of any attempted exercise of
the Termination Option which does not satisfy the foregoing terms and
conditions, identifying the deficiencies of such exercise; if Tenant does not
cure all of such deficiencies within five (5) days following Landlord's notice
thereof or if the deficiency is non-curable, Tenant's exercise of the
Termination Option shall be null and void, and the Lease and the First Amendment
shall continue in full force and effect in accordance with its terms.
3. Rent.
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(a) Base Rent. Tenant shall pay Landlord as Base Rent for the Additional
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Leased Space the sum of $46.00 per rentable square foot of the Additional Leased
Space per year, which shall be equal to an annual Base Rent of $611,110.00 and a
monthly Base
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Rent of $50,925.83. Said Base Rent shall be payable commencing as of the
Commencement Date applicable to the Additional Leased Space, except that Base
Rent for the first full calendar month for which said Base Rent shall be due,
shall be paid when Tenant executes this First Amendment. Said Base Rent shall be
in addition to the Base Rent payable for the existing Premises under Article 3
of the Lease. Any Base Rent shall be paid in advance, on or before the first day
of each calendar month during the Lease Term. If the Commencement Date
applicable to the Additional Leased Space is on a day other than the first day
of a calendar month, Base Rent for the Additional Leased Space shall be prorated
for such month.
(b) Operating Expenses. The parties acknowledge and agree that Tenant's
------------------
Prorata Share of Taxes and Operating Expenses attributable to the Additional
Leased Space is 3.3003%. The Base Tax Year and Base Expense Year applicable to
the Additional Leased Space shall be the calendar year 2000. As of the
Commencement Date applicable to the Additional Leased Space, Tenant's Prorata
Share of Taxes and Operating Expenses (as defined in Article 26(0) of the Lease)
shall be increased to 6.601% to take into account the Additional Leased Space.
4. Condition of Additional Leased Space.
------------------------------------
(a) Tenant acknowledges and agrees that, notwithstanding anything to
the contrary in Article 6 of the Lease, it is leasing the Additional Leased
Space in its present and "as is" condition, and that Landlord is not responsible
for making any repairs or improvements thereto except that Landlord agrees to
provide the Allowance as set forth in Paragraph 4(b) of this First Amendment.
Tenant further acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty with respect to the Additional Leased Space,
the Building, the Building Systems or Tenant's business.
(b) Landlord shall provide to Tenant an improvement allowance in an amount
equal to One Hundred Thirty-Two Thousand Eight Hundred Fifty Dollars
($132,850.00) ("Allowance"), to reimburse Tenant for actual costs incurred by it
in connection with the refurbishment, repair, improvement and/or alteration of
the Premises, and/or the installation of Lines (as defined in the Lease) within
the Premises. Any repairs, refurbishment, improvements or alterations and
installation of Lines shall be completed by Tenant at its own expense, and
subject to the provisions of Articles 10 and 29 the Lease. The Allowance, or any
portion thereof, shall be payable by Landlord as the work progresses within
thirty (30) days following receipt of Tenant's disbursement requests against
such allowance as set forth herein. Such requests shall include the following
items, to the extent applicable to the items for which the Allowance
disbursement is being requested: (i) proper receipts for said repairs,
refurbishment, improvements or alterations, or any portions thereof, (ii) a
certification from the contractor performing said work that the sums billed
reflect work actually performed, (iii) executed conditional mechanic's and
materialman's lien releases, in the statutory form, from all parties being paid
from such disbursement, (iv) such other information or documentation as Landlord
may reasonably request. Five (5) months following the Commencement Date, any
unused portion of the Allowance will be used as a credit toward Base Rent
payable under the Lease as amended hereby.
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5. Security Deposit. Upon Tenant's execution and delivery of this First
-----------------
Amendment, Tenant shall deposit with Landlord $50,925.83 ("Cash Deposit"). In
addition, Tenant shall deliver and cause to be in effect upon the execution of
this First Amendment, during the Lease Term, and for a period sixty (60) days
thereafter, an unconditional, irrevocable letter of credit in the amount of
$509,258.30 in favor of Landlord ("Letter of Credit"). The Cash Deposit and the
Letter of Credit shall be referred to collectively herein as the "Additional
Security Deposit". The Additional Security Deposit and the Security Deposit
provided by Tenant under the Lease shall serve as security for the prompt, full
and faithful performance by Tenant of the terms and provisions of the Lease, as
amended hereunder. In accordance with the terms hereof, Tenant shall deliver the
Letter of Credit to Landlord upon the execution of this First Amendment. Such
Letter of Credit shall be in a form reasonably acceptable to Landlord and issued
by a bank selected by Tenant and reasonably acceptable to Landlord. Without
limiting the generality of the foregoing, any bank issuing the Letter of Credit
shall be a bank that accepts deposits, maintains accounts, has a local San
Francisco office that will negotiate a letter of credit, and the deposits of
which are insured by the Federal Deposit Insurance Corporation. The Letter of
Credit shall provide that the issuing bank shall deliver to Landlord at least
sixty (60) days prior written notice of the termination or expiration of any
such Letter of Credit. Tenant shall pay all expenses, points, or fees incurred
by Tenant in obtaining and maintaining the Letter of Credit. The Additional
Security Deposit and the initial Security Deposit shall be held by Landlord as
security for the prompt, full and faithful performance by Tenant of all of the
terms, covenants and conditions of the Lease and this First Amendment, and for
reimbursement of Landlord of certain expenses incurred by Landlord in connection
with the execution of the Lease and this First Amendment. Without limiting the
generality of the foregoing or anything in the Lease, Tenant acknowledges and
agrees that the Additional Security Deposit may be applied by Landlord, upon the
occurrence of a Default (including, without limitation, termination of the Lease
following a Default) to reimburse Landlord for the (i) unamortized cost of
leasing commissions payable by Landlord in connection with this First Amendment,
and (ii) the unamortized cost of Landlords Allowance (collectively, the
"Reimbursable Expenses"). Tenant agrees, upon termination of the Lease (except
under Article 2(D) of the Lease, as revised hereunder) or upon Tenant's Default,
that Landlord shall have the right to draw upon the Cash Deposit and/or the
Letter of Credit, and apply the proceeds thereof to reimburse Landlord for any
unperformed Lease obligations and any Reimbursable Expenses. In addition, upon
the occurrence of a Default under the Lease, Landlord, in its sole and absolute
discretion, shall have the right to draw upon the Cash Deposit and/or Letter of
Credit and apply the proceeds to satisfy Tenant's outstanding obligations under
the Lease. The use or application of the Additional Security Deposit or any
portion thereof shall not prevent Landlord from exercising any other right or
remedy provided hereunder or under any Law and shall not be construed as
liquidated damages. If Landlord uses or applies any portion of the Letter of
Credit, Tenant shall, within ten (10) business days after demand, (a) deposit
cash (which shall constitute an additional Security Deposit) with Landlord in an
amount that, when added to the amount remaining under the Letter of Credit,
equals $509,258.30, or (b) deliver written documentation executed by the bank
issuing the Letter of Credit that confirms that the Letter of Credit
5
<PAGE>
has been reinstated or a new or additional Letter of Credit issued in such full
amount, and Tenant's failure to do so shall be deemed a material breach and
"Default" under the Lease. If Landlord uses or applies any portion of the Cash
Deposit, Tenant shall, within ten (10) business days after demand, deposit cash
with Landlord in an amount that when added to the amount remaining under the
Cash Deposit equals $50,925.83. Upon sixty (60) days following expiration of the
Term of the Lease and the vacation of the Premises by Tenant, other than when a
Default has occurred, Landlord shall: (i) release the Letter of Credit and
Tenant's obligation to provide the Letter of Credit shall cease and (ii) return
the Cash Deposit (without interest) to Tenant. In addition, if and only if
Tenant has not been in Default under the Lease, and if Tenant has not been
notified by Landlord that it is in default under the Lease immediately prior to
the applicable period, upon Tenant's written request, Landlord agrees to review
Tenant's then current financial condition at the expiration of twenty-four (24)
months following the Commencement Date for the Additional Leased Space and, if
applicable, following the end of each twelve (12) month period thereafter, for
purposes of determining whether the Letter of Credit should remain in place,
which determination shall be made by Landlord in its sole and absolute
discretion; Tenant agrees to provide Landlord with such information as to
Tenant's financial condition as Landlord may request from time to time. Nothing
is this Paragraph shall affect or limit Landlord's right under Paragraph 36 of
the Lease.
6. Assignment and Subletting.
-------------------------
(a) The fourth sentence of Article 17(A) of the Lease is hereby deleted in
its entirety and replaced with the following:
"In addition to the other requirements hereunder, if the Subject Space
comprises twenty percent (20%) or more of each full floor of the Premises, the
Subject Space must be separately demiseable with appropriate means of ingress
and egress suitable for normal renting purposes; provided, however, such
condition shall not apply or be the sole basis for Landlord withholding its
consent to any Transfer if Landlord does not exercise its right to recapture or
sublease the Subject Space as provided herein."
(b) The last sentence of Article 17(C) of the Lease is hereby deleted in
its entirety and replaced with the following:
"Notwithstanding the foregoing rights of Landlord, Landlord's right to recapture
or sublease the Subject Space as set forth in this Paragraph shall not apply to
a proposed sublease of the Premises where: (i) the aggregate space sublet and/or
proposed to be sublet by Tenant (including the Subject Space and any common area
square footage allocated or proposed to be allocated to any Transferees) is
equal to less than twenty percent (20%) of each floor of the Premises (or 40% of
the entire Premises as long as the Premises comprises two floors), or (ii) the
term of the proposed sublease is equal to or less than eighteen (18) months, the
aggregate space sublet and/or proposed to be sublet by Tenant (including the
Subject Space and any common area square footage allocated or proposed to be
allocated to any Transferees) is less than 6,000 rentable square feet per floor
of the Premises, the proposed Transferee is an affiliate (as such term is
defined in the California Corporations Code) of Tenant, or an affiliate of any
members of the board
6
<PAGE>
of directors or of a founder of Tenant, and such proposed Transferee engages in
a technology, media or internet related business or is an internet related
venture capital firm, or (iii) the sublease or assignment does not require
Landlord's consent as expressly set forth in Article 17(G). "
7. Terms and Conditions.
--------------------
(a) Except as expressly set forth herein, the terms and conditions of the
Lease shall apply to the Additional Leased Space and are hereby incorporated
herein. The Lease shall not otherwise be affected by the Amendment.
(b) Tenant hereby acknowledges that, as of the date of this Amendment,
there are no existing defaults by Landlord in the performance of its obligations
under the Lease, nor to the best of Tenant's knowledge are there now any facts
or conditions which, with notice or lapse of time or both, will become such a
default, and there is no offset, defense, counterclaim or credit against any
rental or other payment due under the Lease.
8. Brokers. The parties acknowledge that they have dealt only with CUSHMAN &
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WAKEFIELD OF CALIFORNIA, INC. and Landlord's Building representative broker
(whose commission, if any, shall be paid by Landlord pursuant to separate
agreement) as broker, agent or finder in connection with the Additional Leased
Space. The parties agree to indemnify and hold each other harmless from all
damages, judgments, liabilities and expenses (including reasonable attorney's
fees) arising from any claims or demands of any other broker, agent or finder
not disclosed herein with whom the indemnifying party (Landlord or Tenant, as
the case may be) has dealt or claimed to have dealt for any commission or fee
alleged to be due in connection with its participation in the procurement of
Tenant or the negotiations with Tenant concerning the Additional Leased Space or
execution of this First Amendment to Office Lease.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Office Lease as of the date first above written.
LANDLORD:
PINE STREET INVESTORS I, L.L.C.
a Delaware limited liability company
By: Walton Street Real Estate Fund I, L.P.,
a Delaware limited partnership,
Managing Partner
By: Walton Street Managers I, L.P.,
a Delaware limited partnership,
General Partner
By: WSC Managers I, Inc.,
a Delaware corporation,
General Partner
By: /s/ HOWARD BRODY
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Name: Howard Brody
Title: Vice President
TENANT:
PEOPLEPC INC.,
a Delaware corporation
By: /s/ MARY E. HUMISTON
--------------------
Name: Mary E. Humiston
Title: VP HR & Administration
8
<PAGE>
[100 PINE STREET LOGO APPEARS HERE]
LEASE EXHIBIT
TENTH FLOOR
SUITE 1000
[TENTH FLOOR, SUITE 1000 MAP APPEARS HERE]
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated April 5, 2000 relating to the financial statements of
PeoplePC, Inc., which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PricewaterhouseCoopers LLP
San Francisco, California
April 5, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-02-1999
<PERIOD-END> DEC-31-1999
<CASH> 36,108
<SECURITIES> 15,750
<RECEIVABLES> 311
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,235
<PP&E> 340
<DEPRECIATION> 40
<TOTAL-ASSETS> 52,870
<CURRENT-LIABILITIES> 39,611
<BONDS> 0
0
67,939
<COMMON> 3
<OTHER-SE> 61,263
<TOTAL-LIABILITY-AND-EQUITY> 52,870
<SALES> 4,717
<TOTAL-REVENUES> 4,717
<CGS> 6,396
<TOTAL-COSTS> 6,396
<OTHER-EXPENSES> 63,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (405)
<INCOME-PRETAX> (64,339)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64,339)
<EPS-BASIC> 2.00
<EPS-DILUTED> 2.00
</TABLE>
